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Steelmakers Capitalize Record Prices to Spend Big on New Mills

The recently announced multi-billion projects from major U.S. steel producers reflect the underlying strength in the domestic steel industry underpinn...

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This story originally appeared on Zacks

Record-high steel prices and an upswing in demand in the manufacturing sector have ushered in boom time for the steel industry. Some of the biggest names in this space are making big investment to establish new mega mills to leverage the industry’s bull run.

- Zacks

Steel Boom Driving Spending Splurge

Major American steel producers, Nucor Corp. NUE and United States Steel Corp. X recently announced plans to set up new mills in the United States.



Nucor, on Monday, announced its plans to construct a state-of-the-art sheet mill having an annual capacity of 3 million tons. It is looking at locations in Ohio, Pennsylvania and West Virginia to build the mill.



The company is spending roughly $2.7 billion on the new mill that will be able to produce hot-rolled sheet products with downstream processing. The construction is expected to take two years after the required regulatory approvals are obtained. The geographic position of the mill will allow it to serve Midwestern and Northeastern customers and ensure a significantly lower carbon footprint than nearby competitors.



Nucor noted that the new mill will allow it to meet the growing need of many of its customers, especially in the automotive market. The sheet mill is the latest in a series of investments made by the Charlotte-based steel giant that are expected to contribute to profitable growth and strengthen its position as a low-cost producer. The company is on track with its other significant growth projects — the Brandenburg plate mill, the Generation 3 flexible galvanizing line at the Hickman sheet mill and the modernization and expansion of the Gallatin sheet mill in Kentucky.



U.S Steel, last week, also said that it plans to spend $3 billion to build a new, three-million-ton mini mill flat-rolled facility in the United States. The planned mini mill will integrate two state-of-the-art electric arc furnaces (“EAF”) with differentiated steelmaking and finishing technology, including purchased equipment owned by the company. The continued adoption of mini mill technology will enhance the company’s ability to produce the next generation of highly-profitable proprietary sustainable steel solutions, including Advanced High Strength Steels.

U.S. Steel expects to start construction of the mini mill in the first half of 2022 and commence production in 2024. The planned investment is a key step toward achieving the company's 2030 goal of reducing global greenhouse gas emissions intensity by 20% from the 2018 baseline.



The newly announced multi-billion projects from these major steel producers reflect the underlying strength in the steel industry underpinned by solid demand and pricing fundamentals. Steel Dynamics, Inc. STLD is also progressing with the construction of its 3 million-ton state-of-the-art EAF flat roll steel mill in Sinton, TX with production expected to commence in fourth-quarter 2021.



The U.S. steel industry came roaring back in 2021 after bearing the brunt of the pandemic last year, thanks to a strong revival in domestic demand and zooming steel prices.



Coronavirus hurt demand for steel across major end-use markets such as construction and automotive during the first half of 2020. However, demand for steel started to pick up from the third quarter last year with the resumption of operations across major steel-consuming sectors, following the loosening of restrictions.



American steel makers are seeing healthy order booking in automotive, notwithstanding the semiconductor crunch. Demand in the non-residential construction market and equipment also remains resilient.



The demand rebound has contributed to the significant uptick in U.S. steel industry capacity utilization on the restart of idled capacity. U.S. steel prices are also on an upswing, driven by an upturn in demand and supply shortages partly due to the pandemic.



The benchmark hot-rolled coil (“HRC”) prices are shooting higher on U.S. steel mills’ price hike actions, tight supply conditions, low steel imports and solid pent-up demand. Prices are hitting fresh highs, having shot up more than four-fold from the lows witnessed in August 2020 and also nearly doubled since the start of 2021. HRC prices have cruised above the $1,900 per short ton level as the upward momentum continues.



The price rally is expected to continue in the coming months on solid demand and supply constraints, which is likely to be exacerbated by a series of planned mill outages and scheduled maintenance.

U.S. Steel Industry Looks Set for A Solid Q3 Earnings Season

Robust domestic demand and the price surge helped U.S. steel companies deliver strong results in the second quarter. These companies are benefiting from spread expansion as a significant spurt in HRC prices has more than offset higher ferrous scrap costs. Higher demand and a favorable pricing environment are likely to help U.S. steel producers to continue the momentum in the third quarter.



Some of the prominent U.S. steel producers recently came up with an upbeat guidance for the September quarter. Nucor said that it expects to log record quarterly earnings in the third quarter, driven by strong demand across most of its end-markets and higher average selling prices. Steel Dynamics also sees record quarterly performance, supported by strong underlying steel demand and significant metal spread expansion, especially within the flat roll steel operations.

U.S. Steel expects record third-quarter results driven by its Best for All business model, strong reliability and quality performance, persistent customer demand as well as sustained rise in steel selling prices. Olympic Steel, Inc. ZEUS, last month, said that it expects a strong third quarter on strong market dynamics and record-high prices.



Nucor, Steel Dynamics and U.S. Steel each sports a Zacks Rank #1 (Strong Buy), while Olympic Steel has a Zacks Rank #3 (Hold).



You can see the complete list of today’s Zacks #1 Rank stocks here.



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