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CMC sees flat scrap market in near term

Keywords: Tags  scrap exports, Commercial Metals, CMC, Joseph Alvarado, Barbara Smith, ferrous scrap, nonferrous scrap, Americas Recycling earnings results

NEW YORK — Commercial Metals Co. (CMC) expects ferrous and nonferrous scrap export markets to remain flat in the current quarter amid moderate demand cues.

Global overcapacity and pricing pressure has made it difficult to say where scrap markets are going, CMC chairman, president and chief executive officer Joseph Alvarado said during an earnings call with analysts.

"We see them as flat in the near term, and that would include the impact of export activity. This flatness continues, and you might recall a couple of years back we had about six or seven months of very flat pricing in scrap, mostly owing to global demand, and we might be in one of those periods. And that might mute some of what is normally a seasonal pickup in November and December before the holidays," he told analysts.

Alvarado also doesn’t anticipate "any dramatic changes" in nonferrous scrap export activities in the near term, although a recent U.S. trade case on imports of reinforcing bar from Turkey and Mexico could also impact ferrous scrap exports should the U.S. International Trade Commission rule in favor of domestic steelmakers.

"With the activity that we’re seeing, there had been—and have been, for a long time—significant shipments to Turkey, in particular. And there was some back-to-back activity that was associated with bringing rebar in and taking scrap out. And I would anticipate that if we’re successful in the trade case, that would have some impact on the flows of scrap," he said.

The company’s Americas Recycling segment recorded an adjusted operating loss of $6.7 million during the fiscal fourth quarter ended Aug. 31, in contrast to an adjusted operating profit of $8.3 million in the year-ago quarter. This contributed to an overall 86.6-percent drop in CMC’s net income during the quarter (, Oct. 23).

CMC said it suffered a $2-million loss on a long-term supply contract with an undisclosed customer during the quarter. Increases in ferrous scrap volumes, selling prices and margins also weren’t enough to overcome declines in nonferrous scrap sales volumes and pricing, which caused a $51-per-short-ton decline in nonferrous margins.

For the year, its recycling division recorded adjusted operating profit of nearly $3.2 million, down from $39.4 million in fiscal 2012.

Senior vice president and chief financial officer Barbara Smith told analysts that the company shipped 60,000 tons of nonferrous scrap during the quarter, down 3 percent from the same period a year earlier.

Meanwhile, CMC’s ferrous scrap shipments increased 2 percent in the same comparison to 528,000 tons, with the average sales price climbing 3 percent to $318 per ton vs. $309 per ton a year ago.

Fiscal fourth-quarter losses on nonferrous scrap weren’t a result of having large inventory as prices dropped, Alvarado said.

"We learned lessons from the past, so very little of any of the change would be related to inventory or positioning. We don’t do that either on the downside or the upside. So mostly, it’s just a reflection of the market pricing and what’s been going on in the market," he said.

"And recycling activity is softer. There’s no doubt about that. And flat pricing in ferrous and nonferrous markets without some of the volatility that we’ve seen in the past is a more challenging market for all recyclers, including us," Alvarado said.

The company didn’t offer much detail on whether the company had put in place a hedging program to mitigate adverse market movements, barring a quick response from Smith, who said CMC looks at hedging and executes "on those strategies from time to time."

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