U.S. Steel Producers See Better Times Ahead for Auto, Construction Markets

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Researched by Industrial Info Resources (Sugar Land, Texas)--After seeing diminished second-quarter financial results, executives with four leading U.S. steel manufacturers are painting a rosier picture of the second half of this year, saying their companies will benefit from growth in automotive and construction markets. At least two of the steel companies have reduced their expected capital expenditures for the year. Industrial Info is tracking 63 projects with a total investment value of $1.1 billion for United States Steel Corporation (NYSE:X) (Pittsburgh, Pennsylvania), Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina), Steel Dynamics Incorporated (NASDAQ:STLD) (Fort Wayne, Indiana) and AK Steel (NYSE:AKS) (West Chester, Ohio).

All four of the producers have complained since last year they have been unfairly hammered by lower-priced foreign imports. According to the American Iron and Steel Institute, finished steel imports made up 27% of the market in July and is 31% year-to-date. However, U.S. steel producers said they are beginning to see the tide turn on the imports front. They have filed a series of trade complaints with the U.S. Department of Commerce and the U.S. International Trade Commission. The most recent anti-dumping petitions charge that unfairly-traded imports of hot-rolled steel flat products from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. are causing material injury to the domestic industry.

The slowdown of the North American Oil & Gas Industry also has impacted revenues.

Industrial Info is tracking 13 active United States Steel projects worth $320.16 million. This includes 10 projects, valued at more than $300 million, which are in the construction phases. The company is building an electric arc furnace, valued at $240 million, at its operations in Fairfield, Alabama. The 1.6 million-ton-per-year furnace will replace an aging blast furnace, which will be demolished. Completion of the new furnace, which is expected to be less labor intensive, is set for third-quarter 2016. The company also is working on a new tubular products coupling facility at its Fairfield site, valued at $47.5 million.

United States Steel reported a second-quarter 2015 net loss of $261 million, compared to a second-quarter 2014 net loss of $18 million. Net sales totaled $2.9 billion, down from nearly $3.3 billion a year earlier.

Chief Executive Officer Mario Longhi said in the company's earnings release that United States Steel has taken "aggressive and decisive actions to address the extremely challenging conditions we continue to face in North America." He said the company's "Carnegie Way" efficiency initiative and short-term cost improvements partially offset the continued depressed volumes and low prices in the tubular and flat-rolled markets, as well as the negative impact of imports.

Tubular steel shipments have continued to be hurt by reduced crude oil drilling activity, and by high levels of tubular imports, the producer reported. However, the company did see an improvement in market conditions for tubular steel later in the second quarter, executives said.

Looking forward, Longhi said in the company's earnings conference call that the automotive market "continues to be a very good market for us, and we expected it to remain strong throughout the year."

North American light vehicle production in 2015 is forecast at 17.5 million units, up by 500,000 from 2014, according to LMC Automotive, a provider of automotive production, sales and powertrain forecasts.

Longhi added that growth is also expected in the appliance and construction markets.

United States Steel estimates capital expenditures (capex) for the year to be about $500 million, which is down from its earlier estimated $650 million.

Meanwhile, Nucor saw revenues and profits decline in second-quarter 2015 as steel imports sent per-ton sales prices down 13% from a year earlier, which more than offset the benefits of lower scrap costs and improved downstream performance. Net earnings for the quarter were reported to be $124.76 million, a 15.16% decrease from second-quarter 2014. Nucor expects 2015 capex to be $450 million, down from an earlier estimate of $500 million.

Nucor Steel Louisiana's second-quarter results were weighed down by higher-cost iron ore inventory that was acquired in 2014, company executives said during the earnings call. The company expects to work through that inventory by the end of the third quarter.

Like United States Steel, Nucor sees a good future in the automotive market. Chief Executive Officer Jeff Ferriola said the company's sheet and engineered bar businesses are on track this year to increase combined automotive volume by more than 20% to about 1.4 million tons. Nucor's goal is to reach an annual shipment rate of 2 million tons within the next two to three years, he said. He also voiced optimism regarding the non-residential construction market this year.

Industrial Info is tracking 28 active projects by Nucor, with a combined worth of $567.5 million. The planned 3 million-ton-per-year, direct-reduced iron facility at Nucor Steel Louisiana's Convent site takes up the lion's share of that amount, with a total investment value of $400 million. Phase II of a $3.4 billion plan, including the recently completed 2.5 million ton-per-year Phase I facility, construction would kick off in fourth-quarter 2016, with completion in second-quarter 2019.

Like the other producers, Steel Dynamics cited an import-dominated U.S. steel market as the main culprit behind the company's sharp decline in profits for second-quarter 2015, despite growing domestic demand and lower scrap metal costs. Net income was reported to be $31.55 million, compared with $72.3 million in second-quarter 2014. The results included $29 million in expenses related to the idling of Steel Dynamics' Minnesota operations.

Industrial Info is tracking 14 active Steel Dynamics projects with a total value of $164.5 million. The company plans a third-quarter 2015 construction kick-off for the addition of a coil paint line and galvanizing equipment at its steel mill in Columbus, Mississippi. The new line will have coating capacity of 250,000 tons per year. Operations are expected to begin in first-quarter 2017, according to the company.

Like its counterparts, Steel Dynamics remains sanguine regarding the future. In addition to seeing improvements in the automotive and construction sectors, the company is targeting shipments of up to 350,000 tons per year of rail for railroads. The company is planning $150 in capex for this year.

AK Steel saw a net loss of $64 million in the second quarter, compared with a loss of $17.1 million a year earlier.

"Continued strength in the automotive market contributed to an overall increase in automotive market and total shipments quarter-over-quarter for the company," said AK Steel Chief Executive Officer James Wainscott in the earnings release. "Unfortunately, however, continued high levels of what we believe are unfairly traded imports significantly impacted selling prices in the carbon steel spot market, which negatively impacted the company's results."

AK Steel's net sales for the second quarter of 2015 were $1.69 billion on shipments of 1.81 million tons, compared to net sales of $1.53 billion on shipments of 1.4 million tons for the year-ago second quarter.

Industrial Info is tracking eight maintenance projects at five AK Steel facilities with a total worth of $64 million.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five 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.