Nov. 27, 2013
Nucor's Aggressive Deals Changing the Markets for Inputs
When Nucor President and CEO John Ferriola addressed the delegates at CRU’s North American Steel Conference earlier this month, he spoke on one of his favorite topics: America’s energy renaissance. But now when the Nucor boss discusses energy, it’s not just as a major consumer, but also as a supplier.
A year ago, Nucor took a bold step by entering a long-term natural gas agreement with Encana Oil & Gas, a deal that not only provides Nucor with a supply of low-cost natural gas to meet its needs for more than 20 years, but one that will allow Nucor to sell its excess natural gas capacity on the open market, a nice hedge against fluctuating prices.
“When natural gas prices went down, some oil and gas companies were looking for capital to maintain their aggressive drilling programs. We saw an opportunity with Encana. We had the capital they needed and we needed gas. That's what makes a perfect marriage, when both parties have a need and something to offer,” he said.
That need will only continue to grow as Nucor pursues production of direct-reduced iron, a process that requires lots of natural gas. Nearing completion of its new DRI plant in Louisiana, Nucor has already expressed interest in a second DRI facility, and Ferriola suggested the company wouldn’t necessarily stop at two.
“Clearly DRI will have an impact on our raw material strategy going forward. When you look at the massive amount of prime scrap being consumed, we don’t see DRI having a major impact on that market. But having said that, as we move forward with a potential second, third or even fourth plant, it could eventually have an impact, particularly on pig iron,” he added.
David Hodory, vice president of marketing and communications for Nucor subsidiary The David J. Joseph Company, also expressed uncertainty over the impact of DRI on his business. The introduction of 2.5 million tons of DRI into the U.S. market is likely to affect imported forms of pig iron and DRI first. “The impact on the prime scrap market is much less clear. There are a lot of companies that have invested a lot of capital in the prime scrap marketplace that aren’t just going to naturally accept lower margins without a fight.”