CHICAGO — Nucor executives think the company’s new, $1.35-billion plate mill will roll in the black by taking market share from both imports and domestic competitors.
But some analysts are concerned that the facility, which follows flat-rolled capacity expansions announced by other domestic mills, is ill-timed and might hurt US plate prices in the long run.
The US consumes approximately 9 million tons of plate per year, meaning Nucor’s new plate mill would be able to supply approximately 10-15% of that demand, KeyBanc Capital Markets analyst Philip Gibbs wrote in a research noted dated Monday January 7.
“We believe this is the most aggressive organic investment the company has announced,” Gibbs wrote.
It comes during a period of strong plate prices. Fastmarkets AMM's price assessment for cut-to-length plate stands at $49 per hundredweight ($980 per ton), up 42% from $34.50 per cwt a year ago but down 1% from a 2018 peak of $49.50 per cwt.
The cases for, against the mill
The mill should benefit from any infrastructure spending package - especially should one require that steel be made in the US - as well as from a likely switch in the line-pipe market to heavy-walled material, Gibbs wrote. But now might not be the right time to undertake such a project.
“We think Nucor will be better served slow playing the execution behind the plan, particularly this late in the US economic cycle,” he wrote.
Another strike against the mill: US plate demand is likely to grow by only 500,000 tons through 2022, when Nucor’s mill is expected to start up, BMO Capital Markets analyst David Gagliano wrote in a January 7 research note.
Nucor’s new mill alone would be able to supply more than two times the expected domestic demand growth. “In our view, this does raise the risk of oversupply and pricing weakness in plate over time,” he wrote.
But it’s important to keep in mind that the plate market is more consolidated than other markets. US plate mills are operating at full or nearly full capacity, Jefferies analyst Seth Rosenfeld wrote in a January 7 note. And plate prices have remained strong even though hot-rolled coil prices have tumbled.
“While most investor attention focuses on the flat steel (e.g. HRC) market, which has weakened considerably over recent months and seen a wave of new capacity growth announced, the plate market remains uniquely tight,” Rosenfeld wrote.
Case in point: US Steel and JSW Steel added HRC capacity last year. On the plate side, by contrast, ArcelorMittal took 500,000 tons out of the market by closing a plate mill in Pennsylvania.
“I am very happy and pleased to hear about Nucor’s investment. It underscores their policy of investing through all types of market conditions,” Steel Manufacturers Association president Philip K. Bell said in a phone call with Fastmarkets AMM about the new mill and other expansion projects, such as Steel Dynamic Inc.’s flat-rolled mill in the Southwest.
He swatted aside worries about a supply glut. “Overcapacity concerns lie outside of the United States,” Bell said. “And, keep in mind, these are not fly-by-night companies. These are iconic American companies that are well run and have strong balance sheets."
Nucor plans to build its new plate mill in Indiana, Kentucky, Ohio or West Virginia, according to an investor presentation.
The mill will sport an electric-arc furnace, twin ladle-metallurgical furnaces, a caster, a degasser, a Steckel mill, heat-treating capability and a pouring aisle to make plate up to 14in thick, Leon Topalian, Nucor executive vice president of beam and plate products, said during a conference call with investors on January 7.
That will allow it to serve the barge, heavy equipment and energy markets, Topalian said.
And the mill will benefit from the tax cuts, deregulation and Section 232 tariffs and quotas already implemented by the Trump administration, as well as a potential infrastructure spending package, Nucor chairman, president and chief executive officer John Ferriola said.
Ferriola emphasized that the mill doesn’t hinge on any particular White House initiative. There have already been 23 anti-dumping and countervailing duty cases filed and won by the domestic steel industry on plate products - most recently a successful petition in 2016 against imports from 12 countries.
“[Section] 232 helps, no doubt about it… But, bear in mind, 232 is out of our control,” he said. “[We] won’t know how long that’s going to be in effect.”
Nucor has more control over traditional anti-dumping and countervailing duty actions than Section 232 because they last for five years and can be renewed for another five years during what’s known as a sunset review process, Ferriola noted.
“Not only is the import level down today substantially, but we are confident that it will remain as we go into the future, giving us an opportunity to fill that gap with our mill," he said.
Ferriola also dismissed analyst concerns about competition from other US mills. Nucor's mill should thrive thanks to lower costs, higher quality, a freight advantage, shorter lead times and being in a region rich in scrap “some of which, frankly, we control.”
Nucor’s recycling division, the David J. Joseph Co, is one of the biggest scrap companies in North America.
The result: Company executives expect profits of as much as $10 per cwt on plate from the new mill even if prices were to fall significantly below current levels.
Elizabeth Ramanand in New York contributed to this report.