Commercial Metals Company (CMC) First Quarter 2015 Earnings Call Transcript

Operator
Our next question comes from Aldo Mazzaferro at Macquarie.

Aldo Mazzaferro, Macquarie Securities Group
Yes. Hi, good morning and Happy New Year.

Joseph Alvarado, Chairman of the Board, President, and CEO, Commercial Metals Company
Happy New Year, Aldo.

Barbara Smith, SVP and Chief Financial Officer, Commercial Metals Company
Happy New Year, Aldo.

Aldo Mazzaferro, Macquarie Securities Group
Yes. I was wondering, just a couple of questions on the production rate that you may have seen in the quarter for your rebar plants, Joe. Could you give us a ballpark? Are you 80% or above or below that or somewhere? Could you give us a little hint as to where you’re operating at?

Joseph Alvarado, Chairman of the Board, President, and CEO, Commercial Metals Company
That corollary is somewhat like Barbara just described in the fab side of the business where we’ve seen the softest demand in production rateshad in the East Coast and our South Carolina operation. For that matter in Birmingham as well. They are operating at better rates. There is always opportunity for us to expand our production capability although with a better mix and shorter cycle or longer cycles, we haven’t really gotten into that point. That potentially exists across the board. We are operating at 80% plus in each of our segments, best way to describe it. Alittle bit less so still in the eastern region.

Aldo Mazzaferro, Macquarie Securities Group
Right. Joe, could you comment on how you see inventories, both in rebardownstream of your mill and also with inventories that you see in the scrap market. Could you comment on how you see the levels there?

Joseph Alvarado, Chairman of the Board, President, and CEO, Commercial Metals Company
Well, on the rebar side of it, are you talking about rebar inventories in general or our own inventory levels?

Aldo Mazzaferro, Macquarie Securities Group
No, in general. It’s very hard to get specific inventory numbers and with all the imports in here and a pretty good decent operating rate domestically and prices holding together, maybe there isn’t a big inventory overhang. I am just wondering what you think in terms of is there more oversupply of rebar in the market or are we pretty balanced, you think, despite the high imports?

Joseph Alvarado, Chairman of the Board, President, and CEO, Commercial Metals Company
Yes, I think that it is fairly balanced. There are months, for example, when things will flex and get a little bit out of whack. I think product moves through the system pretty quickly in rebar. No one wants to be sitting and speculating when there’s volatility like there has been. I am not real concerned about downstream inventory and maybe I’m being Pollyannish about it, but we haven’t seen any real swings in inventory that concern us, other than when a couple of boats arrive at the same time. That seems to be getting its way into the system and working its way through fairly quickly. On the scrap side of it, if the question is whether or not there’s good movement of scrap material, if that’s what you’re looking for or availability, we’re not seeing huge flow problems but certainly lower prices ultimately will lead to some flow issues and it ultimately will drive prices back up. There hasn’t been a dearth of scrap or anything like that. Availability is good. The mills are not starving.

Aldo Mazzaferro, Macquarie Securities Group
The mills are not starving yet for scrap but the supplies have drifted down a little bit would you say in the last few months?

Joseph Alvarado, Chairman of the Board, President, and CEO, Commercial Metals Company
I expect they have a little bit, but there might be those that have sat on inventory and speculated on inventory expecting it to go up, for example, after the first of the year, which is seasonally what happens. So if that doesn’t happen then maybe there will be some move to move inventory in the ensuing weeks or months. It’s an interesting thing to watch right now, Aldo, I will say.