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More confidence needed for pickup: CMC's top exec

Keywords: Tags  Commercial Metals, Joe Alvarado, earnings, first quarter, construction, ABI, fiscal cliff, outlook private

CHICAGO — Solid evidence of a pickup in U.S. construction demand likely won’t be seen until February or March, after typical seasonal doldrums subside, Commercial Metals Co. (CMC) chairman, president and chief executive officer Joseph Alvarado said.

The winter months tend to put a damper on construction in much of North America, Alvarado said in an earnings call Monday. But continued solid showings from American Institute of Architects’ Architecture Billings Index (ABI) give the Irving, Texas-based steelmaker reason for cautious optimism, he added.

Also bolstering hopes are on-the-ground talks with customers. “What really is missing in the economy is not projects or resources, but the confidence to move forward,” Alvarado said. “The sense of optimism we have is from customers that we talk to who see projects moving forward.”

He largely brushed aside concerns about negotiations surrounding the “fiscal cliff” in the United States, noting that CMC has continued to see signs of “nascent demand” in recent quarters. “If it wasn’t the fiscal cliff, it was the elections. And if it wasn’t the elections, it was the stock market. There is always some bugaboo that investors are concerned about,” he said.

The negotiations may not have led to any big boost in infrastructure spending, but they did see an extension of tax credits for wind farms, a solid business for CMC because wind mills use reinforced concrete for their foundations, Alvarado said. “It doesn’t fill the mill completely. But it is a good business to have,” he said.

Some 65 to 70 percent of CMC’s work is tied to public projects, with the remaining 30 to 35 percent linked to privately funded work. While private projects are generally more profitable, government work provides a good base-load of business for company mills, Alvarado said.

CMC hasn’t seen growing demand from the government in large part because of state and federal government funding issues, he said.

Meanwhile, CMC isn’t expecting any deterioration or big pickup in construction activity but rather continued improvement over the coming year, Alvarado said.

By region, CMC has seen better construction activity in California and Florida than in recent years. Texas has remained consistently strong throughout the economic downturn, Alvarado said. By facility, CMC mills in South Carolina and Alabama both have availabilities and can take advantage of export opportunities as they present themselves, he added.

CMC’s product mix has shifted more toward lower-margin concrete rebar and away from higher-value merchant products. “Margins are being pressured. But margins are still better on the merchant side,” Alvarado said.

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