CHICAGO Reliance Steel & Aluminum Co.s earnings dipped in the third quarter due in part to seasonal demand and weaker metals pricing.
And although Reliance executives see the metals pricing environment as challenging, they believe business is steady and poised for improvement.
Metal prices are now at or near bottom, and when demand grows so will prices, chairman and chief executive officer David H. Hannah said during a conference call Oct. 24. "Despite the persistently soft pricing environment, which weighs heavily on our net sales and profitability, the strong operational execution by our managers in the field partially offset the pricing impact" Reliance felt during the third quarter.
The Los Angeles-based distributor posted net income of $95.1 million for the three months ended Sept. 30, down 3.1 percent from $98.1 million in the same period last year, on an 18.9-percent increase in sales to more than $2.44 billion driven primarily by its acquisition of Metals USA Holdings Corp. earlier this year.
Same-store tons soldexcluding the Metals USA acquisitionrose 3.1 percent in the third quarter compared with a year earlier, although the average realized price fell 9.5 percent to $1,679 per ton from $1,856.
Although the market has seen price increase announcements in the third quarter, it will be a challenge to push those through, particularly on aluminum, stainless and carbon alloy steel, Hannah said. "We are not likely to see strength in pricing (for most products) through year-end," due in large part to distributors and their manufacturing customers buying less as they anticipate maintenance and holiday outages at factories and job sites. "Holiday closures among customers will reduce tons sold (during the fourth quarter)."
Price increases on flat-rolled carbon steel products were announced in June, July and October, Reliance president and chief operating officer Gregg J. Mollins said. "In the past four to six weeks, (such increases) found some traction," which he attributed to producer "outages and production issues, and low inventory."
Mollins cited a $30- to $50-per-ton increase on plate after Chicago-based Evraz Inc. North America announced it would shutter its Claymont, Del., mill (amm.com, Oct. 14). Pricing on structural products and merchant bar remains flat, he said, and imports are arriving with a favorable spread. He expects both flat-rolled and structural imports to rise this quarter.
On sheet products, "lean inventory would support another increase. We are frankly anticipating mills will throw out an increase before the end of the year," Mollins said.
Reliance wont be tempted to buy material beyond what it needs to fill existing orders, however. Inventories are at the right level compared with demand, Hannah said. "In order for Reliance to buy more, we have to be convinced that demand is going up. If you want to improve pricing, you need demand for (hikes) to stick."