You can’t blame Giff Daughtridge for being skeptical of China’s recent claim that it will cut production at its government-subsidized steel mills. After all, he’s heard it many times before.
“I think 2006 was the first news article I saw where China talked about overcapacity and the need to cut back,” said Daughtridge, vice president and general manager of Nucor Steel’s plant in Berkeley County. “Article after article since then they’ve talked about the need to cut back. And yet they set a record for production in March, another record in April and then, in May, they broke April’s record.”
Charlotte-based Nucor Corp., with 24 production mills nationwide, is the largest U.S. steelmaker, but its annual capacity — about 27 million tons — is less than one-tenth the amount China’s mills are churning out. In May alone, China produced 70.5 million tons of the ubiquitous metal — almost as much as all U.S. mills combined for all of 2015.
China’s over-production has contributed to a worldwide glut of steel, in which more than 700 tons of extra capacity is being made every year.
Unlike U.S. mills, Chinese producers are state-owned and state-financed, giving them little incentive to worry about profits. So the mills keep cranking out excess product, much of it reaching U.S. shores at a price that can’t be matched by American companies.
“Certainly there’s no way the Chinese could compete with us if they traded fairly,” Daughtridge said. “We can compete with anybody in the world if it’s a level playing field.”
Nucor’s Berkeley County plant, located along the Cooper River in rural Huger, has fared better than many U.S. mills. The 940-employee facility, is operating at roughly 90 percent capacity while Nucor as a whole is operating at 65 percent capacity, according to company officials. Anything above 85 percent is considered healthy, according to industry guidelines.
“We’re running at higher capacity now — part of that is trade cases and part of that is because our customers started the year with low inventories,” Daughtridge said. “The other piece is how hard this team has worked to develop relationships, applications and a product mix that makes customers want to buy from us and have long-term relationships, in the form of contract business, with us.”
The nonunion Berkeley County site operates 24 hours a day, making two products — flat-rolled steel for automobiles, water heaters and other consumer products and steel beams used in construction projects.
Beginning in late 2013, the plant underwent a $130 million upgrade that allows it to churn out thinner, wider and higher-grade varieties of steel. It was part of nearly $1 billion in investments Nucor has made at the Huger site since expanding to the Lowcountry in 1995.
Nucor’s philosophy of investing in its plants even during difficult economic times, Daughtridge said, is one of the reasons the Fortune 500 company has succeeded when others, such as the steel mill in Georgetown about 60 miles up the coast, have been shuttered.
“Other companies go to a down-cycle if they are having any kind of cash flow issues. They don’t reinvest and they don’t take care of some of the normal maintenance or reliability issues,” Daughtridge said. “But in a downturn, we think we have an opportunity to do a lot of work. So when things come back up, we’re ready.”
Daughtridge has been at the Berkeley County mill since 1997, but has been with Nucor for nearly 33 years. Last year, he was recognized by Gov. Nikki Haley as one of the state’s leading ambassadors for economic development.
The mill provides some of the highest wages in the industry — an average of $80,000 per year, not including benefits — while maintaining production costs that are among the lowest in the nation.
“We do a great job of hiring people,” Daughtridge said. “The team here is spectacular.”
Still, the Berkeley County plant has felt the impact of what Nucor CEO John Ferriola calls China’s “economic war on the United States.”
“It certainly impacts the whole industry,” Daughtridge said. “We’re not protectionist. We love trade. But it has to be fair.”
Federal regulators have started to address the issue.
The Commerce Department in May finalized a rule that imposes tariffs of more than 500 percent on all cold-rolled steel China sends to the United States. The move was prompted by a complaint filed by Nucor and other U.S. steel producers. Also, the International Trade Commission ruled last month that U.S. steel producers have been “materially injured” by Chinese steel that is “sold in the United States at less than fair value and subsidized by the government of China.” The ruling could lead to further action against China.
The commission also is investigating claims by Pittsburgh-based U.S. Steel that China stole trade secrets in a case that could lead to a ban on nearly all steel imports from that country. Other complaints allege China has conspired to fix prices and misrepresents where its steel came from to avoid tariffs.
“China is very good at circumventing trade limits,” Daughtridge said. “They’ll add a tiny bit of alloy to it or they’ll call it something else or they’ll ship it to Vietnam to process and make it look like the country of origin is different. We know they cheat.”
China has asked that the U.S. Steel case be dismissed, saying the claims are too broad.
“They did not argue they did not steal secrets, they did not argue they did not conspire, they did not argue they did not circumvent international laws, they did not argue they are not dumping — they just argue the ban is too broad,” Daughtridge said.
Apart from recent actions against China, there are other reasons for optimism at Nucor. Automobile sales are projected to remain strong in the U.S., where the average age of cars on the road is 11 years. The BMW plant in Greer is one of Nucor’s largest customers and Daughtridge said the company is interested in a partnership with Swedish carmaker Volvo, which is building its first U.S. manufacturing plant north of Summerville in Berkeley County.
“We want our steel to build their automotive plant and, after that, we want to supply them with steel for their cars,” Daughtridge said of Volvo. “We’ll stay very closely tied to them.”
Nucor’s stock is up more than 25 percent since the first of the year and last month the company issued bullish guidance for the rest of 2016. Nucor is scheuled to release its second-quarter earnings July 21.
“The performance of the steel mills segment in the second quarter of 2016 is expected to be much improved compared to the first quarter of 2016 due to higher average selling prices and improved volumes,” the company said in a statement.
Daughtridge said the local mill, which traditionally has outperformed its peers, will benefit from the industry-wide upswing.
“The Nucor Steel Berkeley team is world class in quality, costs and innovation,” Daughtridge said. “That has allowed us to have a higher capacity utilization than the industry throughout the business cycles.”
Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_