Because they understand there can be no sustainable domestic economic recovery that does not make room on the gravy train for the industrial base that built this nation, Fools have watched the steelmakers for signs that industrial demand may be on the mend.
With a comforting update -- featuring surprisingly upbeat guidance for first-quarter earnings -- steelmaker Nucor (NYSE: NUE ) stoked a spreading fire of enthusiasm over the beginning stages of a thaw in the American industrial furnace.
Nucor expects to report between a $0.05-per-share loss and a $0.05-per-share gain for the first quarter. Adjusting for an anticipated $23 million LIFO charge, a portrait of marginally improving operating metrics through select segments of steel demand begins to emerge. Nucor is targeting a rather robust 20% sequential improvement in total steel shipments for the first quarter, and a 23% sequential increase in orders that sets up a remarkable 94% improvement over those paralyzed prior-year levels.
Looking to the all-important capacity utilization figures, we find persistently weak construction-related demand inserting a steel barrier between two sets of product lines with variable sensitivity to the construction markets. On the one hand, we find less construction-sensitive "flat" segments like steel sheet and plate products bouncing back quite nicely, with projected first-quarter utilization rates of 85% and 90%, respectively.
Meanwhile, although the end of last year's inventory destocking phenomenon led to a sequential improvement even in the deeply impaired structural steel segments like beams and bars, those more construction-sensitive products remain at depressed capacity utilization rates of 55% and 63%, respectively.
Fools will recall that Commercial Metals (NYSE: CMC ) recently announced it will close or sell its joist and deck manufacturing unit due to the relentless duration of this contraction in construction demand. If such an exodus were to spread, then we could find real undercapacity lurking once conditions do finally improve, but for now structural steel products remain a decidedly unattractive market. The only bright spot this Fool has encountered in the segment has been a "dramatic increase" in Steel Dynamics' (Nasdaq: STLD ) observed demand for welded railroad sections.
Although "long" products like beams and bars are not along for the ride, the abrupt improvement in demand for flat products must not be overlooked as a positive indicator of some improvement in American manufacturing activity. For domestic raw-material suppliers like Cliffs Natural Resources (NYSE: CLF ) and Alpha Natural Resources (NYSE: ANR ) , the demand boost coincides fortuitously with improved product pricing resulting from China's insatiable thirst for imports from global suppliers like BHP Billiton (NYSE: BHP ) .
Providing a symbolic domestic counterpoint to POSCO's (NYSE: PKX ) move to build a $240 million galvanized steel plant in India, Nucor's pairing with Japanese conglomerate Mitsui & Co. to co-own the 23 flat-rolled production facilities operated by Steel Technologies is a solid step forward for Nucor into the stronger side of steel's product categories. Including the 3.2% dividend yield, the reasons to make Nucor a core holding continue to be forged in steel.