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Morningstar | We Forecast Lower Profits For Nucor in 2019 and Beyond As Metal Margins Contract

Nucor uses electric arc furnaces to produce a wide variety of steel products. Compared with the blast furnaces responsible for approximately 70% of global steel production, EAFs are less labor- and energy-intensive, thereby allowing Nucor to recognize low total costs per unit of steel produced. Additionally, unlike other EAF steel producers that predominantly manufacture weaker-strength long-rolled products, Nucor offers a well-diversified product portfolio.Over the past decade, Nucor's management team has stressed the importance of optimizing raw material costs. The company has made progress toward this objective, and as a result, its competitive positioning has improved. In late 2012, Nucor engaged in a joint onshore natural gas drilling program with Encana to hedge its increasing operational leverage to the price of natural gas. Additionally, Nucor has built out its direct-reduced iron production capacity, as DRI produced via low-cost natural gas has emerged as a slightly more cost-effective EAF feedstock than imported pig iron. Also, in 2008, Nucor acquired David J. Joseph, one of the largest ferrous scrap metal brokers in the United States. As scrap prices can be volatile, this effort to vertically integrate has served the company well by ensuring that Nucor has access to a consistent, sufficient supply of ferrous scrap for its EAFs.Nucor has been profitable all but one year since 1966 and remains well positioned to sustain consistent profitability. With a tradition of capable leadership, Nucor has historically improved its competitive positioning during cyclical downturns thanks to disciplined capital allocation.