The construction sector, which includes residential as well as non-residential construction, is the largest steel end consumer. According to AISI (American Iron and Steel Association), the construction sector accounted for 43% of apparent US steel demand in 2016. The automotive sector with a 27% share in apparent steel consumption (X) (AKS) is a distant second.
Nucor (NUE) expects President Trump’s proposed trillion-dollar infrastructure investment plan could generate an annual incremental demand of 5 million tons of steel over the next ten years. This is a significant number and represents roughly 5% of the current US steel demand (STLD) (MT).
Nucor could be among the biggest benefactors of Trump’s infrastructure investments given the company’s exposure to both flat and long products. Also, as noted previously, Nucor has ample latent capacity to handle any increase in US steel demand. Also, the company is further increasing its capacity, some of which is expected to come online over the next two years. Nucor made two acquisitions in the pipe and tube market in 4Q16 that have further increased its footprint in the nonresidential construction industry.
Better placed than peers
Nucor expressed optimism over the infrastructure plans during the company’s 4Q17 earnings call. John Ferriola, Nucor’s CEO also added, “when you look at infrastructure and when you look at Nucor and just the breadth of our products, when we get that badly needed infrastructure plan, and we’re going to get it someday because we need it someday, there’s no company that is positioned better than Nucor to participate in that infrastructure build.”
While Trump’s infrastructure plans could drive Nucor in the medium term, the company is also banking on the automotive sector as a key growth driver. We’ll discuss this in detail in the next article.