Kinder Morgan (NYSE: KMI) managed to establish its foundation by owning and running fee-based assets. While most of these are pipelines, the energy infrastructure company has been growing its infrastructure empire to handle other materials including steel, coal, and chemicals. Similar to the firm’s pipeline segment, the mentioned services are secured through fee-based contracts that are for the long term.
Just recently, Kinder Morgan signed a 10-year contract under which the company will continue delivering services to Nucor (NYSE: NUE), which is the biggest US steelmaker. This deal, which is valued at $900 million, is an important one since it will aid in shoring up the terminals segment of the company that has been underperforming.
During the early part of the current week, the energy infrastructure giant revealed that it had engaged in a new agreement with the US steelmaker to deliver in-plant services at the facilities of Nucor. The mentioned plants generate approximately 13.4 million tons of steel every year.
Under the new agreement, Kinder Morgan will handle around 14.8 million tons of scrap steel, pig iron, direct-reduced iron, and other feedstocks for Nucor. The contract also guarantees that Kinder Morgan will deliver processing, handling, marine, and warehousing services to the steelmaker, which is already one of the biggest clients of its terminals division.
This new contract reconfirms the ability of the infrastructure corporation to expand its terminals segment by offering ancillary services to its shipping and warehousing operations.
While Kinder Morgan is most popular for its natural gas pipelines, the terminals segment of the firm is also a major contributor to the firm’s earnings. However, the terminals business of Kinder Morgan has been under pressure after 3 of the company’s coal clients filed for bankruptcy. This event took around $27 million out of the earnings of the terminals segment during the previous quarter, hence, offsetting much of its growth.
While most of Kinder Morgan’s growth in the mentioned division is coming from expansions to its liquids terminal facilities, the bulk terminals of the company still generate a substantial share of its revenue. All in all, the income of Kinder Morgan from the terminals segment is bolstered by long-term deals, which have an average of 3.7 years left, though that figure will increase when the new Nucor agreement is factored in.
With those bulk terminals, Kinder Morgan is diversifying away from the energy industry. Although this has exposed the company to the disadvantages of the coal market, it has also opened new opportunities to other markets. In addition, there is also a greater potential to expand into handling other materials, as well as expand its revenue streams from salt, soda ash, fertilizers, and cement.
The diverse asset base of the infrastructure giant gives it the chance to grow in ways that its rivals cannot match. While the bulk terminal segment of Kinder Morgan is not a major catalyst of growth, it is quite a steady source of cash flow.
As of 9:48 AM GMT-4 on July 8, the stock of Kinder Morgan is changing hands at $18.69, up by 1.55 percent or 0.28. Currently, the company’s market capitalization stands at 41.94 billion.