Can Gallatin drive Nucor’s earnings?
In the previous part of this series, we saw how the strength in U.S. steel markets will likely help Nucor. In this part we will analyze the impact of Gallatin Steel on Nucor’s future earnings. Nucor completed the acquisition of Gallatin Steel earlier this month. This means that the 4Q results of Nucor (NUE) will also include the earnings from Gallatin Steel.
Why Gallatin steel is a strategic asset for Nucor
The above chart shows the dynamics of the Gallatin transaction. ArcelorMittal (MT) was the joint venture partner in Gallatin, along with a Brazilian company. Gallatin is strategically situated on the Ohio River in Ghent, Kentucky. Gallatin is close to interstate highways, waterways, and rail lines, which is a key requirement for steel companies, as they have to transport large quantities of steel to their customers. It also helps steel companies better manage their raw material needs. This acquisition will strengthen Nucor’s presence in the Midwest region.
Gallatin will provide access to new markets
Gallatin Steel enhances Nucor’s footprint in the hot rolled market. Gallatin steel will also help Nucor serve customers in the oil and gas industry. Currently US Steel (X) is the biggest supplier in this segment. The steel products that the oil and gas industry consumes are also known as oil country tubular goods (or OCTG).
Gallatin’s location on the Ohio River will enable it to receive direct-reduced iron (or DRI) from Louisiana. As discussed previously, Nucor has started a new DRI plant in Louisiana. In fact, this DRI plant will be another driver of Nucor’s earnings. The next part of the series will discuss the plant in greater detail.