Nucor Steel to Cut Capital Spending 25% for 2015, U.S. Steel to Increase 55%

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel producers Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina) and United States Steel Corporation (NYSE:X) (U.S. Steel) (Pittsburgh, Pennsylvania) plan to go in different directions this year when it comes to capital expenditures (capex). But both steelmakers say they expect to see more financial headwinds resulting from low oil prices and higher steel imports.

Nucor said it plans to reduce capex 25% in 2015 from 2014, reflecting the completion of several high-value projects. Nucor said it expects $500 million in capital expenditures for 2015, down from nearly $668 million in 2014, and less than half the $1.2 billion that was spent in 2013.

Industrial Info is tracking 24 active Nucor projects worth $2.78 billion. These include 14 projects, valued at $64 million, in the construction stages; three projects, valued at $31 million, in the engineering stages; and seven projects, valued at $2.69 billion, in the planning stages, where plenty of factors could increase, decrease or totally eliminate the expected spending.

Phase IV of Nucor's pig iron complex project in Convent, Louisiana, has a total investment value of $1 billion. Nucor is performing a market analysis for the project, which depends on the outcome of phases II and III to increase capacity of the complex. All phases must be started by 2015 and completed in 2019 for the company to receive all available state incentives.

Nucor Chief Financial Officer James Frias said during the company's earnings conference call that most of the company's recent large-scale projects have been completed or are nearing completion. He added that the capital spending forecast for 2015 also reflects Nucor's decision with natural gas drilling partner Encana Corporation (NYSE:ECA) (Calgary, Alberta) to its their drilling suspension through 2015. Nucor and Encana entered an agreement in 2012 to supply Nucor with natural gas for its steel operations. The companies share drilling costs.

Nucor reported fourth-quarter 2014 net earnings of $210.4 million, a 23% increase from earnings in fourth-quarter 2013. Nucor said its results included an inventory-related credit of $57.3 million for the quarter and full-year 2014. Sales for the quarter totaled $5 billion, up 2.2% from a year earlier.

Shipments to outside customers in the fourth quarter totaled 6.07 million tons, a 1% increase over the same quarter in 2013. The average sales price per ton increased 1%. Energy costs increased $1 per ton, Nucor reported.

Nucor said it completed its acquisition of Gallatin Steel Company (Ghent, Kentucky) from ArcelorMittal S.A. (NYSE:MT) (Luxembourg, Luxembourg) in the fourth quarter for about $770 million. Gallatin has an annual capacity of approximately 1.8 million, increasing Nucor's total flat-rolled production to about 13 million tons annually, the company said.

However, the ongoing shutdown at Nucor Steel Louisiana (St. James Parish, Louisiana) resulted in a fourth-quarter operating loss of $35 million for that business unit. For the full year, Nucor Steel Louisiana reported $135 million in operating losses.

Production operations at Nucor Steel Louisiana have been suspended following an equipment failure on November 2, 2014, the company said. Nucor estimated the Louisiana mill will not be operational until late in the first quarter of this year.

For all of fiscal year 2014, Nucor reported $713.9 million in net earnings, a 46% increase from fiscal year 2013. Full-year net sales increased 11% to $21.11 billion. The average price increased 3% per ton. Total tons shipped to customers rose 7% to 25.41 million.

Looking forward, the company said in its earnings release that it expects first-quarter 2015 earnings to slightly exceed those in first-quarter 2014.

The company indicated it expects to see energy customer inventory reductions, as a result of the collapse in oil prices.

Nucor President and Chief Executive Officer John Ferriola said during the earnings conference call that pipe and tube producers serving the energy markets make up about 10% of Nucor's steel mill shipments.

Ferriola said the steelmaker also expects to see financial headwinds as a result of a "renewed surge" in steel imports. Full-year 2014 imports of finished carbon steel products are estimated to have increased 37% from 2013 levels to an "unreasonable and unacceptable level" of 34 million tons, he said.

On the positive side, Ferriola said Nucor is benefitting from large declines in iron ore costs as a result of a market oversupply, and expects to see a sharp drop in scrap iron prices.

Furnace Project to Boost U.S. Steel Capex
Meanwhile, executives with U.S. Steel said capital expenditures are expected to increase to $650 million in 2015, from $419 million in 2014. Executives said during the company's earnings conference call that the increase reflects a new furnace project.

U.S. Steel reported Wednesday that it saw its 2014 fourth-quarter net income fall 7.4% from the same quarter a year earlier to $275 million. Net sales for the quarter dropped nearly 5% to $4.07 billion.

Industrial Info is tracking eight U.S. Steel projects worth $698.12 million. Four projects with a total investment value of $4 million are under construction; two projects valued at $80 million are in the engineering phase; and two projects valued at $607 million are in the planning phases.

U.S. Steel is performing preliminary design work to define the project scope of the proposed direct-reduced iron (DRI) plant addition at its 16 million-ton-per-year iron ore operations, located at Mountain Iron, Minnesota. The project, which has a total investment value of $600 million, would kick off in the first quarter of 2016, with completion in the fourth quarter of 2017.

U.S. Steel reported repairs and maintenance costs in its Flat-Rolled segment increased $100 million in the fourth quarter, due to the relining of a blast furnace at the Mon Valley Works complex in Pennsylvania and planned blast furnace maintenance projects at its sites in Granite City, Illinois, and Great Lakes, Michigan.

Earlier this week, U.S. Steel said it would temporarily reduce operations at its tubular operations in Lone Star, Texas, and Fairfield, Alabama, as a result of softening markets caused by the fall in oil prices.

For all of fiscal 2014, U.S. Steel reported a swing in net income to $102 million from a net loss of $1.6 billion in 2013. The company credited its "Carnegie Way" management and strategy as helping to improve earnings. Sales for 2014 totaled $17.5 billion, up 0.5% from 2013.

Looking forward, the company said it expects to see low single-digit sales growth in 2015. It said it expects the low oil prices will have a negative impact on its Tubular segment, but could help its Flat-Rolled segment as lower gasoline prices could improve consumer spending.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.