Nucor, SDI sheet orders up, price hike 'sticking'

Nucor and Steel Dynamics (SDI) saw an uptick in sheet orders in recent weeks after a "temporary purchasing hiatus" weighed on hot-rolled coil (HRC) prices through the third quarter.

"Certainly the hiatus has reversed itself over the last couple of weeks, and we've seen on the flat-rolled side very, very strong order intake," SDI chief executive Mark Millett said in an earnings call yesterday. The Indiana-based steelmaker's flat-rolled business is around 50/50 spot to contract sales.

Nucor, the country's largest steel producer, also reported renewed order activity, suggesting the recent pause in buying was fueled by normal seasonal factors.

"We have seen a pick-up, a resurgence in order entry rates on our flat products, in hot-band, cold-rolled and galvanized," Nucor chief executive John Ferriola said on the Charlotte-based company's call.

The comments run counter to reports from other producers and buy-side sources of muted spot activity in recent weeks, though several large energy and automotive-related inquiries have been heard.

Ferriola also suggested that recent $40/st hikes in sheet offer prices are "sticking." Nucor and other producers moved last week in an effort to stem the near-$100/st decline in HRC prices in recent months from a 10-year high reached in early-summer.

"Our price increase that we put in a week ago was followed and seems to be sticking, so we feel good about that," he said, citing strong demand.

The weekly Argus domestic hot-rolled coil (HRC) index moved up by $3.25/st to $832/st in the week following the announcements.

Buy-side sources surveyed this week were largely still digesting news of the increases. Some expressed surprise late in the week at how well the increase is being enforced amid still muted demand, while others suggested earlier in the week that mills are still willing to deal.

"Mills do not want to lose an order, but they want to get a higher price," a buy-side source said.

Most agreed that it would take another couple of weeks for the market to settle.

Millett expects further erosion in hot-rolled imports to be supportive of the domestic market in coming months as lower US HRC index prices compress the spread with foreign offers and reduce the import arbitrage opportunity.

SDI's Columbus, Mississippi, flat-roll division has also seen an uptick in orders and inquiries from Mexican buyers after the announcement of the US-Mexico-Canada agreement (USMCA) lifted uncertainty in the market, Millett said.

The steelmakers voiced support for the USMCA, suggesting the rules of origin requirements will boost North American producers even as the agreement is expected to lead to a lifting of steel import tariffs on two of the US' largest suppliers in exchange for quotas.

Millet indicated a preference for quotas over tariffs to moderate steel imports over the long-term while still supporting US steel consumers.

"As a country, we are still (steel) short...so we need imports and our manufacturing base needs that product," Millett said. "And I think quotas tend to be the better way of controlling that."

The executives also swatted away investor concerns that recent capacity expansions across long and flat products will oversupply the market. Imports are projected to remain low as demand ticks up, they said.

"We think that there is a consistent growth (in demand) of about 2pc in hot-band, cold-rolled and galvanized over the next 4-5 years," Ferriola said. "There's room for it to grow."

"If imports return to just a regular historical rate, I think there is plenty of demand to absorb the increased supply," Millett said.

The companies have also focused flat-rolled investments primarily on moving up the value chain to penetrate energy and automotive markets historically served by integrated producers.

Nucor's investment in its Gallatin, Kentucky, sheet mill will give the company the widest hot-rolled galvanizing line in North America, while its Hickman, Arkansas, mill expansion expands its ability to produce advanced high-strength steel. SDI continues to invest heavily in value-added production at its Columbus facility.

Sharply higher flat-rolled prices helped boost the EAF producers' profits through the first nine months of the year from a year earlier.

Nucor's profit nearly doubled to $1.8bn as revenue rose to $19bn from $15bn. SDI's profit also nearly doubled to $986mn as revenue rose to $9bn from $7bn.