CMC Reports First Quarter Loss

Commercial Metals Co. has reported a net loss of $31.2 million on net sales of $1.4 billion for the quarter ended Nov. 30, 2009. This compares with net earnings of $62.0 million on net sales of $2.4 billion for the first quarter of last year.

Murray McClean, chairman, president and CEO, says, "In a period of uneven global economic recovery, our end-use markets ranged from weak to improving. We believe the worst of the economic crisis is behind us, yet the prospects for better days will be delayed by the traditionally weak winter season encompassing our second quarter. Real sustainable domestic increases in demand were not apparent and there was no discernable stimulus effect.

“Internationally, Asian and Pacific economies showed strength; China continued to sustain impressive GDP growth along with its Asian neighbors. Australia's economy was in full recovery, evidenced by its central bank raising interest rates during the quarter. Poland achieved volume, but at low metal margins. Our tubular mill in Croatia is reducing its losses and moving forward with its melt shop improvements. Domestically, scrap prices were dictated by the volume of export activity. Commercial markets were extremely weak, leaving fierce competition for available markets predominantly in public sector work. This resulted in deteriorating metal margins at both our mills and fabrication units. Industrial products remained profitable as did our copper tube mill, and our micro mill in Arizona is ramping up on schedule."

In looking at the company’s recycling division, McClean notes the following: "Ferrous scrap pricing generally retreated during the quarter, but had a very late quarter recovery. Export demand for U.S. origin ferrous scrap reduced during the quarter leaving domestic mills with greater access to supply and price reductions. Nonferrous pricing was on the whole, steady for the quarter; both ferrous and nonferrous average pricing and margins increased over last year's first quarter which witnessed the beginning of the economic crisis for steel. Ferrous volumes increased over the prior year first quarter; nonferrous volumes were flat. For both ferrous and nonferrous, margin dollars gained almost exclusively due to better pricing than volume. “

“The average ferrous scrap sales price for the first quarter was $216 per short ton, a 1 percent increase over the prior year first quarter. Average nonferrous pricing was $2,366 per short ton, up 5 percent from the prior year. Shipments of ferrous scrap totaled 525,000 tons, an increase of 5 percent from the first quarter of last year. Nonferrous shipments totaled 59,000 tons, even with last year. We exported 20 percent of our ferrous tonnage and 40 percent of our nonferrous scrap tonnage during the quarter."

For the company’s steel mill section, McClean noted that volumes increased, while margins narrowed. As for increases, the company saw an increase in billet sales, which allowed the company’s melt shops to run at 74 percent of capacity, but left our mills at only 54 percent of capacity, down significantly from 68 percent in the fourth quarter. Average sales prices fell faster than ferrous scrap prices resulting in metal margin contraction; imported material remained low.

In looking forward, McClean notes that ferrous scrap prices are starting to strengthen in anticipation of an improved economic condition. “Domestic stimulus programs may finally be evidenced by spring. Coupled with an improving economy, the second half of our fiscal year appears more promising, though we believe at modest levels. Private nonresidential construction is likely to remain weak. Import competition is also likely to be weak."

McClean adds, "China will be the catalyst in calendar 2010 with anticipated GDP growth between 9-10 percent and greater steel demand than in 2009; this most likely will exert upward pressure on both iron ore and scrap prices. The rest of Asia should follow China with anticipation of strong demand for scrap and billet export opportunities to the region. Australia should continue what is developing as a strong recovery. Polish volumes should reflect the seasonal downturn.”

"We are in for one more challenging quarter as we enter the winter season and domestic recovery signs point to early spring. The recent climb in ferrous scrap prices should allow our recycling operations to be profitable; this will cause a short-term margin squeeze at the domestic mills which, in any case, will be absorbing more start-up expenses at CMC Steel Arizona. The winter seasonal downturn should see our mills operating at between 55 percent and 60 percent."