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December 30, 2010
Dear Friend,
We are impressed
Nucor avoided losses in 2010, and the $2.3 billion
goodwill
writeoff we simulated in July 2009 could be avoided.
We modeled a $25 per
ton increase in steel selling prices net scrap in 2011
and again in 2012
into a "normal" scenario, which suggested $3.00 to $3.50
per share of
"normal" earnings after 2013. We maintain our
Underweight rating, but
raised our price target to $35 from $20 as Nucor avoided
the downsides we
feared. We discussed the U.S. steel market outlook,
three management
departures and some outstanding litigations.
We updated our models for Nucor assuming neither a
margin squeeze from
rising scrap steel prices nor a windfall from $180 per
ton announced
hot-rolled sheet price hikes to $740 in the near term.
ArcelorMittal has
announced a March quarter "cap" at $700 per ton,
limiting hikes, Brazilian
pig iron has been near $480 per ton and Nynex future
are < $690 per ton.
November and December 2010 American Metal Market scrap
prices were increased
$50 to $75 per ton for various grades, more hikes were
expected for January
and severe monsoon rains in Queensland caused Anglo
American and Rio Tinto
to declare force majeure of coal shipments. Remember,
first-quarter 2008
raises gave rise to the hike from $93 to $300+ per tonne
in met coal
exports, up to $890 per ton #1 busheling Chicago scrap
quotes and $1,100 per
ton U.S. hot-rolled sheet records. However, underlying
demand is less today
in the U.S., increasing the threat of a margin squeeze
or smaller windfall.
We do not know if BHP Billiton or Xstrata were
disrupted, and Xstrata was
not disrupted in early 2008.
Best wishes in the New Year.
John C Tumazos |
