Navigating Lower Steel Prices: Nucor's Strategic Share Repurchase Moves

Current trends in steel prices

Current trends in steel prices indicate a decline in average selling prices across the industry, with Nucor reporting decreased prices in their steel products segment. However, prices remain above pre-pandemic levels, suggesting a resilient market despite recent moderation.

"Average selling prices decreased across most businesses within the steel products segment in the first quarter of 2024 as compared to the first quarter of 2023." --- (NUE, sec filing, 2023/Q2)

"unknown: Thank you, Lorenzo for the details. And look, not necessarily related to or strictly related to the announcement today, but you did mention that the average cost of U. S. Steel or North American steel producers is $50,000,000 And so it didn't escape to me that the current HRC prices is at that level or below." --- (CLF, event transcript, 2024/07/15)

"The U. S. Steel Europe segment results were favorably impacted primarily by higher average selling prices compared to the fourth quarter 2023." --- (X, sec filing, 2024/Q1)

"Our steel fabrication segment achieved strong operating income of $178 million in the first quarter, lower than sequential fourth quarter results due to weather impacted in seasonal and lower shipments and metal spread compression as realized pricing declined and steel raw material input costs increased." --- (STLD, earning call, 2024/Q1)

"For steel products, realized prices continue to moderate. However, prices have held consistently above pre-pandemic levels and will continue to generate robust returns." --- (NUE, earning call, 2024/Q1)

Nucor's financial health and share repurchase rationale

Nucor's financial health is reflected in its strategic share repurchase approach, balancing reduced distributions to noncontrolling interests and a significant drop in earnings. Despite a cautious start in Q1, the company remains committed to opportunistic repurchases, emphasizing long-term shareholder returns.

"Partially offsetting the increase in stock repurchases was the $73.6 million decrease in distributions to noncontrolling interests in the first six months of 2024 as compared to the first six months of 2023." --- (NUE, sec filing, 2024/Q2)

"So we just -- we're not in the market for repurchases in Q1, but we will continue to opportunistically repurchase our shares." --- (RS, earning call, 2024/Q1)

"Nucor reported net earnings attributable to Nucor stockholders of $1.49 billion, or $6.14 per diluted share, in the first six months of 2024, as compared to net earnings attributable to Nucor stockholders of $2.60 billion, or $10.26 per diluted share, in the first six months of 2023." --- (NUE, sec filing, 2023/Q3)

"So Q3 is going to have the benefit of all Q2 share repurchases and then anything that was purchased in July, that will be weighted." --- (RS, earning call, 2024/Q2)

"But again, you've watched our company long enough to know our return metrics, how we think about rewarding our shareholders and share repurchases, and you can expect that mindset and focus will continue well into the future." --- (NUE, earning call, 2024/Q1)

Peer comparison of share repurchase strategies

Cleveland-Cliffs has actively engaged in share repurchase programs, buying back 37.9 million shares for $733 million in Q2 2024 and 30.4 million shares for $608 million in Q1 2024. This strategic focus on repurchases underscores their commitment to returning capital to shareholders, positioning them competitively within the steel industry.

"• Additionally, during the six months ended June 30, 2024, we returned capital to shareholders through our share repurchase programs, repurchasing 37.9 million common shares at a cost of $733 million in the aggregate." --- (CLF, sec filing, 2024/Q2)

"• Additionally, we returned capital to shareholders through our share repurchase program, repurchasing 30.4 million common shares at a cost of $608 million in the aggregate." --- (CLF, sec filing, 2024/Q1)

"From our side, Cliffs has several other opportunities with or without M&A. The most relevant example of that right now is our share repurchases." --- (CLF, earning call, 2024/Q1)

Market sentiment on Nucor's strategy

Market sentiment on Nucor's strategy is largely positive, as the company emphasizes long-term investments, strategic acquisitions, and the integration of automation and AI to enhance efficiency. Their proactive approach to controlling raw material inputs and evaluating partnerships further reinforces confidence in their ability to navigate lower steel prices effectively.

"It's a huge, huge appetite. So you're going to see Nucor continue to look for opportunities to promote, invest in or otherwise position ourselves for the long-term. So that not only do we get surety of supply at the right cost and again, many of our contracts are long-term pricing." --- (NUE, earning call, 2024/Q2)

"This acquisition will give us new capabilities to serve a rapidly growing market and will bolster Nucor as a preferred supplier to many of the nation's largest and most innovative hyperscale cloud and colocation data center operators," --- (NUE, press release, 2024/04/01)

"So again, as Nucor continues to evaluate that we make no mistake, we've got some great partners. We've got some great relationships with those that are currently making it, around the world that we'll continue to evaluate that, and see if that fits where we want to go." --- (NUE, earning call, 2024/Q2)

"Again, back to the import question. But regarding automation, regarding AI, it's something that I would tell you Nucor has embraced and embracing, and the changes are coming at an incredible rate of speed. And so, we're seeing the potential applications of AI and automation in a whole raft of different areas of our businesses, technologies that we're using to deploy to create safer outcomes from our team members, to create cost advantages, to create efficiencies." --- (NUE, earning call, 2024/Q2)

"But I would tell you broadly for the last 25 years, Nucor has taken a very, very deliberate focus on controlling our raw material inputs across the spectrum." --- (NUE, earning call, 2024/Q2)

Future outlook for steel prices and Nucor

The future outlook for steel prices remains cautious, with expectations of lower average selling prices impacting Nucor's earnings. Market participants are likely to destock amid negative price momentum, while specific assets may benefit from manufacturing trends and infrastructure investments, suggesting a mixed landscape ahead for Nucor.

"So, often what we see is that when steel prices have negative momentum, where possible market participants will be destocking, they'll be sitting on their hands taking a wait and see attitude." --- (MT, earning call, 2024/Q2)

"Given our outlook for prime scrap pricing and the benefits we will see from the wave of manufacturing on shoring, the enforcement of our trade laws and the ongoing massive deployment of new capital in infrastructure, we expect assets like Lake Erie and Hamilton to outperform in the years to come." --- (CLF, event transcript, 2024/07/15)

"We expect earnings in the steel products segment to decrease in the third quarter of 2024 as compared to the second quarter of 2024 due to lower average selling prices." --- (NUE, press release, 2024/07/22)

"Tom Zhang : Just two for me. The first one, you know, you talked a little bit about how unsustainable steel spreads and steel prices are eating into the cost curve." --- (MT, earning call, 2024/Q2)

Impact of global economic factors on steel prices

Global economic factors, including imports, overcapacity, and trade policies, significantly influence steel prices. Companies like U.S. Steel and Cleveland-Cliffs highlight the importance of adapting strategies to navigate these challenges, with market conditions affected by vehicle production and fluctuating service center demand.

"U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments." --- (X, sec filing, 2024/Q1)

"ECONOMIC OVERVIEW STEEL MARKET OVERVIEW Steel market conditions in the first half of 2024 have been driven by continued strength in light vehicle production but also inconsistent service center buying behavior and higher import levels." --- (CLF, sec filing, 2024/Q2)

"U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments. NEW ACCOUNTING STANDARDS" --- (X, sec filing, 2024/Q2)