On Wednesday, Irving, Texas-based steelmaker and metals recycling company Commercial Metals Company (CMC) reported net earnings of $40.7 million on net sales of $2 billion for the fiscal Q3 ended May 31, 2012. Q3 2012 earnings reflected an increase from the $36.2 million net income CMC recorded for the comparable quarter a year ago. For the nine months ended May 31, net earnings totaled $177.3 million, a substantial improvement over the $9.3 million net loss in the same period in 2011. CMC President and CEO Joe Alvarado noted that each of the company's operating segments reported quarterly adjusted operating profit for the first time since Q1 2008; the Americas Fabrication segment reported positive adjusted profit for the first time in the last 10 sequential quarters.
The Americas Recycling segment continued to be profitable, recording an adjusted operating profit of $3.9 million as compared to $13.2 million from prior year's Q3. However, scrap prices are expected to weaken moving forward, Alvarado said during the question-and-answer portion of the call, due to weaker flat-rolled steel demand and a slowdown in Europe and China. CMC's recycling segment may prove to be challenging moving forward as international markets are expected to remain volatile.
While scrap prices weakened over the past few months, the recent erosion in scrap costs didn't hit CMC "full tilt" until this month, said Alvarado, and the decline in June, and likely July, will more significantly impact fiscal Q4 earnings. With the anticipation of further scrap price declines, Alvarado said its mills have felt more impact on selling prices and shipments, but not as much in terms of order entry levels.
He also said that with the major scrap price drop in June, there has been some improvement in margins for finished steel prices. "Demand remains fairly strong," Alvarado explained, and backlogs are stable and shipping volumes for rebar and merchant bar products were slightly higher in Q3 over Q2. The long market is still dealing with short lead times, however, but the pessimism surrounding the US market has been more attributed to the flats market rather than the long product market. Longs imports from Turkey in particular are up significantly, Alvarado noted, as Turkish producers have been more aggressive. As for supply and demand, he said the market isn't anticipated to alter much anytime soon, and the future points to stability and not significant growth.
Alvarado concluded, "In the fourth quarter of 2012, we expect scrap prices to decline further from oversupply as the constriction of the export market continues through the summer months. Despite weakness in the scrap markets, we remain encouraged by the strong backlogs for both our domestic and international operations going into the fourth quarter and are optimistic about their performance."