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Construction market still a struggle: Insteel

Keywords: Tags  Insteel Industries, construction market, steel prices, steel long products, PC strand, wire rod prices, H.O. Woltz III, Michael Gazmarian construction outlook


TORONTO — While there are signs that construction activity is improving, landing new business remains a struggle, according to Insteel Industries Inc. executives.

"It’s still a real food fight out there as everyone scrambles for available orders. I wish I could tell you there has been a significant improvement, but unfortunately, that’s just not the case," Insteel president and chief executive officer H.O. Woltz III told analysts during a conference call following the release of earnings Thursday.

The result has been "subsistence"-level spreads between wire-rod costs and selling prices for finished goods made from wire rod, Woltz said.

Mount Airy, N.C.-based Insteel buys wire rod to makes downstream products such as PC strand and welded-wire reinforcements.

One silver lining in the current difficult situation could be the potential for additional acquisitions, Woltz said, noting that Insteel was "very capable" of such activity. He stopped short, however, of citing any specific acquisition targets.

Insteel executives also noted that construction activity, while improving in some sectors, was geographically uneven.

Texas has been the strongest market for Insteel, while the West Coast has been the weakest, Woltz said. And while activity on the East Coast is better than that on the West, it remains less robust than activity in the Lone Star state, he said.

Despite reports of improving nonresidential construction activity, Insteel expects the remainder of the year to be challenging.

Unusually mild winter weather, for example, may have served to move some construction activity earlier into the year than had initially been planned, Insteel chief financial officer Michael Gazmarian said, although he added it was difficult to quantify to what extent that has been the case.

What isn’t hard to quantify is the fact that about 35 percent of Insteel’s demand comes from the infrastructure market, which remains uncertain given the political gridlock in Washington, D.C., surrounding long-term transportation legislation, Gazmarian said.

Woltz said that situation was unlikely to change in the near term, given election-year politics.

Even given the current uncertainty, Insteel appeared to have its eye on a possible recovery in the construction markets, noting that new engineered structural mesh equipment slated for commissioning next year should position the company to meet customer demand as markets improve.

Insteel also welcomed news of a new wire-rod rolling mill at Nucor Corp.’s Darlington, S.C., mill, which is expected to be commissioned in the second half of 2013 (AMM, April 12.) The additional capacity should relieve concerns about "the potential for inadequate supplies of domestically produced wire rod when construction markets begin to recover," Woltz said.

On the pricing front, steel tags have remained relatively steady following a period of volatility in ferrous scrap prices in the last few weeks of December, Woltz said.

He stressed, however, that the current steadiness was unlikely to become a new normal. "We’re accustomed to rapid changes in the metallics market, and we have no reason to believe that the recent stability is indicative of a fundamental change," he said.

As for previously announced price increases, Insteel’s success has depended on the strength in any given product line, Woltz said. On PC strand, for example, Insteel did not attempt to boost tags because of "the waste of time it would have represented," he said.

Generally speaking, prices have remained flat and in some cases fallen, Woltz said.


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