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Nucor sees scrap balance emerging

Keywords: Tags  scrap prices, Nucor, Daniel DiMicco, Jim Frias, John Ferriola, Lisa Gordon

PITTSBURGH — A steep decline in scrap selling prices, reduced flows into scrapyards and renewed export activity seem to have brought balance to the scrap market, Nucor Corp. executives said, noting that the pricing downturn that started in mid-January appears to have wound down.

"There’s been over a $110 (per ton) drop in scrap over the past couple of buys and some of that may be given back to the market. That remains to be seen, how much, if any," Nucor chairman and chief executive officer Daniel DiMicco said during a quarterly earnings conference call. "There seems to be some indication of stabilization in scrap after the last combined drops."

Scrap prices have inched down all year but the pace accelerated with June and July purchases, when they declined in total by more than $100 per gross ton.

Fortunately, more visibility in the market is expected in the near term, DiMicco said. "How far it has fallen and whether it stays there or goes back up is something we should know better over the next 15 to 30 days," DiMicco said.

The lower scrap prices and hot weather has recently put the brakes on unprocessed material entering Nucor-owned scrapyards, executives said on an earnings call Thursday.

"One thing we watch is the flow of material across our scales at our yards to get some sense of what’s happening going forward, and we have seen that slow down as a function of the decrease in pricing and the extreme heat. All of that is bringing some stability to the market," said John Ferriola, president and chief operating officer.

The return of offshore buyers shopping for U.S. scrap also is contributing to market stability, DiMicco said.

Independently owned scrapyards that have felt the sting of declining inventory value may take solace in noting that Nucor scrap subsidiary David J. Joseph Co. is facing the same situation.

"Lower scrap pricing has depressed the profitability of our scrap processing business," said Jim Frias, chief financial officer, executive vice president and treasurer, even as the lower scrap prices are helping the company’s cash flow.

"Nucor benefits as lower scrap and steel prices reduce capital investment during downturns," Frias said. "Third-quarter results should benefit from lower scrap costs if scrap stabilizes as we expect."

In the second quarter, Nucor reported net income of $112.3 million, down 62.5 percent from $299.8 million in the same year-ago period (, July 19).

The Charlotte, N.C.-based producer does not break out operating earnings for its recycling and brokerage assets.

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