The steel market is closely linked to the level of construction and infrastructure activity in the global economy, and companies throughout the steel industry have had to deal with tough conditions in the market for a long time. Nucor (NYSE:NUE) has responded to an adverse environment by working hard to capitalize on every available opportunity, but coming into Tuesday's fourth-quarter financial report, Nucor investors had prepared themselves for declines in earnings. The steelmaker indeed did see some weakness compared to year-ago figures, but it also believes 2017 could be a lot stronger than 2016 was.

Let's look more closely at Nucor to see what its latest report says about its future.

Worker at a steel mill

Image source: Nucor.

Nucor steels its resolve

Nucor's fourth-quarter results were more difficult than usual to interpret because of a major accounting change that the company made. After making retroactive adjustments to past periods, Nucor reported that its revenue rose 14% to $3.96 billion, which was considerably higher than the 9% growth rate that most investors had expected from the company. Net income of $159.6 million reversed a loss from the year-earlier period and translated to earnings of $0.50 per share. After taking into account the $0.16-per-share boost from the accounting change, Nucor's adjusted earnings were directly in line with the consensus forecast for $0.34 per share.

Taking a closer look at Nucor's financials, the most important thing to note is the company's decision to move from last-in, first-out accounting to first-in, first-out accounting. The shift from LIFO to FIFO was supported by international accounting standards, but it also has the effect of forcing companies to realize gain on their inventory more quickly than they did under LIFO.

Nucor's fundamental numbers were relatively strong. Steel mill production was up 13% to 4.99 million tons, and total shipments jumped at an even faster 16% rate to 5.15 million tons. Overall including all of its divisions, Nucor sold 5.82 million tons of steel to outside customers, which was 14% higher than in the same period in 2015. The steel products segment, on the other hand, saw a decline in pre-tax profit of almost a third compared to the fourth quarter of 2015. Sales of raw materials produced modest losses during the period, but they were much less severe than they had been a year ago. Utilization rates were up 6 percentage points to 74%, finishing the year strong.

Costs bounced higher from recent lows, but they still remained reasonably favorable. Average scrap costs per ton rose 8% to $236, but Nucor still finished the full 2016 year with an average cost of $228 per ton, which was down 16% from the full-year 2015 figure. Energy costs were flat from year-ago levels, but higher production volume boosted efficiency, and prices in the electricity and natural gas markets remained under control.

Can Nucor see better results in 2017?

Looking ahead, Nucor has high hopes for the coming year. More favorable pricing trends that started last quarter have continued into the new year, and Nucor expects prices to keep rising. At the same time, the company also believes that its production volumes should rise as well, especially in light of reduced competition from imported steel and low inventory levels among customers. Nucor also sees better times ahead for its raw materials segment, which it believes could return to profitability by the end of the first quarter.

Nucor also expects that favorable trade determinations could help it and its U.S. steelmaker peers going forward. Last year, antidumping cases resulted in restrictions on countries including China, Brazil, South Africa, and Turkey, and further investigations of practices in Japan and Taiwan could add to the upward momentum for Nucor.

Still, Nucor investors weren't happy about the fact that earnings didn't come in better than they had expected. The stock fell 4% in the first hour of the regular market session following the announcement. What will be crucial for Nucor in 2017 is for it to find ways to keep expanding its reach and taking advantage of improving conditions in the U.S. and global economies. If it can do that, then Nucor has the potential to capitalize fully on greater levels of construction and infrastructure building activity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.