Dan DiMicco's proactive vision for a sustainable path to recovery for the U.S. economy has earned him the Foolish moniker: Captain America. As difficult as it is to forge a profit in the steel industry these days, perhaps every steelmaker could use a superhero at the helm.
Thankfully, most other demand segments have continued to show improvement, and Nucor's 15% increase in fourth-quarter steel shipments by tonnage supported a healthy 31% surge in net sales to reach $3.85 billion. Capacity utilization for the full-year 2010 improved mightily from 54% to 70%. Pressed by inputs like a 30% year-over-year rise in fourth-quarter scrap metal prices, Nucor's gross margin contracted dramatically from 7.5% to 3.4% despite the meaningful uptick in production scale. AK Steel
As rivals all over the globe are discovering, making more steel does not necessarily equate to making more profit in this environment of rapidly rising raw material prices. POSCO
Looking forward, Nucor and its shield-wielding CEO see a return to profitability for the first quarter of 2011, but reminded Fools that some portion of the improvements in steel demand going forward will represent buyers grabbing supply before further price increases kick in. I have every confidence that Nucor, under its enigmatic leadership, will continue to countenance this challenging operating environment with considerable poise. I encourage Fools to watch this and other steelmakers carefully for no-spin glimpses of economic activity, but with margins pressed this thin, I think it best for investors to avoid the sector until we know demand can withstand the inevitable price increases.
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Rio Tinto. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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