Vertically-integrated, Texas-based steel recycler, producer, fabricator and distributor Commercial Metals Company (CMC) reported in its quarterly earnings conference call Tuesday a net loss of $13.1 million for its third fiscal quarter of 2009, ended May 31, 2009. This figure compares to net earnings of $59.5 million during the same period last year. Furthermore, while noting that the markets seem to be "testing the bottom," the company said it expects market conditions will remain difficult in the fourth quarter due to the weak underlying demand.
In the first three quarters, net earnings for CMC, one of the largest rebar fabricators in the US, totaled $13.6 million on net sales of $5.3 billion, compared with net earnings of $168.4 million on net sales of $7.3 billion during the same period of the previous year.
Third quarter earnings results included after-tax LIFO income of $29 million, compared with an expense of $83 million during last year's third quarter.
Commenting on the general conditions of the global steel markets in the third quarter and at present, CMC chairman, president and chief executive Murray R. McClean said, "Global metal markets may have tested the bottom during the quarter and though some recovery has occurred, the markets, overall, remain fragile. Any volume improvement in the quarter was seasonal and not reflective of any stimulus effect. Destocking appears to be in its last stages; however, end-use demand remains weak."
McClean said the company's American steel mills ran at 58 percent of capacity during the third quarter, up from 55 percent during the second quarter, and he expects utilization to improve further to about 65 percent during fourth quarter. Regarding the company's US ferrous scrap and steel activity during the quarter, McClean said that the price of ferrous scrap consumed at the mills during the quarter fell 50 percent compared to last year's third quarter, though its average selling price for finished goods was down $166/nt from a year ago and total US finished product sales volumes declined 37 percent. Its US mills' profit margin totaled $365/nt or 14 percent above the third quarter of last year, but down some 19 percent from the second quarter. Its Americas ferrous scrap segment recorded an operating loss of $6.7 million, which, "pales compared to the $50.4 million operating profit in the third quarter of last year, but was a considerable improvement over the $36.2 million operating loss of the second quarter," said McClean.
Third quarter results were worse for CMC's international mill segment, which consists of three mills located in Poland and Croatia. CMC's international production segment recorded an adjusted operating loss of $17.7 million compared to a $30.7 million profit in the third quarter of last year. McClean cited the weak international steel markets and rapidly falling sales prices as reasons for the operating loss. CMC Poland's average sales prices decreased by 31 percent in the third quarter compared to last year, while scrap costs only decreased 33 percent, creating a margin that was "insufficient for profitability."
Looking ahead to the fourth quarter and beyond, McClean said that the company believes market conditions in the US will remain difficult, as "there is very little evidence of stimulus dollars impacting demand." However, the company thinks it is likely that in 2010, the stimulus package will start impacting infrastructure spending and thus, demand for steel products like rebar.
As for Europe, McClean says that he anticipates market conditions will be even more difficult than in the US going forward, with the only bright spot being Poland, where the company expects better demand for rebar, merchant products and billets, due in part to increased infrastructure spending utilizing mainly EU funds.
Commercial Metals Company and subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network including steel minimills, steel fabrication and processing plants, construction-related product warehouses, a copper tube mill, metal recycling facilities and marketing and distribution offices in the United States and in strategic international markets.