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Nucor Begins Production at Louisiana Plant

Zacks Equity Research

Nucor Corporation (NUE) has successfully commenced production at its direct reduced iron (DRI) facility located in St. James Parish, Louisiana from Dec 24, 2013. Moreover, the DRI plant’s production has been increased steadily at the planned level since then.

Further, the quality of output has also improved rapidly, both in terms of metallization and carbon content. Also, the output quality matched with the best-in-class levels achieved in another DRI plant operating in Trinidad since 2006, in the first 24 hours of operation.


Nucor‘s new DRI plant has been under construction for two years. However the collapse of one of its three storage domes on Sep 25, 2013 delayed the opening of the plant till the end of 2013.


DRI is one of the raw materials used in the manufacture of steel. It is produced by using natural gas to convert iron ore pellets into DRI. The storage domes are used to stockpile the iron ore pellets.


The $750 million DRI plant is expected to produce 2.5 million tons of DRI annually  when the operations are in full swing. This will make it the largest DRI plant across the globe and the first one operating in the U.S. in several years.


Earlier this month, Nucor issued its guidance for fourth quarter 2013. The North Carolina-based steel maker envisions earnings for the quarter to be in the band of 35 cents to 40 cents per share, below 43 cents recorded a year ago and 46 cents in the previous quarter. 


Nucor expects its fourth quarter results to include inventory-related expenses of $30 million (or 6 cents per share). This compares with an inventory credit of $18 million and $71.9 million in third-quarter 2013 and fourth-quarter 2012, respectively.


Separately, Nucor and its partner Encana Oil & Gas ( USA) Inc., a unit of Encana Corp. ( ECA), decided to temporarily halt drilling new natural gas wells given the prevailing weak natural gas pricing environment. The suspension will cut Nucor's capital spending for 2014 by roughly $400 million.


Nucor sees improved profitability for its sheet steel business in the fourth quarter despite the planned outage in its sheet mill in Berkeley County, S.C. Higher demand and improved pricing are expected to support the results. However, the company expects lower operating performance in its bar and structural mills business due to planned outages during the fourth quarter.


Nucor expects lower results in its raw materials business in the fourth quarter as a result of higher start-up costs at the new DRI plant in Louisiana and additional expenses associated with the collapse of the storage dome in Louisiana. 


Nucor holds a Zacks Rank #3 (Hold) stock.


Some better-ranked stocks in the steel industry include Companhia Siderurgica Nacional ( SID) and AK Steel Holding Corp. ( AKS). While Companhia Siderurgica holds a Zacks Rank #1 (Strong Buy), United States Steel retains a Zacks Rank #2 (Buy).

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Read the Full Research Report on AKS
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