Nucor profit warning bodes ill for BlueScope

Company News

by Glenn Dyer

A warning for BlueScope Steel (ASX:BSL) this week from a trading update by one of its biggest US rivals, Nucor.

Nucor – like BlueScope, a huge electric arc furnace steelmaker – has several operations across the US (whereas BSL has its major business in one location in Ohio) and this week warned that its third-quarter earnings would fall from a year earlier due to declining volumes and prices at its steel mills.

That saw Nucor shares slide 11% after the steel maker estimated the slide in profit could be more than 14%.

In response BlueScope shares lost 3% to $16.12 on Thursday as investors picked up on Nucor’s warning and the implications for the Australian steelmaker.

“We expect the steel mills segment earnings to be considerably lower in the third quarter of 2022 as compared to the second quarter of 2022, due to metal margin contraction and reduced shipping volumes particularly at our sheet and plate mills.

“The steel products segment is expected to have another strong quarter in the third quarter of 2022, with earnings roughly in-line with the second quarter of 2022.

“Raw materials segment earnings are expected to be similar to the second quarter of 2022. We continue to believe that 2022 will be the most profitable year in Nucor’s history.”

Nucor has already reported net earnings for the six months to June to $US4.66 billion, almost double the $US2.45 billion for the4 first half of 2021.

In its 2021-22 results, BlueScope said it expects its Underlying earnings before interest and tax to be in the range of $800M to $900M, “driven particularly by significantly lower Midwest US Hot Rolled Coal) steel spreads and weaker Asian HRC steel spreads”.

Seeing BlueScope reported record underlying EBIT of $2.20 billion for the December 2021 half, it has been expecting a big slide in earnings because of the weakness in the US – its best-performing market.

Besides producing HRC and associated products in Ohio, BlueScope has built a US wide coated products business (the second biggest in the US in fact) which, if Nucor’s positive guidance for its steel products business is a pointer, is doing well.

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