While releasing its 3Q17 earnings guidance, Nucor (NUE) commented on the issue of rising steel imports. According to Nucor, “Imports continue to negatively impact the U.S. steel industry. Through the first eight months of 2017, finished steel imports accounted for an estimated 28% share of the U.S. market and have increased an estimated 16.5% compared to the same period last year.”
The company also noted the slow growth in US steel prices compared to the sharp rise in steel scrap prices. Nonetheless, despite the challenge of steel imports, Nucor’s expected 3Q17 earnings and its earnings for the first half of 2017 exceed its full-year profitability for the last eight years. Other steel companies are also expected to post healthy profits in 3Q17.
With an earnings run rate at a multiyear high, should US steel companies be asking for more? For that, we need to look at factors that are expected to dent Nucor’s 3Q17 earnings.
In 3Q17, as was the case the previous quarter, steel prices haven’t kept pace with steel scrap prices. Since Nucor and Steel Dynamics (STLD) primarily use steel scrap, their margins have taken a hit due to a disproportionate rise in steel scrap prices. Some believe there could be some moderation in steel scrap prices in the coming months. While better-than-expected demand and higher US steel prices support steel scrap pricing, prices could have run ahead of their fundamentals. That’s especially true if we look at the trend in iron ore, which is the other key steelmaking ingredient (MT) (AKS).
In the next part, let’s look at U.S. Steel Corporation’s (X) 3Q17 earnings estimates.