On Aug 1, we issued an updated research report on steel maker
). While the company's strategic investments in a slew of projects
coupled with its efforts to expand capacity should support results
moving ahead, challenging steel market fundamentals continue to
weigh on its prospects.
Nucor, on Jul 24, posted healthy second-quarter 2014 results. Both
revenues and earnings for the quarter topped Zacks Consensus
Estimates. Profit was driven by improved performance of the
company's steel mills business.
Nucor expects improved earnings on a sequential basis in the third
quarter. The company anticipates higher operating profits in its
downstream products businesses in the quarter.
Nucor is progressing well with its key projects that are expected
to boost its earnings power over the long-term. The Louisiana
direct reduced iron (DRI) facility, its largest project, came
online in Dec 2013. The $750 million plant is expected to produce
2.5 million tons of DRI annually when the operations are in full
In addition, the Nucor-Yamato structural mill recently completed a
roughly $115 million project, offering expanded sheet piling
production capabilities. Nucor is also aggressively investing to
secure a low-cost supply of natural gas on a long-term basis to
cover its expected future steelmaking and DRI production needs.
Expanded DRI capacity combined with the company's natural gas
investments will enable it to grow in sheet and SBQ (special bar
Moreover, Nucor is seeing strength across end markets such as
automotive, energy, heavy equipment and general manufacturing.
Demand across these end-markets is healthy, lending support to the
company's top line.
However, the steel industry is still going through a difficult
phase and market fundamentals remains challenging in the U.S. While
non-residential construction activities are improving, the market
remains way below its peak levels.
There is not enough demand for steel products due to persistent
weakness in construction end markets, resulting in excess supply.
Contributing toward this inventory glut are production ramp-ups by
domestic steel producers and rapid growth in Chinese production.
Nucor, like other steel makers, remains plagued by surging domestic
steel imports. Consumers in the U.S. are importing cheaper steel
from China, forcing domestic steel producers to sell at lower
prices. Despite the U.S. steel industry's low capacity utilization,
imports continue to flow into the domestic market due to foreign
Other Stocks to Consider
Other companies in the steel industry with a favorable Zacks Rank
include Grupo Simec S.A.B. de C.V. (
), United States Steel Corp. (
) and Olympic Steel Inc. (
). While Grupo Simec carries a Zacks Rank #1 (Strong Buy), both
United States Steel and Olympic Steel hold a Zacks Rank #2
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