CMC Seeing Competition from Turkey

Commercial Metals Company (CMC) reported net sales of $1.7 billion for the first quarter of FY 2015, a four percent increase year-over-year. Earnings from continuing operations totaled $38.3 million.

Americas Recycling recorded an adjusted operating loss of $1.1 million due to a decline in ferrous scrap shipments and margins.

The America Mills segment recorded adjusted operating profit of $75.4 million for the highest quarterly profit for this segment since the global financial crisis. Shipments increased 7 percent y/y along with a 4 percent per ton increase in average selling prices.

The Americas Fabrication segment reported an adjusted operating loss of $3 million compared to a 2.2 million profit in the prior year’s first quarter. The segment suffered metal margin compression of $14 per short ton for fabricated rebar as well as an increase in conversion costs for rebar fabrication of $8 per short ton. Bookings for fabricated rebar tons in the quarter were 30,000 tons higher than Q1 2014.

CEO Joseph Alvarado, during the company earnings call, said the company has scheduled outages for routine maintenance and equipment enhancement for second quarter to prepare for anticipated demand in the second half of the year.

Import competition has been a problem for CMC. “It’s not just a factor,” said Alvarado. “It’s the most significant factor that we face on the fab side of the business with imported product being brought in at significantly below market prices causes us to have to be competitive and quoting on our fab business. So we’ve seen an overall strength in metal margins in the steel mill side of the business and the deterioration on the fab side mostly owing to the imported product, so it’s not a small factor. It is the most significant factor that we are seeing really across the board.”

He continued, “With the significant pricing differential that we are seeing in rebar pricing and anticipated pricing of those products causes the independents to be more aggressive in their pricing to secure business at less than attractive margins or the kinds of margin that we’d liked to book at, so the battle there is really in the independent fab business or against independent fabricators as opposed to into the mill segment itself.”

When asked about the current low oil prices, Alvarado said it is “freeing up a lot of disposable income for people” which could stimulate nonresidential construction. He also expects less drilling activity which would lead to a decline in order booking for tubular products and SBQ products.

When asked to comment on rebar pricing, Alvarado responded, “We priced according to what market will accept. And we also have a downstream fabrication business which is not subsidized by the mill operation. There isn’t a subsidy going either way, it is basically all at market prices. So when we see initiatives from Turkey and particular to move a lot of product I think that’s without regard to the market, that’s more based on a cost plus pricing formula. That’s my opinion.

“And so we don’t understand why someone would come into the market well [below] the market pricing other than they are moving to dump steel. And we made our case. And the case was reviewed and they were found to be negligible or almost to minimums, so there is nothing we can do about that but we certainly don’t understand the economies of buying scrap from North America taking it to Turkey and bring it back and selling at well below market prices. So it is what it is.”

SMU Note: CMC move against Turkey for dumping rebar and essentially losing the case may be one of the reasons why flat rolled mills aren’t filing dumping against cold rolled and coated products.