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Nucor Steel Price Decision Is Smart

Nucor is smart to hold down prices on long products, and this is is hardly reflective of demand weakness.

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has raised sheet prices $40 a ton and plate prices $60 a ton, according to the trade press. But Nucor has left prices for all long products unchanged for the coming month. The pricing moves are consistent with our thoughts ahead given flat scrap pricing.

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Demand Is Weak, not Weakening

Although the trade press is reading Nucor's flat rebar pricing as signs of demand weakness, we disagree strongly with that assessment. We believe that demand is no weaker this month than last. Pricing hasn't been improving in any product because of demand. It's all been not only cost driven, but import-price driven, and after a nearly 50% uptick in rebar prices off the bottom in November 2009, it's unsurprising and good common sense for Nucor to hold the line for the coming month.

Customers Beginning to Build Inventories

With March import licenses up some 128% off the bottom in June 2009, it's impossible not to notice that imports are picking up at a time when domestic pricing is fairly unattractive relative to most other regions. We suspect this surge reflects the anticipation of further price increases domestically, so that buyers are guessing that by the time the relatively high-cost imported steel hits the shores, it will come in lower than domestic prices.

So it's a smart move for Nucor to hold the line on long products where it is the clear industry price trendsetter, and this move is hardly reflective of demand weakness. Demand is weak, that hasn't changed. Pricing is about costs and global pricing.

We've come to a point in the steel business where domestic demand may actually have become the single least relevant driver of pricing.

Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.