Nucor's Leadership Insights: Strategies for Navigating Declining Steel Prices

Current market conditions for steel prices

Current market conditions for steel prices are characterized by moderated realized prices that remain above pre-pandemic levels, influenced by strong light vehicle production but tempered by muted customer demand and high import levels. A supply deficit in North America is also expected to impact pricing dynamics.

"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)

"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)

"As an industry that has difficulty -- or has had difficulty in earning cost of capital and hence, has little investment in facilities and new technologies over time. Different though than the steel environment 30 years ago is that there's an absolute supply deficit which exists in the market in North America, and that deficit is likely to grow." --- (STLD, earning call, 2024/Q2)

"Muted customer demand and the high level of imports are expected to result in lower steel pricing which is expected to negatively impact the segment’s average selling price in the second quarter." --- (X, sec filing, 2024/Q1)

"The decrease in average selling prices at our joist and deck businesses were the largest contributors to the decreases in earnings of the steel products segment in the second quarter and first six months of 2024 as compared to the respective prior year periods." --- (NUE, sec filing, 2023/Q3)

Cost and competitive positioning strategies

Nucor's strategy focuses on creating a competitive advantage through cost-effective input sourcing and adaptability, while emphasizing global cost-competitiveness. Other industry players like Cleveland-Cliffs and ArcelorMittal are also optimizing material flows and investing in higher-margin products to enhance their competitive positioning amid declining steel prices.

"I'd summarize it this way and say that what we're aiming to do is create competitive advantage by supplying our mills with the most cost-effective stream of inputs, and to do that while minimizing the embodied carbon in our finished products. And so that's our guiding light, and under that, then we execute that by building flexibility and adaptability into our raw material stream." --- (NUE, earning call, 2024/Q2)

"We are competitively positioned and continue to focus on providing superior value for our companies, for our customers, team members and shareholders alike, and we look forward to creating new opportunities for all of us today in the many years ahead. With that said, Matthew, could you open the lineup for questions, please?" --- (STLD, earning call, 2024/Q1)

"We will be doing some optimization material flows. We are expecting to put more production through Stelco in order to explore their favorable cost position, particularly relates to the Canadian dollar against the U. S. Dollar, the exchange rate. We also have another, let's call it, dollars 35,000,000 that we're expecting to get from procurement savings and that's just pure purchasing negotiation." --- (CLF, event transcript, 2024/07/15)

"almost $3 billion in our strategic growth projects. We are developing our upstream resources, including metallics, renewables, we are adding capacity high-growth markets, including India, and we are developing our capabilities to produce higher margin products and solutions." --- (MT, earning call, 2024/Q2)

"I think we are cost-competitive with anyone in the world. And again, we have always advocated we will compete against anyone in the world as long as it's done fairly." --- (NUE, earning call, 2024/Q2)

Innovation and technology adoption in steel production

Nucor is focusing on self-sustaining innovation and expanding capabilities beyond traditional steel production, emphasizing economically viable technologies. Their efficient use of recycled materials and balanced manufacturing profiles further highlight their commitment to innovation in steel production amidst declining prices.

"The SWDP acquisition furthers our expand beyond strategy to invest in steel centric businesses that operate outside of the cyclical nature of steel production. Specifically, SWDP and Nucor Data Systems will provide Nucor's Warehouse Systems businesses with expanded capabilities in airflow containment structures, as well as new product capabilities that include manufacturing cabinets/enclosures and caging for data centers and installation services." --- (NUE, press release, 2024/04/01)

"Our steel mills utilize a large portion of the ferrous scrap sold by our metals recycling operations as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries." --- (STLD, sec filing, 2024/Q1)

"We did it when we believed there was a pathway in our control. We're not looking for government subsidies or handouts or technologies that would make the OpEx of steelmaking, quite frankly, unsellable." --- (NUE, earning call, 2024/Q1)

"We are the one of the most efficient lowest-cost producers in the world. We have a very balanced I think, product portfolio and a very balanced kind of circular manufacturing profile." --- (STLD, earning call, 2024/Q1)

"Their appetite for our iconic steels has been incredible.We've achieved the Supplier of the Year Award with General Motors for going on five years and hopefully, that will continue." --- (NUE, earning call, 2024/Q2)

Trends in customer demand for steel products

Customer demand for steel products is currently mixed, with Nucor noting a decline in volumes but also anticipating potential increases in the second quarter. Meanwhile, Cleveland-Cliffs is adapting to shifts in demand, particularly for non-oriented electrical steels for electric vehicles, indicating evolving customer preferences.

"Also overall steel products volumes were down to a similar degree. Do you anticipate a similar trend of kind of double-digit declines are in these products are going to continue in 2Q?" --- (NUE, earning call, 2024/Q1)

"I'll give you an example. I did a small investment just to increase a little bit our non-oriented electrical steels to supply automotive as they were moving towards electric vehicles." --- (CLF, earning call, 2024/Q2)

"And I mean, I guess, if we were to take it one step further, are there any expectations to expand this type of thing to other steel formats, our customers asking for other products?" --- (NUE, earning call, 2024/Q1)

"Mexican imports of Chinese steel and iron doubled between 20152023. That's why yesterday I sent another letter to the administration raising the alarm about this increase in Chinese steel, pushing them to act immediately, not tomorrow to act immediately to stop China from running steel imports, routing steel imports through Mexico and enforce the 2019 agreement.We know how important trade enforcement is to this industry and its Ohio workers, we're seeing how this surge hurts Ohio workers and hurts" --- (CLF, event transcript, 2024/06/26)

"And we do see volume pickups in both steel and in products. And so you should reasonably expect that the quarterly limbs might look different for the second quarter than they did the first quarter." --- (NUE, earning call, 2024/Q1)

Future outlook for the steel industry

The future outlook for the steel industry appears optimistic, with significant investments in manufacturing, plans for capacity expansion, and a focus on consolidation. Companies are adapting to market demands by diversifying products, such as electrical steels, which bodes well for job creation and industry resilience.

"And this is incredible. It truly is. At 11 o'clock this morning, I cast my vote during the Board meeting of the State Economic Development Authority, chaired by our visionary Governor here, Jim Justice, to approve $50,000,000 to bring steel manufacturing back to this wonderful Weirton community. And I will tell you, that was one of the most emotional votes I have taken on that Board." --- (CLF, event transcript, 2024/07/22)

"So nothing that we did changed our resolve to continue to consolidate the American steel industry." --- (CLF, event transcript, 2024/07/15)

"We have spare capacity with minor investments, we can increase 50% to 70% or throughput in bottle just to produce more gold, grain-oriented the electrical steels for transformers. So we want to put up a new factory in Wilton, West." --- (CLF, earning call, 2024/Q1)

"We won and because we won we're able to stand here today alongside the United Steelworkers and Cleveland Cliffs to announce that 600 union steelworker jobs are coming back to the Ohio Valley to build electrical transformers out of union made steel." --- (CLF, event transcript, 2024/07/22)

"So we're good. The project was executed as planned. We are selling oriented electrical steels." --- (CLF, earning call, 2024/Q1)

Sustainability initiatives in steel production

Nucor's sustainability initiatives in steel production are underscored by industry trends, as competitors like U.S. Steel and Cleveland-Cliffs report significant emissions reductions. Cleveland-Cliffs noted a drop in emissions intensity to 1.54 metric tons of CO2 per ton of steel, highlighting a collective industry shift towards more sustainable practices.

"Titled "The Future of Steel", the Report Underscores U. S. Steel's Focus on Innovative Sustainability Solutions and Collaborations that Meet Market Demand United States Steel Corporation (NYSE:X) today released its 2023 Sustainability Report titled "The Future of Steel", highlighting the company's leadership in producing visionary solutions that benefit all stakeholders." --- (X, press release, 2024/06/25)

"In our recently published Sustainability Report, we reported another reduction in integrated emissions intensity to 1.54 metric tons of CO2 per metric ton of steel, down from 1.82 in 2020 and significantly below the current global average of 2.15." --- (CLF, earning call, 2024/Q1)