In one of our previous articles, we talked about the steel industry in general and its economic outlook in the near term. In this article, we aim to provide some insights regarding the $1.2 trillion Infrastructure Bill and two (2) US-listed steel companies that could potentially benefit from the said bill.
(1) The Infrastructure Bill
The US Senate gave an overwhelming bipartisan approval last Tuesday (10 August 2021) to a sweeping $1.2 trillion Infrastructure Bill to upgrade the country’s roads, bridges, pipes and ports, and fund new climate resilience, broadband initiatives and other infrastructure projects. The bill will now be punted back to the House of Representatives for further debate and approval before it heads to President Joe Biden’s desk for a final signature.
The bill proposes $550 billion in direct federal spending for infrastructure.
The spending is mostly paid for by the US Federal Government. The bulk of the funding comes from repurposing unspent coronavirus relief money and tightening enforcement on reporting gains from cryptocurrency investments. The bill would add about $256 billion to the debt, according to the Congressional Budget Office.
(2) Nucor Corporation & Steel Dynamics, Inc.
It is a known fact that steel is the world’s most important engineering and construction material. If the Infrastructure Bill is successfully enacted, it is likely that steel companies in the US will benefit from the massive infrastructure spending. In this regard, we introduce two (2) US-listed steel companies as follows:-
(a) Nucor Corporation (NYSE: NUE):-
Nucor Corp. engages in the manufacturing of steel and steel products. It operates through the following segments: Steel Mills, Steel Products, and Raw Materials.
The Steel Mills segment manufactures, trades and/or distributes merchant bar & reinforced bar, engineered bar, structural steel, carbon steel plate and sheet steel products and technologies.
The Steel Products segment manufactures, trades and/or distributes steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, steel grating, tubular products, piling products, wire and wire mesh. The Raw Materials segment is involved in the business of scrap metal brokerage, ferrous and nonferrous metal recycling and transportation services. Nucor has more than 60 full-service scrap recycling centres and is one of the largest independent railcar fleets in the US. This segment also produces direct reduced iron which is a key raw material for Nucor’s steelmaking segments.
Nucor’s financial performance had been gradually deteriorating from FY 2018 to FY 2020. Since the beginning of FY 2021, Nucor’s financial performance has seen a tremendous recovery in terms of growth. In the first half of FY 2021 (1H FY 2021), Nucor’s consolidated revenues of $15.81 billion were an increase of 59% when compared with consolidated revenue of $9.95 billion recorded in 1H FY 2020. This significant increase was mainly attributable to the following:-
(i) A total of 14.66 million tonnes of products were shipped to external customers in 1H FY 2021, an increase of 16% from 1H FY 2020; and
(ii) The average sales price per tonne in 1H FY 2021 increased by 37% from 1H FY 2021.
Merely 2 quarters into FY 2021, Nucor has already recorded $3.324 billion in earnings before tax (EBT) (with 21.02% EBT Margin) and $2.559 billion in net earnings (NE) (with 16.19% NE Margin), which account for 298% growth in EBT and 257% growth in NE when compared with the EBT and NE recorded for the whole of FY 2020.
What’s more impressive is that these growth numbers are not the end for FY 2021 as Nucor’s management is expecting the earnings to further improve in Q3 of FY 2021.
(b) Steel Dynamics, Inc (NASDAQ: STLD):-
Steel Dynamics engages in the manufacturing of steel products and metal recycling. It operates through the following segments: Steel Operations, Metals Recycling Operations, and Steel Fabrication Operations.
The Steel Operations segment manufactures, trades and/or distributes sheet products including hot roll, cold roll, and coated steel; long products including structural steel beams, pilings, and standard and premium grade rail. This segment also provides steel finishing services such as turning, polishing, straightening, chamfering, threading, and precision saw cutting.
The Metals Recycling Operations segment provides ferrous and non-ferrous scrap recycling, scrap management, transportation, and brokerage products and services.
The Steel Fabrication Operations segment manufactures, trades and/or distributes steel joists, girders, and steel decks, including specialty decks.
Steel Dynamics’ financial performance had been gradually deteriorating from FY 2018 to FY 2020. Since the beginning of FY 2021, Steel Dynamics’ financial performance has seen a tremendous recovery in terms of growth. In 1H FY 2021, Steel Dynamics’ consolidated revenues of $8.01 billion were an increase of 72% when compared with consolidated revenue of $4.7 billion recorded in 1H FY 2020. This significant increase was mainly attributable to significant metal spread expansion, increased shipments to external customers and higher average steel sale price during 1H FY 2021.
Merely 2 quarters into FY 2021, Steel Dynamics has already recorded $1.50 billion in EBT (with 18.73% EBT Margin) and $1.151 billion in NE (with 14.37% NE Margin), which account for 112.5% growth in EBT and 108.9% growth in NE when compared with the EBT and NE recorded for the whole of FY 2020.
Meanwhile, Steel Dynamics’ management is expecting strong domestic steel demand in the remaining 2021, indicating that it will continue to do well financially in Q3 and Q4 FY 2021.
Another revenue and earning growths catalyst worth noting would be Steel Dynamics’ newly constructed ‘Sinton Texas EAF Flat Roll Steel Mill’ which is expected to commence production mid-Q4 of FY 2021.
For more explanations regarding the steel production process, the recent steel price rally and increasing global steel demand, click here.
Disclaimer: The views expressed above are only of individual opinions and, are strictly for education and information purposes only. The writer is not responsible for any errors and omissions made in this post and will not guarantee the accuracy, completeness and correctness of the information therein. This is not financial advice or a buy/sell call, so please consult a professional before making any investment decision.