Q1 2020 Earnings Call
[music] moment and stuff to alter the hero surrounding us during these unprecedented times.
Okay and buyers we began.
Good day, everyone and welcome to the Nucor Corporation first quarter of 2020 earnings call. As a reminder, today's call is being recorded later, we will conduct a question and answer session and instructions will come at that time certain statements made during this conference call will be forward looking statements that involve risks and uncertainties. The words, we expect belief anticipate and variations of such work.
And similar expressions are intended to identify those forward looking statements, which are based on management's current expectations and information that is currently available.
Although nucor believes they are based on reasonable assumptions there can be no assurance that future events will not affect our accuracy more information about the risks and uncertainties related relating to these forward looking statements may be found in the Nucor's latest 10-K, and subsequently filed 10-Q's, which are available on the Fccs and Nucor's website.
Forward looking statements made in this conference call speak only as of this date and Nucor does not assume any obligation to update them either as a result of new information future events or otherwise for opening remarks, and introductions I would now like to turn the call over to Mr. only onto Palin, President and Chief Executive Officer of Nucor Corporation. Please go ahead Sir.
Good afternoon, and welcome to our first quarter earnings call.
I want to begin today by taking a moment to alter the hero surrounding notes during the unprecedented times.
Thank you to the doctors nurses in healthcare workers drone close when the natural tendency is to pull away.
Thank you to the empties in first responders like my own daughter, who are serving on the frontline's battling to save lives.
Thank you to the U.S. postal workers, you P.S. synthetics drivers answer the truck drivers delivering or food and medicines.
I'd like to also setting for Nucor team members, who have continued to work in order to support our country, the central systems and processes and finally I want to offer our thoughts and prayers are sympathy for those who it was two loved ones or who currently have someone fighting this terrible disease.
Joining me in honoring materials on our call today for the members of Nucor's executive team, including Jim Frias for Chief Financial Officer.
Craig Feldman responsible for raw materials.
The Ladd hall responsible for flat rolled products.
Right into politics responsible for engineered bar products as well as Nucor's digital initiative.
Maryann will easily responsible for plate structural in tubular products.
Dave Sumoski responsible for merchant bar products.
Chad Utermark responsible for fabricated construction products.
In out there are most recently named executive Vice President.
Into our teammates listening in your health and safety is our most important responsibility.
Thank you for those of you who continue to work from home and those of you who are working to save we produce the products are customers need to continue to support its central projects across our nation.
We will get through this pandemic by living our culture everyday staying focused and taking care of one another.
Currently over 40 states, where we operate our facilities for subject to other shelter in place we're stay at home orders.
And every one of these jurisdictions nucor has been deemed in the central manufacturing operation.
Some of the essential projects. The Nucor continues to produce feel for include the expansion of the Mayo clinic in Arizona.
The Henry Ford Health care system in Detroit, and many other hospitals across the nation in New York, California, Oregon in Minnesota.
Our sheet Mills recently received orders from hospital bed manufacturers, we prioritize those orders and got the material turned around and one and a half weeks. Thank you to our team for making that happen.
Military and defense applications, including two aircraft carriers being built the United States Navy.
And civil nursing homes assisted living communities in critical infrastructure projects across the United States.
Over these last several weeks the spirit of Nucor's culture has been on full display or.
Our teammates are not only continuing to serve our customers.
But they're living up to the deeply sure extensive responsibility to the communities in which we operate in we live.
There have been numerous stories of our team members finding ways to help their communities. During this crisis by exercising the entrepreneurial spirit that brought them to nucor.
For example, Nucor teams all of the country have been pulling resources in overnight thing in 95 masks and other critical pp to medical units and need.
Our team members in Seattle in Nebraska are utilizing personal in company owned Threed printers to produces many is 100 and age approved face yields per day.
Our Vulcraft near team has created and donated specialty hardhats with face fields to the local hospitals.
Our new core LMP team in Missouri has been delivering meals to local senior centers.
And one of our engineers at Nucor steel, Berkeley is producing intubation boxes to protect doctors and nurses in the operating room.
These are just a few of many stories that make me incredibly proud to work with the greatest team assembled anywhere in the world.
In late February we took several proactive steps to prepare for the co. Good 19 pandemic.
Including establishing three task force teams to guide our response.
Main coded 19 task force to provide guidance to our general managers, who run each of the divisions.
Paying benefits task force focused on the financial well being of our team members and a commercial task force to work with our customers, making sure that we provide uninterrupted customer service and that our customers continue to recognize nucor is sustainable and reliable supplier of choice.
Turning to our first quarter performance 2020 got off to a good start with an operating rate of approximately 90% at our steel mills and very strong earnings from our steel products businesses.
Excluding the charges, we took related to or defer to fund investment our earnings were just under the guidance range. We indicated in our March 19th news release.
Order activity and backlogs remain strong well into March reflecting solid underlying demand in nonresidential construction and other end use markets.
The Corona buyers pandemics impact to our overall business has been very.
Automotive and oil and gas end use markets have been the most severely impacted while demand for non res construction products continues to be quite strong.
Our facility serving these construction applications continue to operate at high utilization rates.
We are well positioned to weather the economic downturn and emerge from is poised to grow again once it's behind us.
Nucor is a low cost producer in each of the diverse markets in which we compete and our businesses generate healthy cash flows throughout the ups and downs of the business cycle.
Our strong balance sheet in good liquidity. During these distress business conditions continues to be a source of real competitive advantage.
Finally underlying demand going into this crisis was robust.
As we see America reopened for business, we believe that demand is still there and it will return quickly in most end use markets.
However, as you might expect we are taking steps to further enhance our liquidity position. During this time of significant uncertainty. We will also continue to look for ways to enhance our competitive position through this strategic allocation of capital.
Nucor's currently evaluating all of our capital projects across the enterprise to determine which projects will continue to move forward.
Which projects, we will pause as we assess the depth and severity of the pandemic in oil crisis facing our globe and finally those projects that we will re address at another time.
We're also aggressively managing all inventory positions, including scrap with finished goods.
We believe that these initiatives will allow nucor to generate more than an additional $1 billion in free cash flow in 2020.
I also want to note. So we believe it's vital for Congress and the administration to move forward immediately with a significant infrastructure spending bill with a strong made in America provisions that include melted in poured for the United States steel industry.
Our domestic infrastructure needs have been neglected for too long.
Large scale infrastructure effort, but not only generate the economic activity in jobs, we need now, but would also be an investment in our nation's future competitiveness.
In closing let me just note that we have faced crises before nucor images. During these times when the strengths and sustainability of our company. Our most evident as we move for Nucor will stay focused on the health and safety of our team serving our customers and supporting our communities, while preserving and growth.
And shareholder value.
Jim.
Thanks Leon.
Hi, joining leon in offering like Boston prayers to everyone impacted by this terrible virus.
And also my tremendous granted to to the heroes working on the front line to save lives and the pandemic.
The Nucor team has responded to this challenge the way our company's net every difficult period, we faced over the years by focusing our Townsend commitment on building, an even stronger nucor for each other our customers our shareholders in communities in which we work in live.
The resiliency and sustainability Nucor's business model is built on these powerful attributes our team oriented culture built on a foundation of trust.
A highly variable and low cost structure.
Our market leadership positions across our highly diversified product portfolio.
Our robust cash flow generation through the cycle and a strong balance sheet.
Nucor's balance sheet strength is evidenced by the fact that we hold the highest credit ratings of any steel producer headquartered in North America with an a minus long term rating from standard and poor's and to be doubly one rating from Moodys.
We believe our financial strength is a key strategic advantage.
It has been a critical underpinning nucor's ability to consistently growth long term earnings power and reward our shareholders through 70 rest recessions and nine steel industry cyclical downturns since we began steelmaking in 1969.
Nucor's paid an increase its regular based dividend for 47 consecutive years.
We expect to continue this practice through this difficult period as well.
With regard to our first quarter performance I Echo Leon's comment that we had a good first quarter in terms of operating profitability.
Our cash provided by operating activities exceeded 200 million for the first quarter, even after we funded $160 million in profit sharing from by Nucor teammates.
As well as working capital expansion on the inventory receivables and payables line items totaling another $194 million.
Working capital expansion typically consumes cash during our first quarter.
We expect us to reverse during second quarter, given the downturn in business conditions brought about by the pandemic.
Working capital contraction can generally be relied upon is a counter cyclical benefit for nucor enhancing our cash flow and liquidity more challenging environments. For example, working capital reductions generated cash flows from about $1.2 billion in 2015, and approximately $620 million in 2000.
Isn't nine.
As we enter this time of significant uncertainty we are taking additional steps to maximize our financial flexibility.
In addition to normal working capital adjustments, we're further reducing inventories to increase turn rates and maximize liquidity.
We remain confident in our competitive position and financial strength in this environment.
That said, we believe it's prudent to review our capital expenditures budget to identify projects that we can free spending on or delay initiating again with the goal of maximizing financial flexibility.
As a result of this review we've revised our full year 2020 capital expenditures estimates down to less than $1.5 billion from our initial projection of approximately $2 billion 40 year.
First quarter of 2020 capital spending was about $417 million.
Our prudent approach me schedule critical work, such as engineering and permitting or continuing without interruption.
Now I'd like to update you regarding the strategic growth projects that have recently come online or will begin operations later this year.
Our Galston, Kentucky Hot band Galvanizing team doubled outside shipment tons in the first quarter 2020 compared to fourth quarter 2019.
Our new 500000 tons per year 72 inch wide galvanizing line is the widest hot rolled galvanized unwind in North America.
The Galton team achieved nameplate capacity in March and now believes nucor capacity will approach 700000 tons per year.
Our new Cold mill at our Hickman, Arkansas location continues to ramp up well.
The team there delivered first quarter of 2020 production at our dual configuration reversing bill that was more than doubled the average output of the three quarters did it operated last year.
Hey, good team is now taking advantage of the current marketplace disruption to run development orders for automotive advanced high strength steels.
We are ready to serve our growing base of automotive customers as they returned to work.
Our key Ono and merchant bar willing donors completed construction and equipment commissioning is now underway.
We expect to start shipping product during the second quarter.
He's expansion is targeted to benefited from significant logistical advantages, allowing nucor to provide our customers with the full range of Nvq light shapes and structural angrily channel out of one location in part of the attractive Midwestern markets.
Our Sedalia, Missouri rebar Micromill to successfully started operating its melt shop enrollment in a continuous process.
Production ramp up continues in output is receiving strong support from independent fabricators in the region.
Our Frost proof, Florida rebar Micromill remains on track for completion later this year.
Finally, our galvanizing line joint venture with JP in Mexico is not currently operating under the terms of the decree by the Mexican government.
The Mexican automotive industry in supply chain has not been granted essential industry status at this point.
We are hopeful operations can resume in the coming weeks.
Before I turn the call back over Leon Let me say that while these are very challenging times I'm encouraged by the extraordinary determination in performance delivered by the 27000 men and women of new core my confidence has never been greater than Nucor's best years are still ahead of us. Thank you for your interest in our.
Company Leon.
Good afternoon, and welcome to our first.
Thank you again before removes acuity, let me just comment on the substantial charges, we took related to our deferred fund investment during the quarter.
We acquired our 50% interest in deferred revenue quarter during the summer violate.
Soon after the transaction closed we were faced with a dramatic shift in the regional economic outlook at the scope and severity of the global financial crisis became clear.
We are partners and the deferred teammates quickly turn to the task of positioning the business for sustainable success in the new environment.
Over the years, the frozen and made considerable progress at enhancing its capabilities and improving its efficiencies, but even as great strides remain within the business from regional economic environment is only become more challenging.
With the advent of the Corona virus pandemic with particular severity in northern Italy in some further changes in regional market dynamics, it's become clear to us that the investment was worth substantially less than its carrying value on our balance sheet.
Operator, we're now ready to take your questions.
Thank you if you'd like to ask a question. Please take note by pressing star one on your telephone keypad and if you are using a speaker phone today. Please make sure that your mute function has turned off hire signal to reach our equipment once again that someone to signal and our first question today comes from Chris Terry.
Thanks.
Okay.
So the size and World Cup couple of course. This remains just wanted to start on on the Capex just high level. So the reduction to less than 1.5. This year does on May 2021, 2022 et cetera that totaled 3.5 below growth opportunities that you were but youre, saying.
Okay is that there were number four we should look at that as spice equated to feral or have you changed the next few years as well. Thank you Thats left for fourth quarter.
Yes. This is Jim Frias I'll start with that question Lisa If you add something you can but quite frankly, what we're doing is taking a pause that gives us flexibility so depending on what our outlook is as we progress to the remainder of spending more than $2 billion next year or less than $2 billion next year, we have flexibility to achieve.
How quickly we put things back up to full ramp in terms of this capex projects. So 2021, it's too early to call, we'll make a decision on that by the end of year.
Okay. Thank you and then just just trying to square as some of the cash items. I think you commented that you expect to still get over 1 billion of free cash flow.
I Wonder if you could comment on your cash tax rate, which I think is quite a bit below your pay in elteks rights and just some of the working capital improvements United talked about 2000 non in 2015% just wanted if you could give some data on the free cash flow number. Thanks.
Yes.
Just to clarify.
I think we are meant to read cash from operations net free cash flow net portion scrip getting felt working capital will add to cash from operations by roughly $1 billion, but let me walk you through some of the pieces when you come up with computing, what our cash from operations will be and then after capex with free cash flow would be so let's start with an earnings number im not to give you forecast running for the.
Sure.
We really don't ordering should be but certainly we're going to make money. This year than you would add to that our depreciation amortization, that's roughly $720 million within working capital. The point that we entered Scott is making is going to generate more than a $1 billion of additional cash from operations. This year and then finally, we are going to get a.
It depends partly on how much money, we make but on the full potential is $350 million. This year because of the accelerated depreciation were getting on projects that will start at this year. This has nothing do with a deferred projects projects excuse me and then over the next three to four years that net tax benefit is likely to be $7 million to $750 million.
So does that cover three Chris.
Yes, thats helpful. Thank you I'm getting the loss on for May and a number of companies have commented that the non res construction market is the one area of relative strength within within that within the context of demand set to Q and heading forward I just wondered if you could comment on whether you delays that is because as a backlog.
All because that industry will will stayed robust just just Todd this sort of differential between the three to four months backlog that other companies have talked about thanks.
Yes, Chris as we've looked at a construction in some sort of a dichotomy in today's pandemic and so what I would tell you is some I'm incredibly proud of our Vulcraft Verco and building systems teams all of which subset record profitability in the first quarter, but as we moved into Q2 their backlogs continue to grow and so there is a lot of reserve.
Anything in this market and so we're optimistic but also looking to to be very deliberate and how we spend and as Jim mentioned our flexibility towards.
After the allocation as we move forward, but that is the area that is shown great resiliency as we move through this current climate.
Great. That's it from night, Thank you very much.
Thanks, Chris.
Our next question comes from David Gagliano at BMO capital markets.
Great. Thanks for taking my questions.
So as I just want to clarify something in the press release through to me. It's I think as a nucor has decided to freeze spending.
On certain capital projects currently in process, and then delay capital projects that have not begun.
The remarks, it sounded to me like.
They indicated that the projects for 2020 startup are actually basically still on pace to happen.
And it sounds like 2021 and beyond pipeline.
They haven't been aim decisions made as of yet. So it's all my questions are specifically what projects are being deferred and frozen for how long and then secondly, where does the 500 million dollar reduction 2020, Capex company specifically.
Okay, David Thank you and I'll begin and just maybe some commentary at the end. So as we look at the projects that we've talked about for probably the last 18 months around at 3.5 billion of investment.
All of them long products.
The micro mills in both Sedalia, which is running soft group are going to move forward. The bar mill expansion as Jim mentioned in his comments.
Intensities is moving forward and now.
Beginning to commission or marrying upgrades are up and running some really the.
The the Paul said, we're thinking on capital expenditures come both in branded burden of plate mill as well as Allison expansion in both of those are a pause and timing not strategy. We're very committed to producing play and believe we're going to have a differentiated product offering in both Brandenburg end, gallatin and offering things that.
No other EAF producer concurrently offer so as we move forward and if you mentioned, it's too early to view the 21 landscape, but those projects will come back. It's just a matter of timing on when we execute them, yet and if I could add to that I would say at the other thing is there a number of projects, they're smaller that we never.
Broadcast that they specifically are that we are reducing spending on where it makes sense of similar for an awful long course completion it didn't make sense to stop and others were early days, where could we couldn't stop and without causing a disruptive with disruptive effect any equipment suppliers or on our divisions that we're executing those projects. The other thing I'd say is.
With these bigger projects.
We are continuing to spend on things that we think are critical path items, such as engineering and permitting so that if there is some delay we can minimize that delay if we gained confidence and decide we want to push and accelerated capital spending again try and get these projects online sooner rather than.
Sure.
Business, Okay, that's healthy underlying loss is maximizing flexibility.
Okay understood I appreciate thats helpful. So just a couple of quick follow us on the.
Plate mill and the Gallatin expansion, how much of the 500 million.
Reduction is attributable to part in those two projects specifically and then the second question as.
The timeline and the in the previous presentations showed the galton expansion in mid 2021.
And then the plate mill, obviously, the biggest project I think in the history of Nucor late 2020 to start up what should we take about sort of timeline doubts about those projects. Thanks.
David I'll begin with the latter question first and maybe Jim can comment to the specific or not but as we think about Brandenburg as well as Gallatin one of the things right now is really too early to predict.
When we start back what I would tell you in brand of Aerospace engineering is going to continue moving forward and so even if we pause for three or four months that really won't have a material impact on the startup because we'll be able to make that up as we move through construction because quite frankly, our engineering will be that much further along.
So it really is a dependent factor on when do we on pause in when do we continue to move forward and so little early to tell but we'll have more color on that and clarity as we move into the quarter.
They still thing I'd say is we don't want to break down a detail where the savings are coming from but certainly galpin and.
As well as the platinum brandenburger big contributors to that reduction Capex.
Okay, Great and then just last piece the galton startup timeline, but was mid 2021.
Now what do you think it's going to me.
You know what we haven't revised that David again quite frankly, as we just don't know how long that pause maybe it could be another month, and we're executing and we didn't delay at all.
We'll have to just wait and see as we assess the link in the depth of this up endemic in oil crisis.
Okay. That's helpful. Thank you very much.
Thank you.
Our next question comes from Seth Rosenfeld of Exane BNP.
Good afternoon. Thank you for taking the questions on if I may with regard to the steel products business I'm wondering can give a little bit more color with regards to the fabrication backlog that how you could have developed over recent weeks.
And when you think about how your steel products business intersect with the mills. So we think about that as being an increasing but at a buffer on that perhaps third party sales in the Mills Division sell fall in Q2 things like that increased our internal sales going into downstream applications steel products.
And then lastly, maybe some color with regard to margins and how you expect it to progress going into Q2, assuming a reduction in scrap input costs for steel products.
Okay.
Okay. Thank you said that if we don't get all three parts of that question. Let me know Chad Utermark. Once you start out on the first part of the question regarding backlogs in our products businesses, yes. Thanks Leon.
In both our joist and deck and Nucor buildings group as well as.
Rebar fabrication, our backlogs are strong actually up year over year. This has led by large commercial and warehouse projects data centers and quite frankly tilted 90 has had a very small impact we have had some regional delays and stop work orders, but we will expire.
Factors States come back online for those projects to start at the end.
This continued solid steady nonres construction market I think leaves us well into Q2 Q3 that historically when there is economic downturns, our businesses will lag six to nine months is we'll see a little bit of a pause.
With that self induced.
Economic downturn big time will tell whether that impact will be the same but we are we.
Got a strong backlog right now we're pretty excited about Q2 Q3. Thank you Ken you Mick I know in internal turns consumed.
We think of that is a really important strategic advantage our position there because roughly 20% of steel typically goes into those downstream businesses. In 2019 that was roughly 4 million tons that we just count our wholly owned subsidiaries, if we feel technologies, which we own half of that we've been four and a half million tons in 2000.
In 19 in the first quarter, just counting the new portfolio. So it was 1.15 million tons. So again, a significant amount of this deal that we sell tickets to go through businesses that we own and Thats a key component it will not change dramatically in the second quarter, we don't buy very much.
Outside sources, we pretty much set supply wherever we can already significantly shifting that mix and go forward and I can't remember their credit.
Yes.
With your last point of the question Seth around scrap pricing that I missed I missed okay, sorry always around a margin assumptions within steel products into Q2.
Now with their audience to scrap with regards to the steel input cost. If you have an assumption with regard to fuel margin strikes so product margins in the Q2. Please thank you.
Yes. This is Chad upset the our margins are strong and we don't anticipate those follow.
See you know what's going on the scrap market in steel pricing and again demand drives our business in Latin America demand is healthy.
Great. Thank you very much.
Thank you.
Our next question comes from Timna Tanners at Bank of America.
Hey, good afternoon, and thanks to the kind I hope airing Kathy.
Hi.
I wanted to see if I could get a little more color on how you're talking about now that you're NK process that Atlantic Quito, and something that I can't Applebee minus five outside then and and like you mentioned and I really cannot typically the ensign closure and supply.
So just wanted to know if you could provide a little bit more of a snapshot of how to think about the products. So far into the quite or is it nicely at flat then lets them play and SBQ and then long products are holding up volume wise are key to battle in my time.
Sure Thanks, Tim and as we look at at the flat side of our business, particularly the hot band is probably had been impacted along with the engineered bar for the oil and gas segment. So those are the two areas of our business portfolio that have probably been the most impacted.
As we think about them long and construction segments, though those continue to run.
In fairly high utilization rate 75, plus in some areas and even stronger and some others and so but it even as we think about the sheet side, our value added product in the cold rolled and Gal are at 80% or better and most of our plants in some wanting year capacity. So again, it's a little bit of a mixed bag, but overall the automotive.
And in engineered bar.
We'll be the most directly impacted for us.
Okay. Thanks, and then if I could on taking a little higher level I, just think about what kind of than contain that you could see in terms of overhead. So it sounds like it you're not as panicked about this downturn as you as comparing it to that great financing the global financial crisis as you mentioned that in 2008.
2009, you cut SNA by 300 million and I'm, just wondering if times, there, particularly challenging.
Could we expect something comparable in terms of SNA cats or can you provide a little bit more framework around how much you think overhead can be trend. Thanks.
I'll begin and maybe ask Jim to think through some of the the tail end of your question regarding SDMA and Tim I want to make sure we're very clear.
There is no pollyanna ask about are approaching early season markets today in the pandemic facing our lives is bigger than just our industry and steel it's affecting the global markets worldwide, it's affecting families and businesses.
Small and big and so part of the reason, you're you've heard us taking very deliberate moving pausing Brandenburg, which again strategically.
Makes all the sense in the world and we will move forward on is to really understand just has significant and how long. These pandemic in oil crisis may stay with us and so when Jim alluded to a comprehensive review of every project, we look across the spectrum at the enterprise on every capital dollars being spent to maximize.
Our financial leverage and liquidity position as we move forward too many specifics only CA.
It's about SDMA, a big component that is profit sharing and other incentive comp and when we make less money, we have less profit sharing less incentive comp now as you may recall in going into 2009 with a significant overhang of very expensive Taylor and we're not carrying that load. This time. So we're entering this down cycle.
They better position in terms of of the assets repairing our balance sheet and so pressuring prices come down by quite the same now remember profit sharing is the only picos too.
Our employee local level, Vice president of 10% of pretax profits going to pool and get split amongst all those employees every year, but all of our incentive comp plants will be flexing down and Thats, where most of those things will come in the other thing is as weve sheltered in place across our company, even though we're still operating we are selling in place we had most of our teammates.
No we're not on the road and making the calls on customers are visiting vendors are doing a lot of those activities. We normally do so a lot of resi they will come down to I don't have a hard number to give you, but we are being very thoughtful about saying, okay less reduced spending everywhere.
Our maintenance teams are doing everything can be reduced reliance and contractors. As an example of women places, we're trying to reduce spending and thats out as soon as an operating expense that we're looking to reduce spending wherever it makes sense in the way that doesn't hurt the business spot.
At the quality of course, a philosophy and culture is devalue the team we're not laying off the nucor teammates at our Cmos are fat businesses, that's not part of how we're saving costs.
Okay, great. Thanks, guys.
Our next question comes from Andrea Bock of CBS.
Well. Thank you very much just a quick question for me just to provide a little bit of a framework around the current oil price.
Do you guys think about it just given where oil price levels on the term saw any benefits. It may provide you terms of lower costs going into second quarter. Potentially also is that you know you expect any demand destruction for it and then maybe that comment as to what extent your hedging any oil if you want in fact doing that and it's.
And you know any clarity on that as well would be great.
But just kind of back you overall thinking about well when your ticket oil 20 Bucks like how do you think about the impact on your business. Thank you very much.
Yeah, Andres I'd love to tell you guys I really great picture of clarity in skew, Washington analysts today in yesterday, and probably tomorrow about what the oil prices will be in a month.
It's really anybody's guess, what I would tell you have the certainties of the things that I do know nucor's broad product offering enables nucor to.
Thrive in the businesses that were very strong as the construction side of our businesses were not overly weighted to oil and gas about 10% of our overall product is into the direct oil and gas business and so while it's certainly been a dramatic hit in the length of time, we're going to see that impact and how long it takes to fully recover I don't want to be even begin to speculate.
But what I do know as our teams are incredibly ingenious in how they continue to operate the mills and serving the customers in the sectors that are still doing well in HPC and heavy equipment. Other sectors that we continue to supply direct businesses as well as our service centers.
Yes, let me add to that Liam which is the idea from our cost perspective oil itself is not a primary could cost driver for nucor. Our biggest costs is raw materials or next biggest crosses energy, but thats, mostly electricity. Obviously, we have a lot of mobile equipment and we have nobody will leave at some of our businesses that delivers prior to our customers.
But the oil gasoline diesel fuel cost or not.
Insignificant if you think about that number but as a percentage of overall costs, they're fairly insignificant.
And we don't hedge those excuse me admit that commission as well.
Okay excellent yet that's very clear thank you very much.
Thank you.
Your final question today comes from Phil Gibbs of Keybanc capital markets.
Hi, good afternoon.
Good afternoon Phil.
It's the question on the raw materials side, one what's the what's the may outlook for scrap.
As of right now, but as you can tell and then secondarily.
When should we expect youre.
Our operations to begin production and I'll turn it over shut down and there was press about Louisiana being shut down as well.
Certainly I'll begin and then maybe ask Craig melman to want to jump in and maybe add some some thoughts.
As we think about be the scrap for for May look theres. Some tightening obviously, we're watching whats happening internationally, but also domestically we think may will be up.
As we think about obsoletes that will really be a demand driver, but also on prime the availability of prime with the auto plant shutdown in access to that.
It's an element where we have some great flexibility as our dry plant in Louisiana comes back on line and the fact is producing prime as of today.
Thats correct add some more detail to that but as we get into this market and really the tightness around prime in the value added products that we serve our customer base with the dry is going to be a great benefit in a benefactor as we move forward Craig you want to add anything sure on the spread market itself.
If theres a lot of availability internationally and we participate in a fair amount of that both the scrap and substitution, including a pig iron and.
We had alluded to you know you certainly see some constraints on the prime scrap domestically, but I think that scientists on level fairly quickly you could see a lag in supply of from scrap obviously the automotive.
Producer shutdown, but as they come back online availability will increase and I think they'll find a pretty good balanced relatively quickly.
Yes, the up the point I would make us we really do have a unique flexibility within our sourcing strategy or raw material strategy. We are we to flex between tigger source to on the seaborne market our own to drive plants are DJ scrap yards. So I really do have the ultimate the ability to shift in flux in that regard.
And then the other part of your question I guess is related to the via our plants.
The third as you alluded to turn that is still down subject to government order. Although we are waiting of decision. We do expect to resume operations fairly quickly there and his team, they're eager is ready willing and able to jump in and get back to get back to work as soon as our government orders lifted.
Finally, the as relates to Louisiana, we opted the early in the month to up to idle and as Dan said, we're producing plan today. The team has done a wonderful job, bringing that plant backup safely and back in operation today and I would also just point out that the reliability that they've improved on the last.
Several months.
Prior to this pause I know the Louisiana teams anxious to get back to producing.
At a high level as they were prior to that delivery Pauls, but again that the flexibility that that via right gives us in the marketplace is something that really positions us very uniquely.
Thanks, Greg.
And then looking on the comments that you made on infrastructure specifically in your prepared remarks.
Is that something that you are advocating as as a good as a good idea just because obviously it would benefit the steel industry or is that something you feel like is gaining.
Operating support for for some eventual outcome in the next 12 months because obviously this can't has been take for.
Couple of decades.
Yes look I think its role that I like my predecessors, with John Ferriola, Dan are going to be tireless advocate for fair trade in United States, but it's bigger than that one of the things that the global Overdependence as a supply chain into China is done many American people incident opened our eyes, not just in manufacturing and steel.
But in pharma are over dependent and medical devices and pp in equipment. It is time for our nation to be a nation that builds makes things in the United States again, and quite frankly with more than 25 million Americans at work today, a strong one wanted to have two trillion dollar infrastructure Bill will put one hundreds of thousands if not millions.
Of American workers back to where it is something we need in this country desperately Phil.
I appreciate that and then and then lastly, I think you also mentioned your prepared remarks that you take at some time.
At that hit in two.
Progress on advanced high strength steels with your customers is this downturn.
Specifically, allowing you to to accelerate those efforts.
And.
Trying to just gauge how that's being received and inevitably we might be able to see some commercial.
Success. Thanks.
Yes look in the short answer is yes, it is allowing us to do some of those things the team as our heckman facility has done an amazing job, bringing that cold mill complex up in online, they're continuing to progress than galvanizing line that again will be the first year producer to produce a generation three steel for the auto industry.
The fact that we serve all the major Oems is a tier one direct supplier gives us great access. So there that those trials are ongoing I couldn't be more excited and optimistic about the work that our team has done in positioning nucor for the future supplier of choice in that sector.
Thanks very much.
Thank you Phil.
That concludes the question and answer session today at this time I'd like to turn the call back over to Mr. only on to Cohen for any additional or closing remarks.
I'd be remiss in not taking a moment to thank Ladd Hall for is nearly 40 years, the service and new coal.
Well add on behalf of the 27000 men and women of Newport, we'd like to thank you selling in your entire family for your dedication service and sacrifice to our company.
Well our nation faces this crisis in times of uncertainty there are a number of things that are investors customers and team can be certain about.
Nucor has the greatest manufacturing team assembled anywhere in the world and we have the financial strength and discipline not just to survive. This crisis the fraud coming out of it.
Selling nucor to steward of valuable shareholder capital.
And to serve our customers as the North American supplier of choice.
Thank you for your interest in our company.
And this does conclude today's call. We appreciate everyone's participation today and you may now disconnect.
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