Are Stagnant Rebar Prices to Blame for Nucor’s Underperformance?



Rebar prices

Previously in this series, we looked at flat rolled steel prices. In this article, we’ll look at rebar. Reinforcing bars, or rebar, are used in the nonresidential construction industry to strengthen concrete in bridges, highways, and buildings.

Nucor (NUE) is the leading steel supplier to the nonresidential construction industry. Commercial Metals Company (CMC) and Gerdau (GGB) are the other leading rebar suppliers in the US market.

Article continues below advertisement

Slow mover

Nucor has been a slow mover in 2016 in an otherwise rocking steel industry. U.S. Steel Corporation (X) and AK Steel (AKS) have risen smartly since the beginning of the year. In general, more financially levered companies such as U.S. Steel and AKS have outperformed this year as investors added risk assets to the portfolio.

The way markets look at more levered steel companies has changed as the steel industry’s fortunes have vastly improved, largely due to the trade actions.

Rebar prices have sagged

However, there is another aspect that might be adding to Nucor’s underperformance. Rebar prices have been stagnant this year, as can be seen in the graph above. As the largest supplier of these products, Nucor seems to have lost its mojo with investors.

However, Nucor has been trying to diversify its end market exposure by going all out to woo automotive customers. The auto industry is among the most profitable customer segment for steel companies. Auto customers use value-added steel products that are high-margin products for steel companies. Furthermore, auto steel markets are more insulated to cheap imports as compared to some of the other end markets.

Nucor carries a healthy dividend yield of 3.2% and forms 2.44% of the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).

How have different steel end markets been doing in 2016? We’ll find out in the next part of this series.


More From Market Realist