* Dollar drop led to increased overseas interest in scrap.
* Scrap business crimped by less flow into yards
* Overseas scrap buyers were absent up to 45 days in Q2
By Carole Vaporean
NEW YORK, July 22 (Reuters) - Nucor Corp.’s (NUE.N) steel scrap processor has recently seen some improvement in its business that it expects will last for the next 2 to 3 months, helped by exports as the dollar declines, executives said on Thursday.
“I don’t see a run-away bull market. Just seems to be a stabilization around this range and possible strengthening as we look out the next 60 to 90 days,” said Nucor Executive Vice President Keith Grass and President and Chief Executive Officer of The David J. Joseph Co scrap operation.
Nucor’s mini-mill operations use scrap as a raw material to produce steel, but David J. Joseph, bought by Nucor in early 2008, is also a top steel scrap processor and trader, based in Cincinnati, Ohio.
Nucor executives were talking to analysts on a conference call after earlier reporting better-than-expected second-quarter profit and sales nearly 70 percent greater than the year ago quarter. But the Charlotte, North Carolina-based steel maker warned that the economy is in a “new period of uncertainty.” [ID:nN22207050].
During the second quarter, Grass said, David J. Joseph saw a drop off in its scrap operations, that he now thinks has leveled off or bottomed out.
“Certainly, we’ve seen the downward trend during the course of Q2, and we probably feel as though things have stabilized or to a degree bottomed,” the executive said.
A key factor leading to the second quarter downtrend, was a 25 to 30 percent drop-off of scrap flows into all of its processing facilities.
“We’re seeing a little bit less flow into the (scrap) yards during the course of the past few weeks,” Grass said, adding David J. Joseph has recently seen an increase in inquiries coming from customers in the export market with the dollar weakening since early June.
“They had been absent for 30 to 45 days in a more aggressive way. They have reentered to a degree. And from the beginning of the (third) quarter to now, we’ve sort of seen a reversal in the dollar. It started to move a bit lower.”
Grass said scrap prices tend to move in opposite direction to the dollar. When the U.S. currency moves lower, scrap prices strengthen with increased demand from overseas buyers.
During the second quarter, Chief Operating Officer John Ferriola said, the spread between Nucor’s mill selling prices and its iron unit usage cost increased by $36 per short ton to $361 per short ton.
“While the cost of scrap and scrap substitutes increased by $55 per ton, margins actually improved significantly as a result of a $91 per ton increase in the average mill selling prices (of steel),” the COO told analysts.
Dan DiMicco, Nucor Chairman, President and Chief Executive Officer said, The David J. Joseph Company is expanding its scrap processing platform through both acquisition and greenfield opportunities, pointing out the company’s planned pig iron project received an environmental permit in May from the state of Louisiana.
Ferriola added, however,Nucor had not yet made a decision on pig iron, a scrap form of iron.
“I will emphasize that we do remain committed to increasing our control over low cost supplies of high quality scrap substitutes,” the COO said. (Reporting by Carole Vaporean, additional reporting by Steve James;Editing by Sofina Mirza-Reid)