Recent guidance from steelmakers has provided crucial insights into the industry's current state.
Steel Dynamics (STLD, Financial) is trading slightly lower after projecting Q2 EPS at $2.64-2.68, falling short of analyst expectations. The market reaction has been muted, likely because this outcome was anticipated. Nucor (NUE, Financial) and STLD typically release EPS guidance around the middle of the last month each quarter.
- On Friday, Nucor issued downside guidance, which likely prepared investors for a similar move from Steel Dynamics. Additionally, US Steel (X, Financial) provided guidance today, surprising some by aligning Q1 EPS with expectations but lowering Q2 adjusted EBITDA guidance to approximately $425 million from the previous $425-475 million range.
- Nucor's guidance lacked detail, but Steel Dynamics offered more context. STLD expects Q2 EPS to be lower both year-over-year and sequentially. Specifically, Q2 profitability from its steel operations is predicted to be significantly lower than Q1 due to lower pricing offsetting steady shipments. However, STLD sees robust domestic steel demand, particularly from the automotive, non-residential construction, energy, and industrial sectors. The hesitation in steel buying stems from a weakening scrap price environment.
- For mini-mills, like those operated by STLD, scrap prices are crucial. As scrap is a major input, lower scrap prices often lead steel buyers to delay purchases, anticipating lower steel prices. This trend is impacting Q2 results.
- US Steel noted that its Adjusted EBITDA guidance reduction reflects stable domestic flat-rolled steel demand despite a volatile spot steel pricing environment. In Europe, X has restarted a previously idled blast furnace due to improving demand. However, challenging market conditions continue to affect the Tubular segment. Regarding its acquisition by Nippon Steel, X reports progress is being made.
Overall, both STLD and X are seeing muted market reactions despite weak guidance and a sluggish pricing environment. Nucor's earlier guidance likely set the stage for this, and perhaps STLD's guidance was not as dire as feared. Positive comments on end-customer demand from both companies are also helping to support their stock prices. Nonetheless, Q2 industry dynamics are expected to pressure steel earnings this season.
