On July 18, the United States Steel Corporation (NYSE:X)’ biggest mini-mill steel producer, Nucor Corporation (NYSE:NUE) , released its earnings for the second quarter, 2013. The company reported a 24% decline in its income amid low steel prices. With Nucor Corporation (NYSE:NUE)’s earnings falling prey to low prices, two key questions come to mind: What’s in store for steel prices going forward? And is Nucor a good investment right now?
During the second quarter, Nucor Corporation (NYSE:NUE) posted earnings of $85.1 million, or 27 cents a share, versus $112.3 million, or 35 cents a share, last year. Nucor Corporation (NYSE:NUE) missed its consensus earnings estimates by 3 cents but beat its revenue expectations by a slight margin. However, compared to the last year, company’s revenue slipped 9% to $4.67 billion.
According to the company, the primary reason behind low revenue was a decline of 7% in average sales price, compared to last year. Total tons shipped to outside customers stood at 5,839,000 tons, down 1% from the same quarter last year. Total steel mill shipments declined by 3%, while the downstream products’ shipments to outside customers decreased by 4%.
Analysts expects a modest improvement in Nucor’s earnings during the next quarter. In Q3 2013, analysts expect Nucor Corporation (NYSE:NUE) to earn 48 cents per share on total revenue of $4.76 billion. For the year, analysts’ estimates stand at $1.60 per share on $18.82 billion revenue.
The main reason behind these low steel prices has been “cheap imports” from the Chinese market. Nucor’s CEO, John Ferriola said that rising exports from China could damage the U.S. economy. He criticized government policies, due to which, Chinese exporters are selling steel at subsidized rates. According to him, “The current trade laws simply are not getting the job done”.
Recently, a group of U.S. companies producing OCTG (steel pipe used to drill oil & gas), launched a case against steelmakers from nine countries. According to these companies; steelmakers in India, Thailand, Turkey, Philippines, Saudi Arabia, South Korea, Taiwan, Ukraine and Vietnam are taking advantage of unfair subsidies, allowing them to sell steel at a very low rate in the U.S. Due to this unfair steel trading, the local steel producers have been forced to operate on meager margins.
Having said this, steel prices have somewhat recovered since the first few weeks of July. This small price hike isn’t due to an improved market, but to a series of unforeseen events. A work lockout in Ontario, plus blast furnace outages in Ohio and Brazil have shrunk the annual U.S. capacity by 4%. As a result, there’s no oversupply in the U.S. market, at least for now.