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Rebounding Demand, Rising Prices Boost U.S. Steelmakers’ Profits

Steelmakers said demand is rebounding after a slump earlier this year, driven by booming construction and heavy equipment industries, and slowly expanding automotive production.

Despite higher raw materials costs triggered by Russia’s invasion of Ukraine in February, steel company executives said rapidly rising steel prices allowed companies to turn in better-than-expected profits in the year’s first quarter.

“Overall, the end markets that we serve, the underlying demand remains incredibly robust,” said

Leon Topalian,

chief executive of

Nucor Corp.

NUE -8.28%

, the largest steel producer in the U.S. in terms of sales.

Sales for steelmakers Nucor,

Steel Dynamics Inc.

STLD -3.89%


Cleveland-Cliffs Inc.

CLF -2.13%

are surging after steel customers had pulled back on purchases and prices fell sharply starting late last year, following an unprecedented buying spree during most of 2021 to rebuild depleted steel inventories. North Carolina-based Nucor’s sheet steel production volume during the first quarter of this year was the lowest start to a year since 2015, according to Credit Suisse.

Mr. Topalian said steel customers stepped up their purchases during the quarter, causing Nucor to accelerate its production after curtailing mills’ output early in the year for maintenance work.

“You’re going to see a very quick recovery,” he said during a conference call. Mr. Topalian on Thursday said Nucor’s second quarter ending in June is on course to yield a record quarterly profit.

The commercial construction and machinery sectors recently have upped their purchases of steel, executives said. Both Nucor and Indiana-based competitor Steel Dynamics Inc. reported big sales and income increases from subsidiary businesses that supply finished construction goods, including building joists and decking, pilings and fencing.

Steel Dynamics’ first-quarter sales from its fabricating unit rose to $930 million from $257 million during the same period last year. The unit’s quarterly operating profit soared to $467 million, 30% higher than the unit’s profit during all of 2021.

“Steel fabrication is operating at never-seen-before levels,” Chief Executive

Mark Millett

told analysts Thursday.

Steelmakers have faced higher prices for raw materials used to make steel, particularly scrap steel and pig iron, a type of raw iron derived from ore that is used to make steel in electric furnaces. Russia and Ukraine are two of the world’s biggest producers of pig iron, accounting for two-thirds the pig iron imported to the U.S. last year, according to the U.S. Census Bureau.

Since the outbreak of fighting in Ukraine, pig iron shipments from the countries have stopped, forcing U.S. steelmakers to seek other sources, often at higher prices. The spot market price of pig iron in the U.S. is about 70% higher since the start of the year. Steelmakers have been using more scrap in their furnaces to lessen their reliance on pig iron, helping drive scrap prices higher in recent weeks.

Cleveland-Cliffs Chief Executive

Lourenco Goncalves

said Friday the higher raw material costs will keep prices for finished steel in the U.S. elevated for the remainder of the year. Lower exports of finished steel from Russia also will shrink global steel supplies, he said, raising steel prices in Europe and other countries that usually bought Russian steel.

Cleveland-Cliffs has its own supply of iron ore in the U.S., and a plant in Ohio to reduce it to concentrated iron that can be melted in electric furnaces like pig iron to make steel. The company last year bought a chain of scrapyards to lessen its exposure to the volatile scrap market.

“We will benefit through higher margins on steel because our cost structure is not nearly as impacted,” Mr. Goncalves said.

The Cleveland-based company is the largest supplier of sheet steel to the U.S. automotive industry, where production volumes have been constrained for months by a shortage of parts, especially semiconductor chips. Cleveland-Cliffs said its first-quarter steel shipments to the automotive industry rose by 200,000 tons, compared with 2021’s fourth quarter. That volume was the highest since the chip shortages began a year ago, the company said.

Cleveland-Cliffs said it renegotiated six-month customer contracts starting in April with higher prices. The company raised its forecast average selling price for its steel this year to $1,445 a ton, up $220 from its prior estimate.

“The April contracts were a big success,” Mr. Goncalves said. “We were able to achieve everything we were planning for.”

Write to Bob Tita at [email protected]

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