Thursday was a tale two of two metals: Alcoa stock dived on an outlook tempered by higher costs and lower production, while Nucor and Steel Dynamics closed at record highs after predicting a record profit in Q2. But Cleveland-Cliffs wasn't invited to this week's steel stock rally — until today.
On Friday morning, Cleveland-Cliffs surpassed Q1 estimates and said it expects to generate record free cash flow in 2022. Higher contract renewal prices are key to its outlook. The company boosted its average selling price expectation by $220 to $1,445 per net ton.
Both Nucor's earnings early Thursday and the Steel Dynamics report late Wednesday highlighted strength in nonresidential construction markets.
Both steel and aluminum prices have surged since Russia's Feb. 24 invasion of Ukraine amid high natural gas prices and supply disruption worries. While the Russian invasion reversed a dive in steel prices, it turned up the heat on already-sizzling aluminum prices.
Yet Alcoa said it will incur $115 million in extra raw materials costs this quarter. Management also said it will curb supply of bauxite, the feedstock for alumina and aluminum, in response to its exit from supplying Russia.
BMO Capital Markets analyst David Gagliano trimmed his target for AA stock to 95 from 99, keeping a market perform rating. He cited bauxite production and cost pressures as making for a "somewhat temepered" outlook.
Earnings are due from steelmaker Cleveland-Cliffs on Friday.
STLD, NUE and CLF stocks all scored breakouts in late February or early March, then continued to outperform the market.
Steel stocks are ranked No. 6 among 197 industry groups based on stock performance and momentum. Nucor stock is part of the IBD Leaderboard portfolio of elite stocks, while CLF stock is part of the flagship IBD 50 list.
Cleveland-Cliffs
Cleveland-Cliffs posted Q1 EPS of $1.50 vs. a 7-cent year-ago profit, topping estimates by a dime. Revenue grew 47% to $5.955 billion, beating by a half-billion dollars.
CEO Lourenco Goncalves highlighted the company's integrated model in the earnings statement: "No steel company can produce highly specified flat-rolled steel without using pig iron, or iron substitutes like HBI or DRI, as feedstock. Cleveland-Cliffs produces in house all the pig iron and HBI we need, right here in Ohio, Michigan and Indiana, using iron ore pellets from Minnesota and Michigan."
That differentiated model may have been why CLF stock fell on Thursday, as Alcoa, Freeport-McMoRanFCX and other miners struggled.
Following earnings, CLF stock climbed 7.5% to 31.79 in premarket action. If the gain holds, CLF stock will more than recoup losses from earlier in the week and retake its 21-day moving average.
Nucor
Nucor earnings grew 147% from a year ago to $7.67, 37 cents ahead of estimates. Revenue rose 49% to $10.49 billion, edging past views.
Nucor noted decreased profitability for its sheet mills in Q1 due to softer pricing amid increased imports and modest destocking of inventories. However, an upturn in prices should yield higher profit for the sheet and plate mills in Q2.
NUE stock rose 3.75% to 175.59 in Thursday stock market action, but came well off an intraday high of 187.90. Nucor stock closed has climbed 39% since its Feb. 25 breakout.
Steel Dynamics
Steel Dynamics earnings per share surged 187% to $6.02, beating by 36 cents. Revenue grew 57% to $5.57 billion vs. estimates of $5.32 billion.
Steel Dynamics said the results, which came despite lower hot roll coil pricing earlier in the quarter, reflected a near doubling of operating income for its steel fabrication operations.
"The non-residential construction sector remains strong, resulting in a record order backlog with record forward-pricing for the company's steel fabrication platform," the company said.
Meanwhile, Steel Dynamics said its Sinton, Texas, mill coming online should ship about 1.5 million tons this year.
STLD stock rose 1.9% to 93.24, after shooting up to 100.37 intraday.
Alcoa Stock
Alcoa earnings per share vaulted 287% to $3.06, 13 cents ahead of views. Revenue grew 15% to $3.293 billion, shy of $3.45 billion estimates.
Alcoa said it expects $115 million in additional energy and raw materials costs this quarter, but said that should be more than offset by higher alumina and aluminum prices and shipments. The outlook for bauxite shipments this year was cut by 2 million dry metric tons to a range of 46-47 million.
AA stock sank nearly 17% to 72.20 on Thursday, gapping below its 50-day line and killing its momentum for now. AA stock remains 37% above December's buy point.
