The New Floor Under Nucor

(Splash!)

Did you hear that?

That was your venerable American steel industry striking the water after tumbling from an unfinished bridge.

After hailing Nucor (NYSE: NUE  ) CEO Dan DiMicco as "a champion for truth in a world full of parroting cheerleaders," I'm relieved to report this straight-talking executive's confirmation that a bottom is in place for the U.S. steel industry.

Nucor recorded a net loss of $133.3 million for the second quarter despite a $125 million credit from LIFO inventory accounting. A 16% decline in realized prices from the first quarter absorbed an 11% uptick in products shipped, and the continued impact of higher-cost pig iron inventories pressured margins further.

Nucor exhibits grace under pressure: refusing to lay off workers as rival U.S. Steel (NYSE: X  ) has done, paying a 145th consecutive quarterly dividend, and maintaining a $3.5 billion liquidity position that could swallow its entire debt balance whole. As we've seen with smaller competitor AK Steel (NYSE: AKS  ) , quality companies shine when the chips are down, and Nucor makes me reach for my sunglasses.

DiMicco avows that "business conditions bottomed in April," but unlike the bottom called by railroad operator CSX (NYSE: CSX  ) last week, this call of improving conditions comes complete with supporting data and the overwhelming consensus of competitors from ArcelorMittal (NYSE: MT  ) to Steel Dynamics (Nasdaq: STLD  ) .

Although Nucor's average steel mill utilization rate increased just a touch, to 46% from 45% in the first quarter, the monthly average plunged to just 38% in April before reversing the downtrend and climbing to 54% in June.

In any major disruption to the balance of supply and demand, movements in either direction tend to overshoot the mark before restriking that balance. Like a diver entering the water, steel orders dipped to an April low before breaking back through the surface for air. Inventories were quite low, leading to a sudden uptick in orders, while the surface of the water (the new balance of supply and real demand) lies somewhere in that 45% to 50% range.

We have a bottom ... now what?
While reporting a $16 million loss for the quarter, Steel Dynamics lamented "conflicting signs in the economy." Nucor's DiMicco offered more color: "We continue to believe that real demand in the steel market is in for a long, slow recovery and there will likely be some bumps along the path." John Ferriola, Nucor's COO, added, "We see little indication that end-use demand has improved and expect no significant improvement for the rest of 2009."

Now that we're finally treading water, it looks as though we're still a long way from dry land.

Further Foolishness:

Start investing today -- just $7 per trade with Scottrade. Or find the broker that's right for you.

Nucor has been awarded four stars out of five by the steely group of investors that make up the Motley Fool CAPS community. Do they know what they're talking about? Tell us what you think.

Fool contributor Christopher Barker is the Nat King of Coal and the wild boar of iron ore. He can be found blogging actively and acting Foolishly in the Motley Fool CAPS community under the user name TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 949987, ~/Articles/ArticleHandler.aspx, 10/22/2014 9:02:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement