You may not be aware, but Nucor (NUE ) is the largest mini-mill steelmaker using electric arc furnaces to melt scrap steel to produce its products. So, when people are bringing their scrap metal to junkyards, Nucor is the type of company buying that metal in bulk from the yards to put it through the furnacing process:


In fact, Nucor being the scrapper that it is, bought nearly 20 million tons of scrap last year. That is pretty hefty. This volume means that Nucor has a substantial percentage of the overall steel scrap market, perhaps as high as 30%. Last week BAD BEAT Investing issued a trade alert on the stock. In this column we look at production fundamentals. We think the stock has potential at current levels for the long-term.

Now, it is important to note that the company also does more than just scrapping. Nucor also makes what is known as a hot briquetted iron and direct reduced iron. Essentially these two items as well which function as steel scrap substitutes for arc furnace feedstock.

In total, the company operates several dozen production facilities, rebar facilities, and other processing plants. The vast majority of which are located in the United States:


Sources: Investor annual summaries, investor presentations

Steel pricing and demand

This trade highly depends on steel prices and demand going forward. We know that by looking steel prices over the past several months there is high volatility:


The World Steel Association predicted a small increase (0.5%) in global steel demand for 2017. That projection ended up being way too conservative. For 2018 they are projecting an 8% increase in the price of steel. The forecast is a reaction in large part to China’s 9.3-percent increase in demand, but also the AIA’s projection that the pace of construction will accelerate through 2019.

This demand for construction will follow growth in demand last year, which was not just limited to China and North America:

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