The United States' Section 232 tariffs on imported steel have created a “level playing field” for domestic steelmakers and should remain in place, Nucor chairman and chief executive officer John Ferriola said.
Section 232, here to stay?
“I think it needs to stay in place until trade deals are done with the individual countries that... make the leveling of the playing field a permanent thing,” Ferriola said in an interview with Fastmarkets at the World Steel Association's annual meeting in Monterrey, Mexico.
He dismissed the notion that Section 232 might have backfired on US mills or that domestic mills were successful in 2018 because the trade action was responsible for sending prices to their highest point in a decade.
“Well, you know what? 232 is still in effect - and I don’t think the prices today are the same as the prices were last year,” he said.
“I think we can debunk the concept that pricing that occurred during 2018 was a result of [Section] 232,” Ferriola said, contending that prices have been driven up not by Section 232 but instead by supply and demand.
“It’s economics 101,” he added.
Indeed, prices for most products are lower than they were before rumors of Section 232 began circulating through the market in 2017.
Ferriola declined to discuss specific prices, but Fastmarkets’ steel hot-rolled coil index, fob US mill reflects some of the trends he pointed out.
The HRC index was calculated at $24.46 per hundredweight ($489.20 per short ton) on Friday October 11, down by 40.9% from an annual average of $41.37 per cwt in 2018 - the year Section 232 went into effect - and down by 21.1% from $31 per cwt in 2017.
US-Mexico-Canada Agreement, on the way
The Section 232 tariffs were lifted against Canada and Mexico on May 17. Ferriola said he would like to see trade ties strengthened between the US and its neighbors through the implementation of the US-Mexico-Canada Agreement (USMCA).
The USMCA has been signed by the presidents of all three countries but it must be ratified by their legislatures before it can go into effect. It’s not clear that any significant legislation will move through a US Congress that is focused on the issue of President Donald Trump’s impeachment.
“I think it’s really good for the steel industry, it’s good for Nucor – assuming that it’s passed in the form that it is looking today,” Ferriola said. “I might be the only one who says this. But I am optimistic it will be passed by the end of the year.”
Stronger ties between the US, Canada and Mexico are important for Nucor, given that the company has operations in all three countries. “We are truly a North American company,” he said. “So I think it will be better for Nucor than most of the rest of the industry.”
Ferriola, who has been president of Nucor since 2011, is set to retire at the end of this year, with Leon Topalian selected to replace him.
When Ferriola looks over his accomplishments at Nucor, he is proudest of improving the company’s safety record and its increased focus on commercial operations.
In Nucor’s early days, it had such a big cost advantage on raw materials that it focused almost entirely on production. That changed with the rise of Nucor “spin-offs” such as Steel Dynamics Inc and Big River Steel.
“It was always about more tons. We never really focused on the commercial side of things - because we didn’t have to,” Ferriola said. “Today, the competition is different and we have had to modify our approach to the market to become much more commercially focused.”
The company’s commercial prowess is now on par with its operational prowess, he said.
Ferriola is also proud of efforts to digitize Nucor. The digital reforms have allowed Nucor to make sense of the reams of data that its vast operations churn out.
“There was such an abundance of data that it was really hard to get your hands around it,” Ferriola said. “I was drowning in a sea of data. But I thirst for knowledge.”
Wrestling the data into a manageable form - under a program called "Ken," in honor of Nucor founder Ken Iverson - has allowed Nucor to provide one number for each key metric.
“We call it the single source of truth. It’s a way of making sure that if you have a piece of data – the average selling price of a hot band – that wherever it is [in] all the thousands [of] pages of data, it’s always the same number,” Ferriola said. “That allows you to make better decisions because it takes confusion out of the data.”
In the meantime, Nucor will continue to pursue mergers and acquisitions when they present themselves, no matter whether the market is strong or weak. “If it’s the right opportunity at the right time at the right price, we can act on it,” he said.
Ferriola declined to provide updates on specific projects until Nucor's next earnings call, which is scheduled for October 22.
But he noted that Nucor has 10 large projects under way, valued at $3.2-3.5 billion, and that it has invested approximately $12.5 billion since 2010-11 - including during lean years for steel.
“We focus on investing during the down cycles so we come into the up cycles stronger,” Ferriola said, noting that the company was looking at acquisition opportunities upstream and downstream as well as "side stream."
Finally Ferriola is grateful for having had the opportunity to serve as Nucor's leader. “It has been truly an honor and a privilege to serve as the CEO of Nucor and to serve 27,000 of the hardest, smartest and safest working teammates in the world,” he added.