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CMC bullish on domestic construction

Keywords: Tags  Commercial Metals, construction, residential construction, rebar, structural products, imports, sequester, Joe Alvarado Samuel Frizell

NEW YORK – Commercial Metals Co. (CMC) expects to see a profitable fiscal third quarter as the domestic construction market picks up and demand for rebar and structural products improves, president and chief executive officer Joseph Alvarado said on a company earnings call.

“Our domestic mills should experience improved volumes entering the construction season,” Alvarado told investors. “We remain encouraged about construction markets.”

Certain regional markets have already begun to pick up, Alvarado said, with rebar shipments improving over the last year due in part to new building in California, Florida and Texas. Another auspicious sign is that the Architecture Billings Index (ABI), a leading indicator of residential construction, was positive for the seventh consecutive month in February. “Our rebar shipments continue to gain momentum when compared with the prior year, signaling an emerging construction recovery,” Alvarado said.

The Irving, Texas-based company also reported a growing number of bids from private construction contractors, a reflection of improving sentiment in the residential construction market, Alvarado said.

“What’s normal has been about a 70-30 public versus private (bidding ratio), and our bidding is moving toward 60-40,” Alvarado said. “That’s a significant improvement and divergence from what we’ve been seeing in the past. I think it points to the confidence we’re seeing in construction markets.”

But even though the company anticipates a profitable third quarter, it faces several challenges, including imports, anemic margins and economic weakness caused by the sequester.

“We are concerned about the strength of the near-term construction market as a result of the sequester budget,” Alvarado said. “We’ll have seasonal strength this quarter as we always do. ... While we’re anticipating that, it’s hard to project exactly when nonresidential (construction) will come back stronger.”

Imports also have threatened margins. While CMC, like other mills, has raised prices, the hikes still don’t cover the full costs of raw material. The recently announced $25-per-ton price increases in rebar and structural products have taken hold, although import pressure has prevented a greater increase, Alvarado said.

“The residual impact of imports has really been that some of the announced increases have not covered the cost of scrap,” Alvarado said, citing an increase in Turkish shipments of rebar and Mexican shipments of both merchant products and rebar.

The earnings call followed a punishing second quarter for the company, in which profits fell 84.1 percent (, March 28).

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