Nucor 2013 Annual Report Download - page 23

22 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MACROECONOMIC CONDITIONS
After five years of recession, the worst the United States has experienced in decades, we still do not see any real and sustained signs
of a full recovery. Our nation’s unemployment rate remains high due to the loss of millions of jobs during the recession, the slow pace of
the recovery and the uncertainty surrounding domestic fiscal policies. In the face of these economic headwinds, the pace and degree of
recovery has been weak and uneven at best, and it has been experienced in fits and starts. While there has been some recent traction
gained in single-family housing starts, nonresidential construction (the sector to which we are most closely tied) has continued to languish.
Even though there has been some recent improvement in the U.S. Labor Department’s U-6 unemployment figures, which include not only
unemployed workers but also discouraged workers and those who are working part-time but would like to work full-time, those rates remain
historically high and employment is not expected to regain the peak reached during the most recent economic cycle for several more years.
Until a stronger job recovery takes hold, consumer confidence and spending will be inconsistent, indirectly diminishing demand for our
products. Macro-level uncertainties in world markets will almost certainly continue to weigh on global and domestic growth in 2014. We
believe our net sales and financial results will be stronger in 2014 than in 2013, but they will continue to be adversely affected by these
general economic factors as well as by the conditions specific to the steel industry that are described below.
CONDITIONS IN THE STEEL INDUSTRY
The steel industry has always been cyclical in nature, but North American producers of steel and steel products have been facing
and are continuing to face some of the most challenging market conditions they have experienced in decades. The average capacity
utilization rate of U.S. steel mills was at a historically unprecedented low of 52% in 2009. Since then, the average capacity utilization
rate increased to approximately 76% in 2013 and 75% in 2012. These rates, though improved, still compare unfavorably to capacity
utilization rates of 81% and 87% in 2008 and 2007, respectively. As domestic demand for steel and steel products is expected to
improve only slightly in 2014, it is unlikely that average capacity utilization rates will increase significantly. The average utilization
rates of all operating facilities in our steel mills, steel products and raw materials segments were approximately 74%, 58% and 62%,
respectively, in 2013, compared with 74%, 60% and 63% respectively, in 2012.
The steel industry has also historically been characterized by global overcapacity and intense competition for sales among producers.
This aspect of the industry remains true today despite the bankruptcies of numerous domestic steel companies and ongoing global
steel industry consolidation. The recent addition of new production capacity in the United States, as well as the very rapid and
extraordinary increase in China’s total production of steel in the last decade, has exacerbated this overcapacity issue domestically
as well as globally.
Foreign imports of steel continued to significantly affect our domestic markets. Imported steel and steel products continue to present
unique challenges for us because foreign producers often benefit from government subsidies, either directly through government-
owned enterprises or indirectly through government-owned or controlled financial institutions. Foreign imports of finished and
semi-finished steel accounted for approximately 30% of the U.S. steel market in 2013 despite significant unused domestic capacity.
Rebar and hot-rolled bar were impacted especially hard by imports in 2013 as imports of these products increased by 23% and
15%, respectively, over 2012 levels. Increased imports of bar have translated into even lower domestic utilization rates for that
product – utilization in the mid-60% range – and significant decreases in domestic bar pricing in 2013. Competition from China,
the world’s largest producer and exporter of steel, which produces more than 45% of the steel produced globally, is a major
challenge in particular. We believe that Chinese producers, many of which are government-owned in whole or in part, benefit from
their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them
to sell steel into our markets at artificially low prices.
China is not only selling steel at artificially low prices into our domestic market but also across the globe. When they do so, steel
products which would otherwise have been consumed by the local steel customers in other countries are displaced into global
markets, which compounds the issue. In a more indirect manner, but still significant, is the import of fabricated steel products,
such as oil country tubular goods, wind towers and other construction components that were produced in China.
OUR CHALLENGES AND RISKS
Sales of many of our products are dependent upon capital spending in the nonresidential construction markets in the United States,
including in the industrial and commercial sectors, as well as capital spending on infrastructure that is publicly funded such as bridges,
schools, prisons and hospitals. Unlike recoveries from past recessions, the recovery from the recession of 2008-2009 has not included a
strong recovery in the severely depressed nonresidential construction market. In fact, while capital spending on nonresidential construction
projects is slowly improving, it continues to lack sustained momentum, which is posing a significant challenge to our business. We do not
expect to see strong growth in our net sales until we see a sustained increase in capital spending on these types of construction projects.