State of Affairs in Steel as Nucor and STLD Give 2Q Guidance

Research evidence excerpt

State of Affairs in Steel as Nucor and STLD Give 2Q Guidance

o meaningfully increase,

driven by strong demand and metal spread expansion. Steel Fabrication earnings are expected

to be incrementally lower as higher shipments and steady prices are offset by higher steel input

costs. In aluminum, earnings are guided to significantly improve from 1Q levels as a result of

higher shipments and prices. The ramp-up and outlook for this business continues to significantly

exceed expectations, according to management commentary at the Global Steel Dynamics Forum

this week. The earnings run-rate for this business at current metal spreads and subsequent M2M

relative valuation for STLD has been a widely debated topic in our recent marketing (HERE). Share

repurchases increased from the multi-year low levels in 1Q, but missed expectations on a run-rate

basis and could imply another working capital headwind to FCF in 2Q.

Sentiment in Steel: As US HRC prices approach $1,200/st, some of our recent discussions

on the US steel sector, including at the Global Steel Dynamics Forum this week, have shifted

from M2M earnings levels for the major producers to upside pricing ranges as construction and

onshoring activity gradually improves, notably from 'old economy' end markets, and as AI-driven

manufacturing investment continues to expand. While not our base case, $1,500/st - a level not

too long ago thought of as a post-Covid supply chain-driven anomaly - could be a realistic upside

scenario with the current level of import protectionism and a growing global economy as sustained

peace in the Middle East appears more likely. With respect to USMCA possibilities, while potential

renewed agreements in North America are more likely to be bilateral this time around, any possible