Commercial Metals Company 3rd Quarter Comments
Chairman and CEO of Commercial Metals Company, Mr. Murray McClean reported positive third quarter 2011 results with four out of five business segments profitable. McClean credits the improvement to “good seasonal demand combined with real demand increases resulted in higher prices and better margins across the business.”
Inventory levels are low to normal, and the company’s micro-mill CMC Steel Arizona is showing improved profitability. McClean said that ferrous scrap and steel products seem to have stabilized after slightly dipping at the end of the third quarter, and are now higher in June. Rebar and merchant products price increases are expected starting July 1, 2011.
President and Chief Operating Officer, Joe Alvarado said steel trading showed higher demand due to energy markets, especially in SBQ and tubular products. For the Americas, the average mill utilization rate for the quarter was 73%. This combined with higher pricing has helped strengthen the scrap business and increased sales for rebar and merchant bar. Backlogs have continued to grow in tonnage and improved pricing, with the public works, energy, healthcare and institutional buildings markets staying the strongest.
Alvarado said, “Average ferrous scrap sold for $350 per short ton during the third quarter, which represented a 16% increase over the third quarter of 2010. Average sales pricing on non-ferrous scrap was slightly over $3,400 per short ton, which was up 18% year-over-year. We shipped a total of 557,000 tons of ferrous scrap, which was consistent with the last year's third quarter, and we shipped 67,000 tons of non-ferrous scrap, which was a 10% increase over last year.” China and Southeast Asia’s demand for scrap, iron ore and most commodity metals remained strong. Senior Vice President and Chief Financial Officer Barbara Smith reported third quarter earnings for 2011 to be $36.2 million on net sales of $2.1 billion. These results are far better than the net loss of $8.8 million for the third quarter 2010.
Metal margins were up to $320 per ton in the 3Q11 compared to $289 per ton last quarter. The new micro-mill, CMC Steel Arizona has reached profitability in the third quarter. The Americas Fabrication segment experienced an adjusted operating loss of $14.7 million compared to a loss of $24.5 million for last year’s third quarter. Smith said, “The average selling price from Fabrication rose by 9% over last year's third quarter with a selling price of $839 per ton, excluding stock buyouts and discontinuation of our joist and deck operations.”
When asked about flooding in the Midwest affecting scrap loads, Joseph Alvarado said “for the most part flows are good, and while flooding is a factor, it's not disruptive to the point that it will present any problems for us. And of course, it will clearly subside on a fairly short order.”
Alvarado also said that for Americas Mills, “the strongest market for us still remains our central region, which is the Seguin, as well as the Magnolia, Arkansas rolling mills and Fab business and recycling. We see pockets of strength in the East Coast, and our mill operating rates are very high on the West Coast, but the fab business is pretty challenged there. So while there is spotty good business, there are plenty of areas in the country where we'd like to see stronger demand, which is reflected in the operating rates, which while they're above 70%, lack of demand prevents us from being able to run at higher rates than that.”
Chairman and CEO Murray R. McClean expects a slowing down in the fourth quarter with not as strong results as the third quarter due to seasonal demand. He noted the company expects expect scrap normally between May and July to come down. Since it hasn’t, McClean said, “We don't see scrap coming off in July, but possibly August. And then it will reverse. The prices will start to pick up again September/October period… From January of this year scrap peaked, shredded at about $470, and dropped to $435. But it's come back into the $450 to $460 range. So it's been relatively stable since January.”
McClean also added “we're seeing in June shipments of finished goods are pretty strong anticipating the July 1st price increases. So that will draw down on scrap, but that's only a temporary thing, and I think it will stabilize again in July.” Joseph Alvarado said that scrap supplies at domestic mills fairly stable and normal, commenting that, “Turnover is really pretty good. At these prices, scrap does move fairly fluidly. There's a little bit of pressure because of export.”
(Source: Commercial Metals Company)