NEW YORK Commercial Metals Co. (CMC) is seeing more-profitable private construction business returning and displacing low-margin public construction jobs.
Private construction offers fell to a low of 28 percent of CMCs bid activity in November 2012, down from pre-recession levels when the private-public mix averaged 70-30, treasurer and vice president Carey J. Dubois said during Jefferies LLCs 10th annual Global Industrials Conference in New York.
Now private construction is returning, with private and public bids seen by CMC in its fiscal third quarter at an even 50-50 splita favorable trend for the third-largest U.S. producer of concrete reinforcing bar. "As that gravitates more towards the 70-percent level we had pre-recession, we think thats going to be a good factor on the fab (fabrication business)," Dubois said.
Private construction projects tend to be more profitable for Irving, Texas-based CMC because multiyear, fixed-price public-sector jobs require less rebar manipulation and fabrication, and minimize costs via public bidding, according to Dubois.
"Where we are today vs. a more normalized market, theres a fair amount of upside to be had," he said. CMCs fabrication business, which fabricates rebar that the company produces at its own steel mills, accounted for 24 percent of its fiscal 2013 revenue of $5.9 billion in the Americas.
Year-to-date quoted tonnage for rebar fabrication is up 14 percent from the same period last year, Dubois said, adding that the frequency of fabrication bids and the size of projects quoted by CMC are rising.
"Youre seeing significant pickup in activity," Dubois said. "In addition to the frequency of the bids coming in ... the size of the business that were recordingthe deal sizeappears to be bigger than last year. This is basically corporate America putting (capital expenditure) dollars to work."
California and Texas are especially strong construction markets, with each state accounting for 11 percent of all U.S. nonresidential construction starts forecast for 2014, according to CMC. Nonresidential projects include highways, bridges, power plants and water supply systems, in addition to commercial construction.
CMC also has seen "pricing discipline" lately in long steel products, Dubois said, attributing the low volatility to a consolidated market for long products.
Dubois pegged CMCs rebar market share at 16 percent, third after Charlotte, N.C.-based Nucor Corp. and Tampa, Fla.-based Gerdau Long Steel North America. Companies outside of the top three supply less than one-quarter of U.S. rebar and bar and shape demand, according to CMC.