Steelmakers capitalize on record prices to spend big on new factories
Record steel prices and a recovery in demand in the manufacturing sector ushered in a boom period for the steel industry. Some of the biggest names in this space are making big investments to establish new mega-factories to take advantage of the industry’s bull run.
Crazy Expenses of Steel Boom Driving
The major American steel producers, Nucor Corp. NUE and United States Steel Company. X recently announced its intention to set up new factories in the United States.
Nucor on Monday announced plans to build a state-of-the-art sheet metal plant with an annual capacity of 3 million tonnes. She is looking for locations in Ohio, Pennsylvania and West Virginia to build the plant.
The company is spending around $ 2.7 billion on the new plant that will be able to produce hot-rolled sheet with downstream processing. Construction is expected to take two years after obtaining the required regulatory approvals. The plant’s geographic position will allow it to serve customers in the Midwest and Northeast and ensure a significantly lower carbon footprint than its nearby competitors.
Nucor noted that the new plant will enable it to meet the growing needs of many of its customers, particularly in the automotive market. The sheet plant is the latest in a series of investments made by the Charlotte-based steel giant that are expected to contribute to profitable growth and strengthen its position as a low-cost producer. The company is on track with its other important growth projects – the Brandenburg Plate Plant, the Generation 3 flexible galvanizing line at the Hickman Plate Plant and the modernization and expansion of the plant. of Gallatin Plate in Kentucky.
Last week, US Steel also announced that it plans to spend $ 3 billion to build a new three million ton flat-rolled mini-plant in the United States. The planned mini-steel plant will incorporate two state-of-the-art Electric Arc Furnaces (“EAF”) with differentiated steelmaking and finishing technology, including purchased company-owned equipment. The continued adoption of mini-mill technology will improve the company’s ability to produce the next generation of high-cost, proprietary, sustainable steel solutions, including advanced high-strength steels.
US Steel plans to begin construction of the mini-steel plant in the first half of 2022 and to begin production in 2024. The planned investment is a key step towards achieving the company’s 2030 target of reducing the intensity of the plant. 20% global greenhouse gas emissions compared to the 2018 baseline.
The multibillion-dollar projects recently announced by these large steel producers reflect the underlying strength of the steel industry supported by strong demand and pricing fundamentals. Dynamic Steel, Inc. STLD is also making progress with the construction of its state-of-the-art 3 million ton EAF steel plant in Sinton, TX, which is expected to begin production in the fourth quarter of 2021.
The US steel industry made a strong comeback in 2021 after being hit hard by the pandemic last year, thanks to a strong recovery in domestic demand and soaring steel prices.
The coronavirus hurt demand for steel in key end-use markets such as construction and automotive during the first half of 2020. However, demand for steel started to recover from the third quarter. last year with the resumption of operations in the main steel consuming sectors, following the relaxation of restrictions.
US steelmakers are posting healthy auto orders, despite the semiconductor crisis. Demand in the non-residential construction and equipment market also remains resilient.
The rebound in demand contributed to the significant increase in the capacity utilization of the US steel industry during the restart of unused capacity. Steel prices in the United States are also on the rise, driven by a recovery in demand and supply shortages in part due to the pandemic.
Benchmark hot-rolled coil (“HRC”) prices are skyrocketing due to rising US steel mill prices, tight supply conditions, low steel imports and strong pent-up demand. Prices are reaching new highs, having more than quadrupled from lows seen in August 2020 and also having nearly doubled since the start of 2021. HRC prices topped the $ 1,900 per short tonne level as the upward momentum continues.
Price increases are expected to continue over the next few months due to strong supply and demand constraints, which are likely to be exacerbated by a series of planned plant shutdowns and scheduled maintenance.
US steel industry looks set for strong third quarter earnings season
Strong domestic demand and soaring prices helped US steel companies post strong second quarter results. These companies are benefiting from expanding spreads, as a sharp increase in HRC prices more than offset the higher costs of ferrous scrap. Higher demand and a favorable pricing environment should help US steel producers maintain momentum in the third quarter.
Some of the major US steel producers recently issued optimistic forecasts for the September quarter. Nucor said it expects to post record quarterly profits in the third quarter, driven by strong demand in most of its end markets and higher average selling prices. Steel Dynamics also posted a record quarterly performance, supported by strong underlying steel demand and a significant expansion in metal spreading, particularly in flat rolled steel operations.
US Steel expects record third quarter results thanks to its Best for All business model, solid reliability and quality performance, continued customer demand as well as a sustained increase in steel selling prices. Olympic Steel, Inc. ZEUS last month said it expects a strong third quarter thanks to strong market momentum and record prices.
Nucor, Steel Dynamics and US Steel each have Zacks Rank # 1 (strong buy), while Olympic Steel have Zacks Rank # 3 (Hold).
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