U.S. Steelmakers Face Declining Prices

John Wolz

Following news of a strong first-half performance, Nucor Corp. and other U.S. steelmakers are reportedly slogging through a third quarter that many say will be the low point of the year. \
Steelmakers are struggling to balance lower prices and still-sluggish demand for their products with the soaring costs of scrap and natural gas, according to the Toronto Star.
U.S. steel prices fell for the 11th-straight month in August, dropping 5.4% from July to $435 per ton of sheet steel due to declining demand.
Prices have dropped nearly 40% from $709 per ton in August 2004. Steel prices soared last summer, driving up the cost of everything from cars to home appliances. But those prices and the rampant buying turned out to be a bubble.
“Last year”s third quarter was the best the [steel] industry ever had,” analyst Charles Bradford told the Associated Press. “There were companies who made as much in a year in their prior histories as they made that quarter. This is going to be a terrible third quarter.”
Steel prices are expected to jump at least $30 a ton in September. Nucor, which also makes fasteners, is hiking prices to cover the rising cost of scrap used in new steel. Scrap prices jumped 30% in July to $205 a ton.
Whatever the current conditions, Nucor would be hard-pressed to top its performance during the third quarter of 2004, when price increases and improved margins boosted Nucor”s earnings to $415.4 million. The steelmaker said Q3 earnings “exceeded the previous record annual earnings for the company.” Q3 sales more than doubled to $3.2 billion, while the average sales price per ton increased 87% from the third quarter of 2003 and grew 16% from the previous quarter.
At the time, Nucor predicted a dip in revenue during the fourth quarter of 2004, but expected demand for steel to remain robust.”We expect to see the strong business conditions experienced in 2004 continue through 2005,” the company noted in September 2004.
China Consuming Less U.S. Steel
Although China had purchased massive amounts of U.S.-made steel in 2003, that buying didn”t continue in 2004. Instead, the Chinese reportedly looked to European producers with lower costs to supplement their own growing industry.
Nucor CEO Dan DiMicco claims anti-competitive practices give China unfair trade advantages that could lead to the downfall of many U.S. firms, AP reports.
Nucor is coming off a stellar performance in 2004, when profits jumped to $1.1 billion from $62.8 million in 2004, and revenue climbed 82% to $11.4 billion.
Consolidation in the steel industry, along with 21 months of the controversial 201 tariffs imposed on foreign steel producers between 2002 and 2003, has U.S. steel manufacturers enjoying their strongest global position in decades.
Likewise, nearly 180 anti-dumping and countervailing duty orders still remain active, trade policy analyst Dan Ikenson pointed out.
Despite this, DiMicco has worked hard to galvanize widespread support for U.S. manufacturing at a time of massive outsourcing. �2005 FastenerNews.com