CMC upbeat on construction demand, scrap rebound

US steelmaker and metals recycler Commercial Metals Company (CMC) expects a strong upcoming quarter on stable construction demand, higher scrap prices, profitably-priced inventory backlogs and scheduled maintenance outages.

The Texas-based long steel producer, which operates in the US and Poland, expects higher demand from the US non-residential and infrastructure construction markets to support steel pricing through February 2020, offsetting lower seasonal demand.

CMC's US rebar shipments in its latest quarter ended 30 November increased by 66pc to 881,000st from the prior year period, which was lower because it preceded CMC's acquisition of several Gerdau mills. Rebar shipments fell by 16,000st sequentially. Shipped tons of merchant bar quality and other steel products were little changed from a year earlier at 325,000st.

The average sales price for CMC's US steel products fell by $71/st to $611/st on the year, which was offset by ferrous scrap costs falling by $81/st to $226/st from a year earlier, increasing the metal margin by $10/st to $385/st.

CMC anticipates a rangebound profit margin of $40/st through the remainder of its fiscal 2020, with a variation of $10-15/st in the second quarter based on scheduled mill outages.

The company shuttered the melt shop at its California rebar mill in mid-October, allowing for lower rebar production costs at the facility, and support for mill utilization capacity at other CMC melting locations.

CMC's US recycling net sales fell by 26pc to $222mn amid a slump in scrap prices. Shipped ferrous tonnages fell by 15pc to 492,000st, while nonferrous tonnages fell by nearly 10pc to 57,000st.

Average ferrous selling prices dropped by $91/st to $182/st. Average nonferrous selling prices were essentially flat at $1,983/st (99¢/lb).

CMC is bullish on short-term ferrous scrap price increases bolstering its recycling segment. In November and December 2019, Argus assessments for average US ferrous scrap prices rose by $52/gt for #1 HMS, and by $54/gt for #1 busheling.

Net sales at the company's Poland mill dropped by 27pc to just over $165mn from the first quarter a year earlier.

Average price per ton declined by nearly 16pc to $461/st from the same period a year ago.

Tons shipped for merchant bar quality and other steel products fell by 96,000st to 216,000st compared to the same period a year prior. But rebar tons shipped increased by 42,000st to 122,000st in that same span on the back of sustained strength in the Polish construction sector.

Steel imports into the EU and bearish demand from export destinations in nearby European countries negatively impacted the Poland mill's wire rod and merchant product sales. CMC expects these challenges to continue until pressure from imported products abates.

CMC's profit for the quarter rose to $83.3mn on $1.38bn in sales, up from $19.7mn in profit and $1.27bn in sales in the first quarter 2019.

By Will Ehrhardt