NEW YORK Nucor Corp. is expecting a number of planned investments in its flat-rolled division to propel the steelmaker into more value-added and high-margin market segments, its top executive said.
The Charlotte, N.C.-based steel producer, which saw second-quarter net income fall 24.2 percent compared with the same period last year, said much of its weakness this past quarter was due to steel sheet pricing falling to multiyear lows (amm.com, July 18). But planned upgrades at a number of its mills scheduled to finish in the latter half of the year and early next year, coupled with the startup of its newest direct-reduced iron (DRI) facility, may mean a brighter financial future for the steel producer, it said.
"We are now five years into what remains a stagnant global economic environment, and in turn, extremely difficult steel market conditions," president and chief executive officer John Ferriola said during an earnings call July 18. "Over the next several years, our unrelenting focus will remain on executing our strategic plan and converting our $8 billion of investments into higher highs and profitability once the next cyclical upturn inevitably arrives. At the same time, we will continue to plan for tomorrow while executing today."
Nucor's 2.5-million-ton-per-year DRI facility is expected to begin hot commissioning in August and production at the plant will start by the end of September, Ferriola said. The port facility there will have one mile of Mississippi River frontage and be capable of receiving vessels up to 950-feet long and cargos of about 115,000 tonnes, he said.
Following completion of the DRI plant, coupled with the 2 million tons of annual capacity at its existing Trinidad DRI facility, Nucor will achieve two-thirds of its long-term goal to control 6 million to 7 million tons of annual capacity in high-quality scrap substitutes, Ferriola said, adding that once this facility is up and running, the company may look into building an additional DRI facility for which it has already achieved the permits.
"Given the scope of this project, start-up hiccups are to be expected," he said. "However, our confidence is extremely high in the process technology."
On the value-added product side, Nucors Hertford County, N.C., plate mill started in June production of its new 120,000-ton-per-year normalizing line. The new line brings Hertford Countys value-added plate products annual capacity to 240,000 tons.
On the sheet side, Nucor said it remains "on time" and "on budget" to complete an upgrade at its Berkeley County, S.C., mill by the first quarter of 2014, which will provide Berkeley with the ability to produce wider and lighter-gauge sheet steel and tap into a number of growth segments, including agricultural, heavy truck and high-strength applications.
Nucor, which recently secured a long-term, low-cost supply of natural gas, said that it expects that cash flow to be positive by 2016.
One end-use area in particular in which Nucor sees growth is the pipe and tube segment. A number of new and expanded tube mills have been announced for the U.S. market, and Ferriola said Nucor is in discussions about supplying them substrate.
"I can tell you that we have every single one of them, and were in discussions with every single one of them. Were even in some discussions with new suppliers or new production facilities that currently have plans to provide their own substrate. Were in discussions with them, working actively to convince them that (its) advantageous to do business with us and avoid the capital expenditure of building their own melting facilities," Ferriola added.
But looking forward, while the company expects earnings to improve compared to the second quarter as it continues to move up the value chain, a number of downward pressures remain.
"On the negative side, we expect pre-operating, start-up costs at our Louisiana facility to actually increase in the third quarter. Overall, the outlook continues to be challenged by anemic economic growth and excess global steel capacity," chief financial officer James D. Frias said.