Steel shipments are a key driver of steel companies’ earnings. First, shipments help to increase revenues, as companies are able to ship more steel from their plants. Second, shipments help companies to improve capacity utilization and profitability, as their production levels increase in-line with higher shipments.
Steel companies’ 2Q15 shipments
U.S. Steel Corporation’s (X) total steel shipments fell more than 5% quarter-over-quarter. This was largely due to lower demand for the tubular steel products that are used in the energy industry. However, Nucor (NUE) and Steel Dynamics (STLD) reported sharp increases in their 2Q15 shipments, as can be seen in the graph above.
Currently, Nucor forms 1.44% of the SPDR S&P Dividend ETF (SDY).
What does it mean?
Shipments can increase through higher production and the use of existing facilities. However, a company can also grow its shipments inorganically by making acquisitions.
Last year, AK Steel and Steel Dynamics each completed major acquisitions that increased their steel production capacities. Both of these companies have shown a sharp increase in their year-over-year shipments, but that’s largely due to shipments from their acquired plants.
This is why it’s important for investors to track a company’s capacity utilization ratio. We’ll discuss steel companies’ latest capacity utilization ratios later in this series. But first, let’s explore how steel prices played out in the recent quarter.