Overall, the mining and materials sector demonstrated a great start to the year, despite challenges in some commodities and the energy sector. Steel Dynamics Inc and Nucor Corp reporting record earnings amid strong market demand. Southern Copper Corp and Freeport-McMoRan Inc also demonstrated growth in copper production and favorable outlooks. Challenges such as temporary disruptions and pricing pressures were observed, particularly for Cleveland-Cliffs Inc. However, strategic initiatives like share repurchases and investments in sustainability underscore a commitment to long-term growth. Outside metals, companies like Reliance Inc and Dow Inc showcased adaptability and resilience. Looking forward, while uncertainties persist, companies remain cautiously optimistic about continued growth driven by favorable market trends and strategic initiatives.

Top Portfolio Holdings

Steel Dynamics Inc (NASD: STLD)

Portfolio weight: 6.23%*
EPS Estimate: 3.51
Reported EPS: 3.67

“The teams executed well delivering a solid first quarter performance, underlying steel demand was steady in the quarter; however, we experienced some steel order volatility early in the quarter as customer inventories remain incredibly low and scrap prices declined month over month in the quarter.” – Mark D. Millett, Chairman and CEO

Steel Dynamics reported a near-record 3.3 million tons in steel shipments for Q1 2024, showcasing strong operational performance and market demand. The company also announced the successful operation of four new value-added flat-roll steel coating lines, enhancing product diversification and expected profitability. Financially, the company saw an 11% increase in Q1 2024 revenue to $4.7 billion and a net income of $584 million, alongside a dividend increase and $298 million in stock repurchases. However, challenges in the energy market were noted, particularly with increasing OCTG and Line Pipe imports.

The company is confident that strong steel consumption will continue throughout 2024. They believe that demand for lower-carbon emission, U.S. produced steel products and lower steel imports will support stable steel pricing.

Southern Copper Corp (NYSE: SCCO)

Portfolio weight: 6.07%*
EPS Estimate: 0.74
Reported EPS: 0.95

“This quarter our strengths are once again at the forefront as we report a 65% increase in net earnings compared to last quarter. This positive result was driven by a 2.6% uptick in copper production; a 14.2% drop in the cash cost; and higher metal prices for copper, molybdenum and precious metals.” – Mr. German Larrea, Chairman of the Board

Southern Copper reported a 65% increase in net income and a 7.6% quarter-on-quarter increase in copper production, with significant growth in zinc production and lithium production. Part of this growth comes from the new mine that began operation in Mexico this quarter. Through this mine, the company expects to produce around 20,000 tons of copper per year. Overall, it was a very strong quarter for Southern Copper Corp and rising demand for copper should provide a strong tailwind to their business.

Clevland-Cliffs Inc (NYSE: CLF)

Portfolio weight: 5.83%*
EPS Estimate: 0.22
Reported EPS: 0.18

“Our first quarter results were highlighted by the resiliency of automotive production in the United States. With more automotive and less service center business, first quarter mix was richer than originally anticipated, driving both our average selling prices and production costs higher than expected.” – Lourenco Goncalves, CEO, President, and Chairman.

Cleveland-Cliffs reported first-quarter revenue of $5.2 billion, up from $5.1 billion in Q4 2023. They announced a new $1.5 billion share repurchase program, signaling strong financial health and confidence in future prospects. Significant capital structure improvements were reported, with near-record liquidity and no secured bonds, further indicating financial stability. Q1 saw a profitability rebound with $414 million in adjusted EBITDA, driven by higher automotive sales and pricing. The company has been selected for $575 million in Federal grants for decarbonization projects, underscoring its commitment to sustainable steel production.

Looking forward, the largest end market, the automotive sector, is expected to remain strong. Many decarbonization projects are planned which have monetary support from the federal government.

Reliance Inc (NYSE: RS)

Portfolio weight: 5.62%*
EPS Estimate: 5.53
Reported EPS: 5.30

“Our resilient business model, most notably the diversity of our products, end markets and geography, once again delivered strong performance in a more challenging pricing environment than we anticipated in the first quarter. We continued to drive smart, profitable growth, increasing our shipments above industry levels while maintaining pricing discipline resulting in our gross profit margin at the high end of our sustainable range that collectively contributed to our first quarter earnings per diluted share of $5.30.” – Karla Lewis, President and CEO.

Reliance reported a strong first quarter in 2024, with notable volume sales increases and strategic acquisitions, despite facing a challenging pricing environment. Reliance completed three acquisitions in 2024, adding nearly $500 million in annualized sales. These acquisitions, including Cooksey Steel, American Alloy, and Midwest Materials, enhance Reliance’s product offerings, processing capabilities, and geographic reach, fitting into the company’s strategy of acquiring accretive, well-managed companies. The company’s investment in growth opportunities is highlighted by a significant capital expenditure targeting increased capacity and processing capabilities. However, it anticipates short-term gross profit margin pressures in Q2 due to higher cost inventory. The company also increased its income estimate significantly, reflecting the impact of the pricing environment.

Nucor Corp (NYSE: NUE)

Portfolio weight: 5.58%*
EPS Estimate: 3.65
Reported EPS: 3.46

“Nucor’s performance continues to be strong even as steel market conditions have come off their post-pandemic record highs.” – Leon Topalian, Chair, President, and CEO.

Nucor reported strong Q1 earnings with EBITDA of $1.5 billion and net earnings of $845 million, despite being slightly below the earnings guidance range due to higher administrative costs. Shipments increased by 5% from the prior quarter, and steel mill pricing per ton rose nearly 10%, indicating strong demand and pricing power. The company is advancing significant capital investment projects, including new mills in West Virginia and North Carolina. Nucor also announced strategic initiatives in sustainability and technology sectors, including agreements with major corporations and the acquisition of Southwest Data Products. However, a cautious outlook for Q2 was provided, expecting lower earnings from the steel mill and steel product segments.

Freeport-McMoRan Inc (NYSE: FCX)

Portfolio weight: 5.45%*
EPS Estimate: 0.26
Reported EPS: 0.32

“Market fundamentals for copper are positive, supported by copper’s increasingly important role in the global economy and limited available supplies to meet growing demand. Freeport is strongly positioned for the future as a leading producer of copper with multiple options for future growth and an experienced team with a track record of accomplishment.” – Kathleen L. Quirk, President

Freeport-McMoRan reported a strong start to 2024, exceeding first quarter copper sales guidance and generating $473 million in net income. The company is investing in several projects, totaling $1.3 billion, to expand their innovative copper initiative, aiming to significantly increase production over the next two years. The positive outlook on the copper market, driven by electrification and renewable energy trends, supports the company’s favorable long-term pricing environment. Additionally, Freeport-McMoRan improved its 2024 copper sales forecast and reduced its net unit cash costs, reflecting operational efficiency and cost management efforts.

Eastman Chemical Co (NYSE: EMN)

Portfolio weight: 5.37%*
EPS Estimate: 1.43
Reported EPS: 1.61

“We delivered strong sequential earnings growth in the first quarter, above the high-end of our initial expectations,” – Mark Costa, Chair and CEO.

Eastman Chemical Co reported strong earnings growth, beating expectations. These earnings were mainly driven by primary demand for many of the specialty products in Advanced Materials and Additives & Functional Products. During the quarter, Eastman was selected to receive up to $375 million from the Department of Energy for a recycling project in Texas. Looking ahead, the company is optimistic as they expect continued pricing discipline.

Dow Inc (NYSE: DOW)

Portfolio weight: 5.15%*
EPS Estimate: 0.45
Reported EPS: 0.56

“In the first quarter, we captured improving demand, maintained pricing and benefited from lower feedstock and energy costs. The strength of our cost-advantaged positions around the world led to higher operating rates. As a result, Team Dow delivered volume growth and margin expansion sequentially across our diverse portfolio.” – Jim Fitterling, Chairman and CEO.

Dow reported a mixed financial performance with sequential volume growth and margin expansion, highlighting its ability to adapt to market conditions. However, the company faced a 9% decline in net sales year over year due to lower prices across all regions, and operating EBIT decreased by $34 million year over year. Despite these challenges, Dow showcased strong cash flow generation and returned $693 million to shareholders through dividends and share repurchases. The company is optimistic about its future and its green initiatives. Through these initiatives, they believe they can capture around $3 billion in earnings annually by 2030.

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*Portfolio weight as at March 29, 2024

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