Nucor 2Q17 Earnings Call Notes

John Ferriola – Chairman, Chief Executive Officer and President

Significant work remains to be done to achieve effective enforcement of US trade laws

” Through the first half of 2017, finished steel imports have increased an estimated 15% compared to the same period last year. The estimated finished steel import market share in the months of June 2017 was 29%, matching the record annual level set in 2015. The year-to-date market share for finished steel imports stands at approximately 27%. This is further evidence that traditional trade cases are very often too slow to keep up with the shifting tactics of nations that are abusing the rules of trade. Nucor continues to believe significant work remains to be done to achieve truly effective and timely enforcement of U.S. trade laws. It’s time for comprehensive and broad based remedies that address years of illegal foreign trade practices that have weakened our nation’s economic vitality and our national security.”

Confident in our ability to compete domestically, it’s imports that are concerning

“when I look at the different markets that we are participating in and the advantages that we have in some of those markets, automotive, construction, energy, just being a bunch of – just a couple of names to put out there. We are very confident in our ability to compete extremely well against domestic competitors on a level playing field. The challenge that we have and we will continue to fight, and I know that we will continue to have more success on is with imported products.”

Seeing more support for our trade cases in Washington

” Washington is beginning to understand our elected officials, the administration, beginning to have a better understanding of the consequences of imports not only on our economy but on our national security. And as a result, we are seeing more and more support for trade cases and for more holistic solutions. But particularly on the trade cases, we’re seeing much greater success than we’ve had in the past, quicker turnarounds. There’s been several things that have come to into effect in terms of enforcement that are now supporting the trade cases as they get successfully prosecuted. So yes, I’m confident that we’re getting the handle, getting our hands around imports.”

No doubt that auto has plateaued

“Well, auto weakening is taking place. There’s no doubt that it’s plateaued. I’m hearing numbers around 7.1 units versus 7.5 units, okay. There’s no doubt in my mind that there’s some weakening going to be occurring. It’s only to the effect.”

Construction market still only 65% of where it was

“if we use 2007 as kind of the peak market, I would say we’re somewhere around 65% of where we were back in 2007. So it’s getting better. It’s continuing to improve… we are still hoping for some news on our infrastructure build, which would prolong the cycle.”

Jim Frias

Intensifying pressure from illegally traded steel imports

“This performance was achieved despite intensifying pressure from illegally traded steel imports.”

Nucor 1Q17 Earnings Call Notes

John Ferriola – Chairman, CEO and President

We welcome an investigation into the impact of imported steel on national security

” I have to tell you, we welcome an investigation into the impact of imported steel upon our national security, particularly given that many of these steels are imported illegally, violating our trade laws. And so we’re happy to see this. I think it was a bold move by the President. He clearly set a time frame that’s aggressive and it’s a good thing for the industry.”

Inventory levels are very low

“without a doubt, the inventory levels, as you mentioned, are extremely low. Our sheet products are about 1.8 months on hand. I can’t — frankly, I can’t remember the last time they were that low. Plate inventories are somewhere around 2.3 months on hand, also well under the normal PIV rate. And in terms of the impact or what we’re hearing as to why that’s been happening, I guess, part of it has been that the service center industries have been waiting to make sure that what they’re seeing today in the balance between supply and demand and its impact on pricing is longer term. They want to make sure that this wasn’t one of those short pops.”

Steel use per rig has doubled

“Well, if you take a look at the U.S. rig count, it’s up quite a bit. It’s currently running at about 850 rigs. That’s up from a low in the middle of last year of about 400. So the number of rigs have doubled. And as importantly, the amount of steel consumed per rig has doubled since about 2013. So when you have a situation where you’re doubling the number of rigs and the amount of steel consumed has doubled, that’s a good situation for us. And again, as I mentioned, we’re — we tend to be heavy on hot band, particularly at our Gallatin facility. And Gallatin has always been a big feeder to the OCTG. So we stand ready to supply this increased demand.”

25% of steel is imported…construction is #1 consumer of steel

“Yes. In general, I would have to agree with what you were saying. I will say, though, one point that I need to correct. You talked about basically the steel being cut off from China and Korea and some other — Turkey, some other problem areas. I need to point out that, that is a battle that we’re still fighting. If you look at the import percentage today, we’re probably still having 20% to 25% of the market share supplied by imported products, many of which are dumped products. So we continue that battle. But in general, we take a look at things and we say, “Okay, what’s — where does the steel demand come from?” And at the end of the day, when you look at the United States, construction accounts for the vast majority of steel consumed in the United States followed by automotive, okay, followed by energy.”

Steel Dynamics 1Q17 Earnings Call Notes

Mark Millet

Demand from auto remained steady

Demand from the automotive sector remained steady and construction continued to improve. Additionally, the energy-related demand improvement that we discussed on our January conference call actually strengthened further during the quarter. We received related orders both at Columbus Flat Roll Division and Engineered Bar Products Division. Additionally, there was an overall general demand improvement for our SBQ steel which typically suggests broader industrial sector momentum

Capacity utilization in 70s in long products and bar

“Although our consolidated quarterly production utilization rate was 95%, our Long Products division’s operated at 78%. While not as high as we’d like, it’s an improvement from last year’s average rate of 68%. The most significant change was seen in SBQ. Our Engineered Bar Products Division operated over 70% of its current capacity compared to just over 50% in 2015 and ’16. Not only did we see improved demand environment, but the Engineered Bar Division is also benefiting from the bulk and pull-through volume.”

Energy is rebounding

“Well, I think obviously, energy is a big focus and as the energy markets continue to rebound — and one has to remember, energy used to be, not too long ago, only 2 years ago, about 8% to 10% of steel demand in the States. And that is a big outlook for hot-rolled coil, certainly, for us at Columbus. So I think energy would be a principal focus there. And I think also, in the long products side of things, if you look at the heavy beam market recently, imports of what I call roll bar, just straight bar, have increased over the last few years. ”

Mexico is still strong and growing

“The Mexico market, at least from our perspective, is still strong and growing. They have — well, they’re still short in a big way down there. They will continue to need imports. Just with the current assets in place, you can argue whether or not people are going to continue to build that. I think they will. But nonetheless, just the current assets in place there, the consumption will — is strong and will continue to grow”

The administration has softened its stance on Mexico

“So I don’t see an issue with Mexico. I think the administration has softened or kind of moderated its stance. There’s a recognition that we need to be good trading partners. Maybe the NAFTA agreement should be modified. I think it’s been around for a long time and I think both parties will benefit from a new look at that, but I think it’s going to be a prudent, pragmatic review. So I don’t have any concerns, any issues with trade with Mexico. “

Nucor FY 3Q17 Earnings Call Notes

Nucor’s (NUE) CEO John Ferriola On Q3 2016 Results

Pent up earnings power

“Consistent with our company’s long history of growing stronger during industry downturns, Nucor has a sizable pent-up earnings power that we are eager to realize for our shareholders. We are executing our long term growth strategy by leveraging Nucor’s five drivers to profitable growth. The five drivers are: One, strengthen our position as a low cost producer. Two, achieve market leadership positions in every product line in our portfolio. Three, move up the value chain by expanding our capabilities to produce higher quality, higher margined products. Four, expand and leverage our downstream channels to market to increase our steel mills base load volume for sustainable results. And five, achieve commercial excellence to complement our traditional operational strength.”

Moving in the right direction thanks to new government

“With the recent actions taken by the U.S. Government to both strengthen and better enforce our nation’s trade laws significant progress is being made. We are definitely headed in the right direction, but there’s a tremendous amount of work still to be done. And Nucor team will continue to diligently work to ensure a more comprehensive and long term solutions to the problems facing the steel industry and America’s manufacturing base.”

We just want a level playing field

“Well we’ve had personally a small amount of contact with the new administration, but obviously our trade associates have been very active working with them. As a general statement we feel very pleased particularly with the appointment of the Cabinet members who will be focused on trade. We believe them to be very knowledgeable about the steel industry and very knowledgeable about trade laws and policy. So, we feel good about what we see as the changes coming up in the administration relative to trade and particularly to steal as it pertains to trade. And again, all we are looking for as we have said many times in the past, all that we are looking for is a level playing field. We are not looking for any advantage; we are looking for level playing field. We feel good about the administration’s position on China and with currency manipulation, and we feel very good about the acquisition on China as a market economy status, and not being granted market economy status.”

Quality, service, on time delivery, financial stability are all selling points

“e. I can tell you that in terms of how we’re being received by the automotive companies, it’s very favorable to know. For several reasons, our quality is good, Our service is excellent. Our long time delivery is very, very good, and frankly, we’re a very financially stable company. And as you know, the parts that they specify on a platform might not have to be delivered for two to three years. They want to make sure that that company that they’re buying from and specifying their platforms of buy from is, in fact, around in two to three years in Nucor with our financial strength, we’re going to be around for a long, long, long time.”

Jim Frias

Capacity is 26m tons

“Reflecting the capacity impact of moving up the value chain, we estimate Nucor’s total steelmaking annual capacity to be approximately 26.7 million tons, a decline of about 7% from a prior estimate of just under 29 million tons. For 2016, our steel mills produced a total of 21.2 million tons.”

Steel is being dumped and it’s hurting the American worker

“It’s being dumped, there is no doubt about it and it’s hurting the American worker and we’re going to keep, we don’t give up, we’re going to be going back until we get the proper outcome and ensure level playing field to our teammates to compete upon.”

AK Steel 4Q16 Earnings Call Notes

AK Steel Holding (AKS) CEO Roger Newport on Q4 2016 Results

Most industry sources are predicting a minor decline in automotive production

“As we look at 2017, most industry sources are predicting a minor decline in North American automotive production rates of about 1% to 3% compared to 2016, but this comes after the all-time record year of 2016. So even if such decline would indeed materialize, we would still anticipate another solid year in the automotive market. We remain focused on growing our core automotive business, and we expect some modest shift in products and customer mix as we transition also certain platforms and transition onto others.”

Electrical steel trade case loss

“In 2017, we will work with the new administration including to the Department of Commerce and the U.S. Trade Representative tasked with ensuring free and fair trade. Unfortunately, not all the recent steel-related trade cases have resulted in positive determinations. We are very disappointed that our appeal of the 2013 Grain-Oriented Electrical Steel or GOES trade case ruling was denied in late November. I believe that this case demonstrated some of the inherent weaknesses we previously had in our trade laws prior to the enhancement of the Leveling the Playing Field Act in 2016. Ultimately, an unleveled playing field will limit the amount of capital investments being made in this country. In the face of the negative determination in the GOES trade case, there has been added pressure on domestically produced electrical steel products caused by higher import levels. As a result, the only other domestic producer of electrical steel was forced to shut down their electrical steel operation and exit the market in 2016. This resulted in the loss of additional steel jobs in America. We believe the electrical steel situation is an issue of national security, needs to be addressed to ensure that the United States does not eventually become solely dependent on obtaining electrical transformers and/or their steel components from China or other foreign country for our critical electrical infrastructure. ”

Other countries are filling the void in stainless

” Although, we believe that the stainless trade case against China has had a positive impact on domestic market conditions, we are seeing some evidence of other countries now filling the China void, just as it also occurred with the carbon steel rate cases. However, one important distinction in our stainless businesses that the demand for our chrome based stainless products is driven primarily by the automotive market since we are not a major player in the commodity stainless arena.”

It’s not a surprise to see met coal prices moving back up

“What comment first on the met coal and then Kirk mentioned on AK, but met coal in general let’s say met coal most of the mining companies went bankrupt. So, they told you the pricing was pretty much at a floor. So, there was going to be some adjustment eventually in the market conditions just like we’ve seen in a lot of other commodities. Eventually, it has to correct itself so it’s a viable business. So, there was not a surprise to see coal starting to go back up.”

Thyssen Krupp 4Q16 Earnings Call Notes

thyssenkrupp’s (TYEKF) CEO Heinrich Hiesinger on Q4 2016 Results

Cyclic improvement in Steel Europe, but not an improvement in structural weakness of industry

“We have also initiated a comprehensive transformation program at Steel Europe. We do see clear cyclic silver lining but to be clear, you should not confuse cyclic improvement with structural weaknesses of an industry. The pressure from imports from raw materials, especially in coking coal, from excess capacities and from current and especially threatening cost decrease related to the European trading scheme, remains high. Despite the strong position versus most peers and great efforts and achievement from leadership team and our employees, Steel Europe has earned its cost of capital in the last fiscal year.”

Guido Kerkhoff

There’s clearly overcapacity worldwide in

Yes. With that let me come to your question regarding steel. I mean, once again, what we’ve seen underlying in this industry is an overcapacity here in Europe and worldwide, and that was forming our belief that a consolidation move overall can help to overcome this issue. Now, steel market is always cyclical. So, you might have always couple of months that look better and a couple of months that look worse, as we have largely experienced last year where the first half was very bad. That doesn’t mean that overall the necessity of consolidation as we’ve lined out is clearly out there and we still see it, and that’s why we continue to go down that route.

ThyssenKrupp 2Q16 Earnings Call Notes

ThyssenKrupp’s (TYEKF) CEO Heinrich Hiesinger on Q2 2016

Elevator volume is probably down in China

“Yes, really, if you look on the demand in China, if we – let’s say, if you let me start with that first, we clearly said, by the number of units, we are up after nine months by 1%. Clearly, we always said that we see a price pressure in the single-digit area. So, that means, if you look on the value, probably we are slightly down. And we always guided that, probably, it will work somewhere in the range of up to minus 5% for the full year. And this is on a comparable basis, not including the Marohn figures on order intake.”

Steel demand is already so strong in Europe that it’s hard to get much more upside

“No, I think the – first of all, as we said, from a demand side on the steel, we are quite optimistic, and also from a market – a pricing development side, which we have already seen but with materializing the sale. The reason why we are a little bit cautious, for example, in the component business is because we’re already running at a very, very high rate for many years. So, we do not see it negative. But, as we have already such a strong demand, for example, from the automotives for quite a while, we do believe that the upside beyond that, let’s say, strong demand probably is rather limited. ”

Guido Kerkhoff

do see some recovery but from lower levels

“Coming to your question about the run rates Q4 and beyond, so what’s going to happen and what’s going to happen on the steel market? Yes, it’s clear that we do have more long-term contracts than others. And we do see some recovery. And this will support the development in Q4 and in Q1 consecutively. But, Mike, please always keep in mind we haven’t reached prior-year level. So, we do see some recovery. We start from lower values.

Arcelor Mittal 1Q16 Earnings Call Notes

ArcelorMittal’s (MT) CEO Lakshmi Mittal on Q1 2016 Results

Operating environment has improved but China still a threat

“Moving to the operating environment, we have clearly seen improvement over the past three to four months. However, China remains a threat, production is higher than domestic demand and exports are elevated. We must continue to encourage China to deliver on these plans to deal with over capacity.”

Infrastructure and auto still support demand in China but real estate has lost momentum

“Our view on demand in China is also the same as last quarter as robust infrastructure and the automotive continue to support steel demand while growth in the real estate has lost momentum as expected.”

Things bottoming out in Brazil

“In long, we are operating at less than full capacity or less than 90% and that will depend on the market, but we are quite confident that at this time we are seeing things that’s kind of bottoming out. We see improvement in Brazilian market slowly, we have to be patient about it, but we are confident that demand will be restored. We have lost about 30% of demand since 2013. So we feel confident that this will be restored and then we will operate at the high capacity and will participate more on the domestic market.”

Nucor (NUE) Q2 2016 Earnings

Nucor (NUE) CEO John Ferriola said the company aims to be the low cost producer

“Anchoring our strategy are Nucor’s five drivers to profitable growth, they are: strengthen our position as a low cost producer; achieve market leadership positions in every product line in our portfolio; continue to move up the value chain by expanding our capabilities to produce higher quality, higher margined, more import resistant products; expand and leverage our downstream channels to the market to increase our steel mills’ base load volume, especially in weak markets; and achieve commercial excellence to complement our traditional operational strength.”

And they were able to take market share

“Nucor’s steel mill volume growth in 2016 highlights our success in gaining profitable market share. For the first six months of 2016, our steel mill production increased 13% over the year-ago period. That compared with the U.S. steel industries decrease of approximately 1% over the same period. This profitable growth did not just happen. It is the result of our highly flexible and low cost production capabilities, our unrivaled product breadth and diversity, our investments that have allowed us to move up the value chain, and our execution of our channel to market strategy.”

Pursuing court cases against those they feel that are violating trade laws

“Nucor continues to be proactive and aggressive in pursuing trade cases when and where it is appropriate. When farm producers and governments break mutually-agreed-upon laws governing trade, there must be meaningful consequences. Utilizing trade remedies is not protectionism. Trade enforcement is absolutely critical to drive the change towards a market-based system. A market-based system is one where our efficiency and innovation determine which producers win and which producers lose.”

 

Steel Dynamics 2Q16 Earnings Call Notes

Steel Dynamics (STLD) Mark D. Millett on Q2 2016 Results

Supply side dynamics have led to much improved market dynamics in steel industry

“The steel platform performed well in the second quarter. 2016 has certainly provided a changing landscape to the domestic flat roll market. Several positive macro shifts have resulted in significantly improved flat roll product pricing. Year-over-year, first half flat roll steel import levels have declined and customer inventory levels are better aligned to actual consumption, all supporting higher domestic sheet mill utilization. While demand has remained steady, these supply side drivers have led to much improved market dynamics. Our flat roll steel mills operated at full capacity during the second quarter, supported by the automotive and construction sectors.”

Weak sectors should remain weak, strong sectors will remain strong

“Relative to the macro environment, the steel-consuming sectors that were weak in 2015 such as energy, heavy equipment, and agriculture will likely remain so in 2016. However, those that have been strong or recovering are expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel-consuming sectors remains positive. Automotive has continued forecasting strength. And overall, construction spending continues to improve with additional forecasted growth in 2016.”

Import levels are ticking up but not going to return to levels that imploded the market

” I think import levels are down about 25% year-to-date. But we do, indeed, see activity picking up a little bit. The global spread for hot band is in excess of $200 a ton today. And so, it’s natural for that to occur. But I think it’s been amazing that the import pricing, though, remains pretty resilient, I would say, unusually resilient and maybe there is import offers now about 50 bucks off in the domestic market. And as I said, that’s a little unusual, a little more resilient. The trade constraints have totally eliminated China and the other primary importers from the marketplace. And import offers are coming in through what we would consider somewhat non-traditional sources, Vietnam and others. And those are a little less accessible, and the network from a customer base importing those steels is a little less reliable at this moment in time. And in any event, import pressure is not going to materialize in any great form in Q4. And I am somewhat confident that it’s not going to return to the levels that really imploded on markets at the end of whenever that was, 2014 and early 2015″

Obviously the elimination of China has buoyed the market

“Obviously, the elimination of China has buoyed the market currently. I do think that the coated and cold rolled sheet spreads, which are at historical highs, will probably remain so as long as China has shut out. As long as the trade cases are in place to impede, they are not going to eliminate, but they will impede the import pricing. So I think those spreads are not just an aberration. I think they are going to be around for a while. Ultimately, longer term and when I say longer term, years out – over the years, I think some of that material will somehow look find its way back into the American market either through other converters or through manufactured goods. There is a good portion of imported steel in refrigerators and cars and other things. So, seriously, I’m not smart enough to know long term what the impact is. ”

Theresa E. Wagler – Chief Financial Officer & Executive Vice President

Shipments increased 9%

“For the second quarter, steel shipments increased 9% to 2.5 million tons, as volumes improved across all divisions except in special bar quality products. The SBQ market continues to be challenged by weak demand dynamics.”

Platform utilization in flat roll was 95%

“Conversely, domestic flat roll steel utilization is strong, as imports have declined and customer inventory levels are better balanced with actual demand. Even though second quarter platform utilization was 95%, it’s a bit misleading as the Flat Roll Group produced over the theoretical quarterly capacity, offsetting lower utilization at the structural and engineered bar divisions, which operated at 82% and 53% respectively.