Nucor expects 3Q ferrous scrap price increase

Adds pricing commentary and updates DRI outage length

US-based steelmaker Nucor expects scrap prices to increase in the third quarter, reversing a months-long decline.

The chief executive of the North Carolina-based steelmaker, John Ferriola, said he expects scrap prices to rise by up to $30/gt in the third quarter. Prices for ferrous scrap #1 busheling for Detroit delivered to consumer fell last week to $275/gt, while ferrous scrap #1 busheling for Chicago delivered to consumer fell last week to $283/gt, lows not seen since the end of 2016.

The falling scrap prices trended along with falling US hot-rolled coil (HRC) prices, which hit a yearly low of $521.75/st at the end of June.

Nucor's average scrap cost per ton in the second quarter was $330/st, a 12pc decrease compared to $373/st in the second quarter of 2018. The second quarter pricing is a decrease of 6.3pc compared to the $352/st it was paying in the first quarter.

Ferriola added that he thinks pig iron prices will rise up to $15 during the third quarter. He was speaking on the steelmaker's earnings call.

The company said its outage at its Louisiana direct reduced iron (DRI) will be 65 days, longer than the previously reported 60 days. Ferriola said Nucor had built up some DRI inventory for the outage and was confident that the company's scrap subsidiary, David J Joseph, will be able to secure supplies of prime scrap and hot briquetted iron (HBI) during the DRI outage.

Nucor had a planned outage at its Trinidad DRI plant from 19 June to 13 July, and expects the performance of its raw materials segment to decrease in the third quarter due to lower margins.

The electric arc-furnace (EAF) steelmaker said in its second quarter earnings report that it expects steel demand to improve in the third quarter and for service centers to "resume more normal market demand-driven buying patterns during the third quarter of 2019."

Ferriola said the company was "cautiously optimistic that pricing has bottomed for most products and that volumes should be more closely aligned with real end-use demand in the second half of the year."

The company expects its steel mills segment performance to weaken in the third quarter compared to the second due to lower prices while profitability of the steel products segment is expected to continue to improve on strong nonresidential construction and company efficiency initiatives.

The average Argus HRC price for the second quarter was $628/st, and HRC prices fell to a yearly low of $521.75/st by the end of June. The current Argus weekly domestic US HRC index is $559.25/st.

Ferriola attributed declining orders and prices in the first half of the year to bad weather and what he called "aggressive supply chain destocking."

The Metals Service Center Institute said on 18 July that US service center steel shipments decreased for the seventh consecutive month, with service center steel shipments in June falling 11pc year-over-year.

Nucor's total steel shipments in the second quarter fell 10pc to 5.8mn short tons from 6.4mn st a year earlier. The largest drop was in shipments of steel bar products, which fell 15pc to 2mn st from 2.4mn st in the second quarter of 2018. Steel sheet shipments also fell, down 6.2pc to 2.6mn st from 2.8mn st in the second quarter of 2018.

Total steel shipments to outside customers fell 6.5pc to 6.7mn st, down from 7.2mn st in the second quarter of 2018. The company's steel mill segment's sales to outside customers fell 7.8pc to 4.7mn st from 5.1mn st in the second quarter of 2018.

The company's profit fell 43pc to $386.5mn compared to $683.2mn in the second quarter of 2018.