Q2 2025 Commercial Metals Co Earnings Call
Speaker Change: Hello and welcome everyone to the fiscal 2025 second quarter earnings call for CMC.
Speaker Change: Joining me today on today's call are Peter Matt, CMC's President and Chief Executive Officer, and Mr. Paul Lawrence, Senior Vice President and Chief Financial Officer.
Speaker Change: Today's materials, including the press release and supplemental salize that a company this call can be found on CMC's Investor Relations website. Today's call is being recorded after the company's remarks. We will have a question and answer session and we'll have a few instructions at that time.
Speaker Change: I would like to remind all participants that today's discussion contains four looking statements, including with respect to economic conditions, effects of legislation and trade actions, US still import levels, construction activity, demand for finished steel products,
Speaker Change: The expected capabilities benefit in timeline for construction of new facilities, the company's operations, the company's strategic growth plan, and its anticipated benefits, legal proceedings, the company's future results of operations, financial measures and capital spending. [inaudible]
Speaker Change: These statements reflect the company's beliefs based on current conditions but are subject to risk and uncertainties.
Speaker Change: The company's earnings release, most recent annual report on form 10K and other filings with the U.S. Securities and Exchange Commission contain additional information concerning factors that could cause
Speaker Change: Except as required by law, CMC does not assume any obligation to update, amend or clarify these statements Some numbers presented will be non-GAAP financial measures and reconciliation for such numbers can be found in the company's earnings release
Speaker Change: Supplemental Slide Presentations, or on the company's website unless stated otherwise all references made to year or quarter end are references to the company's fiscal year and fiscal quarter and now for opening remarks and introductions I would like to turn the call over to Peter. Please begin. Thank you very much.
Peter: Good morning, everyone, and thank you for joining CMC's second quarter earnings conference call.
Peter: I will start this morning's discussion with an overview of CMC's second quarter results. I will then provide commentary on current market conditions and share a brief update on CMC's strategic effort.
Peter: Paul will cover the second quarter's financial information in more detail, and I will conclude our outlook for the third fiscal quarter of 2025.
Peter: We will then open the call for questions. As a reminder, additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website.
Peter: Before discussing CMC's financial performance, I would like to highlight our team's outstanding safety performance. You have heard me mention many times that our highest priority is ensuring the safety and well-being of our people.
Peter: We want everyone to lead their shift in the same condition in which they arrived.
Peter: The first half of fiscal 2025 marks a new milestone on our journey toward that goal. We achieved a record low incident rate that was consistent with world-class performance.
Peter: Additionally, and even more impressively, the number of OSHA recordable events was the lowest since the second half of fiscal 2018.
Speaker Change: When the company had nearly 4,500 fewer employees, I would like to congratulate the CMC team on this great accomplishment and challenge you to keep pushing towards the ultimate goal of zero harm.
Speaker Change: DMC reported net earnings for the second quarter of 25.5 million or 22 cents per diluted share on net sales of 1.8 billion. The result included 3.9 million of after-tax charges, which Paul will take you through in more detail.
Paul: excluding these items, adjusted earnings were 29.3 million or 26 cents per diluted share.
Paul: No down from recent earnings levels. I am proud of the CMC teams.
Paul: Performance during the second quarter. Each of our segments was able to drive financial benefits to the bottom line by executing on targeted cost optimization and margin enhancement opportunities.
Paul: These efforts were in addition to CMC's strategic operational and commercial excellence of the mission that's or tagged, and we're aimed at pulling all
Paul: Levels of value within our reach to increase the degree of control over our financial performance within an uncertain economic environment.
Paul: I couldn't be more pleased with how our businesses across our organization responded to the challenge by identifying and executing on available opportunities, generating real benefits and setting the company up for even greater success as market conditions improve.
Paul: Results in our North American steel group during the second quarter continued to be impacted by economic uncertainty.
Paul: which has been an overhang on steel pricing and slowed the pace of new construction project awards. As I will discuss in a moment, we saw several bright spots emerged during the latter part of the second quarter, which we believe signal a near-term inflection and profitability.
Paul: Our Europe Steel Group achieved a break-even performance marking an improvement on both a sequential and a year-over-year basis when energy cost rebates are excluded.
Paul: <unk> performed well and have project pipelines to support a strong second half of the year.
Paul: Turning now to Cmc's markets in North America, the construction and industrial activity that drive consumption of our products was resilient during the quarter, which resulted in year over year growth of finished product shipments similar to the last two quarters uncertainty continued to negatively impact.
Paul: The pace of New project awards for private construction <unk>.
Paul: Project owners remain concerned about the future trend in interest rates and are now weighing in the effect of tariffs.
Paul: And other governmental policies on the economy.
Paul: Though new work is slow to award the pipeline of potential projects continues to grow resulting in what we view as a significant amount of pent up demand.
Paul: We see evidence of this increase in pent up demand in our downstream bid volumes as well as the Dodge momentum index, which now sits at an all time high and as registered registered growth in planning across a number of market segments. We also hear about it in our conversations with customers who remain.
Paul: Optimistic regarding the year ahead.
Paul: There are a handful of notable exceptions to the trend of slower awards that are worth mentioning first is highway and infrastructure where activity is increasing nicely and we expect to see additional large projects entering the market during the spring and summer months.
Paul: Next Unsurprisingly is the data center segment, which is which is currently very strong and can be expected to continue growing rapidly for the foreseeable future.
Paul: This view is solidified by recent announcements by leading technology companies to invest over a trillion in digital infrastructure in the coming years. Additionally investment in LNG capacity is ramping up under under the New administration and we have seen some.
Paul: Some major projects announced while others are currently nearing construction.
Paul: This type of work is not only a solid demand generator for our traditional rebar products, but also presents attractive opportunities for our higher value added solutions, such as cryogenic steel N G O grid.
Paul: As noted in our press release. This morning, several encouraging developments emerged within our North American markets. During the latter part of the second quarter. These included improved scrap market conditions and an inflection in long steel price levels.
Paul: Combination of which we believe indicates that we have reached a floor in steel product metal margins and should see expansion heading into the third and fourth quarters.
Paul: Higher mill pricing has carried over into our downstream operations, where average price levels on project bids and awards have risen proportionately lastly, we experienced the second highest volume of New project Awards since late fiscal 2022 leading to a healthy sequential.
Paul: Increase in downstream backlog the rebound in awards does not necessarily signal that the slowing effect of uncertainty is dissipating. However, we believe it does show that there is a.
Paul: Meaningful number of projects that owners are eager to construct despite the present challenges.
Paul: Before leaving our North American market discussion I would like to zoom out a bit and talk about talk the talk.
Paul: Talk a excuse me I'd like to zoom out a little bit from talk of uncertainty and take a broader view of the landscape.
The last five years have brought tremendous economic geopolitical and technological change governments and businesses have responded by undertaking massive investment programs to realign supply chains rebuild infrastructure increased energy production and transmission and upgrade computing capabilities.
Paul: The common thread running through all of these developments is construction as the pace of change accelerates. It is construction that makes this adaptation possible. This dynamism gives me a high degree of confidence in the future of Cmc's markets, we likely won't be able to predict that.
Paul: <unk> trend, but I'm confident that it will require construction solutions offered by our company.
Paul: That's why I think it's important to keep a sense of perspective.
Paul: Look beyond the temporary slowness.
Paul: Shifting gears to our European segment conditions improved moderately compared to the recent two recent periods largely as a function of reduced import flows and long steel products from Germany.
Paul: A better balance in the market provided space for our team to maintain shipment levels on a sequential basis, despite seasonally weaker demand.
Paul: We also experienced some modest relief on metal margins and were able to increase pricing by $25 per ton from the low reached in December of 'twenty 'twenty four.
Paul: Consumption remains in line with historical levels, but should grow in light of the momentum within the residential market and increased funding for large infrastructure and energy projects as noted on slide 11 of the supplemental presentation. Numerous green shoots have emerged that could meaningfully impact.
Paul: <unk>, Polish and central European steel markets in the quarters and years ahead.
Paul: <unk> for most notable recent development is the German proposal to lift its budget constraints to modernize its military and invest 500 billion in.
Paul: In infrastructure, such an action could substantially increase the country's steel demand and redirect and redirect material currently flowing into the Polish market.
Paul: Many other nations within the EU are also suggesting that significant incremental investment needs to be made in defense capabilities, which will include construction activities and should stimulate demand for long steel products.
Paul: In addition, an end to the conflict in Ukraine would boost general business sentiment across the continent and could lead to a sizeable rebuilding effort.
Paul: Inside Poland, many large infrastructure projects of our national scale are nearing construction phase and should help support rebar consumption over a multiyear period.
Paul: Lastly on the supply side, there's increased discussion within the European Union regarding creating and protecting an attractive environment for capital to be invested in industrial activities taken together these demand and supply developments could substantially improve what has been a.
Paul: Very challenging industry landscape.
Paul: It is too early to be definitive about any of these outcomes, but we are starting from a low base and I think we can be cautiously optimistic.
Next I would like to provide an update on a few of Cmc's strategic initiatives.
Paul: As we discussed in the past that CMC is taking steps to achieve its ambitious vision to drive the next phase of value accretive growth as outlined on slide 10. Our aim with this strategy is threefold first to achieve sustainably higher less volatile through the cycle margins.
Paul: And returns that are fortified by our operational and commercial excellence initiatives.
Paul: Second.
Paul: To execute on attractive organic growth opportunities and third in a disciplined manner pursue inorganic growth opportunities that broaden cmc's commercial portfolio of early stage construction products improve our customer value proposition and meaningfully extend our growth run.
Paul: Right.
Paul: Earlier this fiscal year, we introduced transform advance and grow or tag our enterprise wide operational and commercial excellence program with.
Paul: With the goal of generating a permanent improvement in our margin profile. This program is unlike any other ever launched at CMC due to the breadth and the depth of its reach as well as its visibility and accountability structures built to support it.
Paul: Every line of business in every support function.
Paul: It has been and every support function excuse me has been involved in identifying and quantifying opportunities that now include over 150 different initiatives.
Paul: Currently CMC is executing over 25 first wave initiatives with very strong early results last quarter. We provided some color regarding two specific initiatives aimed at reducing alloy consumption and improving melt shop yields with a combined sustainable annual benefit of 10 two.
Paul: $15 million. These programs continue to perform well and are expected to become permanent improvements to our cost structure. This quarter I would like to highlight our efforts to enhance cmc's logistical capabilities.
Paul: This initiative is expected to drive between 5 million and 10 million in annual benefits by optimizing delivery routes improving asset utilization, increasing the use of rail versus truck and more effectively capturing backhaul opportunities.
Paul: Progress to date has been encouraging and just like our alloy and melt shop initiatives, we expect our logistics efforts to translate into sustainable financial benefits beyond the initiatives mentioned several other major operational and commercial work streams are underway overall our performance.
Paul: To date as well as the focus the termination of the teams from across the organization give me confidence that Cmc's tag related efforts will provide approximately $25 million of benefit over the remainder of fiscal 2025. In addition to the $15 million that we have already achieved in the year.
Paul: And the really exciting part is that there's a lot more to come in the years ahead.
Paul: We continued to make progress at our Arizona Micro mill, which included producing an increased volume of merchant bar products during the quarter.
Paul: Looking ahead, we expect to achieve meaningful advances advancements in production volumes during the third and fourth quarters with growth in both rebar and merchant bar output.
Paul: Meanwhile, progress at Cmc's COF, Virginia site remains on track and we are currently on target for commissioning for commissioning process to begin in the late part of 2025.
Paul: Beyond the <unk> mill projects, we are also making investments to meet customer demand and strengthen our core offerings by growing our capabilities in more specialized solutions. These undertakings include the expansion of Cmc's post tension cable production in our North America Steel group and adding a second Gulf.
Paul: The bar coding line and increasing Geo grid manufacture excuse me manufacturing capability in our emerging businesses group these investments and others like them require significantly less capital than our traditional steel business, but generate high returns on capital and strong cash flows we are.
Paul: Making good progress on these projects and expect each of them to be placed into service over the next 18 months.
Paul: On the inorganic front, we remain interested in entering attractive adjacencies to our business, where we believe we have a clear right to play an opportunity to offer immediate value given cmc's current customer knowledge marketing market position and operational capabilities. We are.
Paul: Targeting segments of the 150 billion early stage construction market that touch the types of projects, we're already servicing and feature higher more stable margins we anticipate.
Paul: These adjacent markets will also benefit from the Mega trends that are expected to drive construction activity for years to come with.
Paul: With that I'll turn the call over to Paul.
Paul: Thank you Peter and good morning to everyone on the call.
Paul: As noted earlier, we reported fiscal second quarter 2025, net earnings of $25 5 million or <unk> 22 cents per diluted share compared to net earnings of $25 eight alright of $85 8 million and net earnings.
Paul: <unk> per diluted share of <unk> 73 cents in the prior year period.
Paul: Excluding estimated net after tax charges of approximately $3 9 million adjusted earnings for the quarter totaled $29 3 million or <unk> 26 cents per diluted share compared to $85 9 million and 73 cents per diluted share respectively in the prior year period.
Paul: Charges incurred during the quarter were primarily related to interest expense on our judgment amount associated with the previously disclosed specific steel group litigation verdict reached in November.
Paul: Consolidated core EBITDA was 131 million for the second quarter of 2025, representing a decline from the $212 1 million generated during the prior year period.
Paul: Slide 13 of the supplemental presentation illustrates the year to year changes and Cmc's quarterly financial performance.
Paul: Profitability of our North American Steel group was negatively impacted by lower margins over scrap.
Paul: EBITDA at both our Europe Steel group and emerging business group increased compared to the second quarter of fiscal 'twenty four.
Paul: Consolidated core EBITDA margins of seven 5% compared to 11, 5% in the prior year period.
Paul: The MTA as North American Steel group generated adjusted EBITDA of $128 8 million for the quarter equal to $123 per ton of finished steel shipped.
Paul: Segment, adjusted EBITDA decreased 42% compared to the prior year period, driven primarily by lower margin over scrap costs on both steel and downstream products.
Paul: We believe this represents a trough level of EBITDA and expect earnings to rise as we enter 2025 construction season and as a result of the increased volume.
Paul: <unk> price increases that have been announced and continued focus on our costs.
Paul: Controllable costs per ton of finished steel was largely unchanged on a year over year basis with cost management efforts offsetting the impact of weather related operational disruptions of approximately and approximately $8 million of unrealized losses on copper hedging positions due to the volatility in the commodity over the past mud.
Paul: <unk>.
Paul: The adjusted EBITDA margin in the North American Steel group of nine 3% compares to 15% in the second quarter of 2024.
Paul: As Peter indicated demand for long steel products was a resilient during the quarter as demonstrated by our finished steel shipments.
Paul: Increasing by three 3% compared to a year ago.
Paul: Turning to slide 15 of the supplemental deck, our Europe Steel group reported adjusted EBITDA of <unk> 8 million for the second quarter of 2025 compared to a loss of $8 6 million in the prior year period.
Paul: The improvement was driven by ongoing cost management efforts as well as a $4 million rebate for natural gas costs and increased shipment volumes.
Larry: I'm Larry to recent quarters the team in Poland continued to drive efficiency gains throughout the operations with success in nearly every major cost category, including energy consumable usage maintenance labor and overhead.
Larry: These efforts have allowed the Europe steel group to remain roughly cash flow breakeven within a challenging market backdrop.
Larry: Most of these improvements are permanent in nature, and set us up well to capitalize on market recovery.
Speaker Change: As Peter mentioned, we also saw a pullback in the level of long steel imports into Poland that provided CMC the opportunity to achieve strong shipping volumes within our seasonally weaker second quarter and to modestly increase metal margins on a sequential basis.
Speaker Change: The emerging business group second quarter net sales of $158 9 million was an increase of one 8% on a year over year basis, while adjusted EBITDA of $23 5 million increased by 31%.
Speaker Change: The improvement was largely driven by strong demand for our proprietary products within our performance reinforcing steel division.
Speaker Change: This business has had success in penetrating several major infrastructure projects, requiring enhanced lifespan strength lifespan strength in consumer.
Speaker Change: Corrosion resistant characteristics.
Speaker Change: Financial performance of CMC as tense are in construction services divisions were little changed from a year ago, but it's worth noting that 10 fire saw good recovery from sequential Q1 results.
Speaker Change: Indications of future market conditions remained encouraging with pipeline measures such as project quotes and new planning activity at healthy levels.
Speaker Change: Earnings at Cmc's impact metals Division continued to impact net impacted negatively by weaker truck and trailer demand, though we are seeing signs that conditions are beginning to stabilize in this market.
Speaker Change: A higher mix of sales of our performance reinforcing steel within the EDG total sales as well as the continued adoption of <unk> latest Geo grid solutions led to a 330 basis point improvement in adjusted EBITDA margin compared to the second quarter of 2024.
Speaker Change: Moving to the balance sheet as of February 28, cash and cash equivalents totaled $758 4 million. In addition, we had approximately $815 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1 6 billion.
Speaker Change: During the quarter, we generated $32 4 million of cash from operating activities, which included a $67 5 million usage of cash for working capital principally driven by the scrap cost increase which occurred during the quarter cap.
Speaker Change: Capital expenditures of $86 3 million were largely driven by construction activity related to our steel West Virginia Micro Mill project.
Speaker Change: In addition, we received $25 million in cash incentives during the quarter related to the steel West Virginia project and in total we anticipate receiving approximately $75 million of upfront incentives related to this project.
Speaker Change: Our leverage metrics remain attractive and have improved significantly over the past several years as can be seen on slide 20 for the second quarter of 2025, our net debt to adjusted EBITDA ratio now sits at one time.
The debt to capitalization is only 18%.
Speaker Change: 8%.
Speaker Change: We believe our robust balance sheet and overall financial strength provide us the flexibility to finance, our strategic organic growth projects and pursue opportunistic M&A.
Speaker Change: While continuing to return cash to shareholders as.
Speaker Change: As we have stated in the past we value the financial flexibility that our strong balance sheet provides us as well as the support it offers to execute the strategic growth plan that Peter outlined.
Speaker Change: As we implement this ambitious plan.
Speaker Change: We will target at three of the cycle net leverage ratio at or below two times adjusted EBITDA.
Speaker Change: Turning to CMC as fiscal 2025 capital spending outlook, we now expect to invest between 550 and $600 million. In total this is down from previous guidance of between 630 and $680 million.
Speaker Change: With the reduction related to the timing of certain expenditures that CMC is west Virginia project.
Speaker Change: Note that this adjustment does not affect the anticipated start date for commissioning of the new mill.
Speaker Change: As outlined in past earnings call CMC targets, a prudent and balanced approach to capital allocation. Our first priority is value accretive growth that furthers, our strategy and strengthens our business.
Speaker Change: Coming in a close second is providing our shareholders with an attractive level of distributions in the form of both dividends and share repurchases to this and CMC returned approximately $68 million to our shareholders during the second quarter TMC.
Speaker Change: <unk> repurchased approximately 907000 shares at an average price of $52 96 per share as of February <unk>.
Speaker Change: As of February 28, we had approximately $305 3 million available for repurchases under the current authorization.
Speaker Change: This concludes my remarks, and I'll turn it back to Peter for comments on our outlook. Thank you Paul we expect consolidated financial results and our third quarter of fiscal 2025 to rebound from the second quarter level finished steel shipments within the North America Steel group are anticipated to follow normal.
Speaker Change: <unk> trends as we enter the spring and summer construction season.
Speaker Change: While our adjusted EBITDA margin is expected to increase sequentially on higher margins over scrap and steel products.
Speaker Change: Adjusted EBITDA for our Europe Steel group should remain near breakeven as we enter the seasonally strong period of the year and continue to benefit from extensive cost management efforts financial results for the emerging businesses group are anticipated to improve to levels modest modestly above.
Speaker Change: The prior year period, we are encouraged by recent developments across the various markets in which we participate margin and demand trends appear to be improving which should position us for the upcoming spring and summer construction season.
Additionally, conversations with customers continue to indicate optimism about the coming quarters before we open the call for questions I want to reiterate how excited we are about our potential to reach new heights in the future as we execute our key strategic priorities.
Speaker Change: And deliver higher returns and significant value for our shareholders as we move past near term uncertainty CMC is well positioned to benefit from the powerful structural trends in North America that should drive strong construction activity for years to come.
Speaker Change: I would like to thank our customers for their trust and confidence in CMC and all of our employees for delivering yet another quarter of very solid safety and operational performance.
Operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two please.
Speaker Change: Please limit yourself to one question and one follow up and if you have further questions. You may reenter the question queue and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from cities coffee Nathan with Bank of America. Please go ahead.
Nathan: Yeah, Hi, good morning, Thanks for taking my questions Mike.
Nathan: My first question is on the U S. The bond market you mentioned that you expect improvement in margins in the North American segment.
Nathan: If you see the recent Brendan LIBOR basis.
Nathan: Doesn't fully offset the increase in scrap goes that you have.
In the past three months and then over the weekend, we saw one of your peers raising basis full in merchant and beans, and an artful reebok.
Nathan: So can you provide some color on what you're seeing on the pricing side and whether you see further room for anybody.
Nathan: Future. Thank you yeah. Thank you cities for the question.
Nathan: So.
Nathan: We are seeing price increases across I would say across our entire portfolio starting with rebar on the rebar side.
Nathan: We have in some markets, we've gotten all of the increases and in some markets. We have not gotten all of the increases yet, but we expect to get them as we book the future orders here. So on the rebar side, we feel very good about where things are and I would say that.
Nathan: In our order book.
Nathan: We have continued to keep pricing above movements in scrap.
Nathan: So and the other thing I would say is that on.
Nathan: This via our Q2, we don't have much of the benefit of the price increases in there I know you didn't ask specifically about merchants, but I'll comment on merchant and wire Rod quickly on merchant bar, we have gotten both of those price increases and we are very confident that they will stick.
Nathan: And.
Nathan: In the wire Rod Similarly, we are confident that that will stick.
Nathan: And we believe in a market of strengthening demand that there should be room for further price increases as we move into the heart of the construction season.
Nathan: So we're very optimistic about where we stand on pricing.
Nathan: <unk> I'll just add in terms of the scrap cost increase in comparison to some of the indexes.
Nathan: With the investment that we have in our vertical chain.
Nathan: What we see generally in our scrap cost increase is going to be directionally, but not normally to the same level of the index increase so that's what we see coming this time is that we will benefit from.
Nathan: Our overall investment in recycling operations and.
Nathan: Mitigate some of what you see in the index.
Yes. Thank you for the additional color maybe.
Nathan: Maybe one follow up on the Arizona Boomers. So can you talk about the financial performance in Q2 are you close.
Nathan: Close to breakeven and tire volumes in Q3 should be expected.
Nathan: EBITDA positive.
Nathan: So we did not breakeven in the second quarter and in fact, we had a challenging second quarter not only is it our weakest quarter seasonally as you know.
Nathan: But we had two transformer outages and we continued to have a few of the startup issues.
Nathan: Nagging us so so we did not achieve breakeven in the second quarter as we move to Q3.
Nathan: We are going to work really hard to get to that level, but I think it's probably more realistic that we cross that threshold in Q4.
Nathan: Obviously moving into Qs are into 2026, we would be we would expect to be continuously profitable.
Nathan: Okay. Thank you I'll jump back in queue. Thank you.
Timna Tanners: The next question will come from Timna Tanners with Wolfe Research. Please go ahead.
Timna Tanners: Hey, good morning, well I should just follow up on the last question to see if we could get a little bit more granularity around north American margins.
Speaker Change: Does that change quite of a quite an EBIT per tonne of about 93.5 dollars, it's that recoupable and the next quarter I know, there's moving parts and it sounds like on the steel side, maybe but maybe you can give a little more color about how to think about any lags in the downstream and how that might have.
Speaker Change: Do you think about the trajectory in the next several quarters and recouping some of that lost margin. Thank you.
Speaker Change: Yes, if we look at Timna, if we look at the EBIT.
Speaker Change: Per ton on the on.
Speaker Change: The U S business.
Speaker Change: On a quarter over quarter basis, we do see a recovery of much of that in the in the coming quarter and I think it comes from a number of different sources, obviously as we've talked about we do expect metal margins too.
Speaker Change: To improve.
Speaker Change: We talked about the the copper.
Speaker Change: Mark.
Speaker Change: Mark to market charge that we had in the quarter that we would expect to two.
Speaker Change: <unk> not occur again, obviously it depends on where copper prices go during the during the course of the quarter, but.
Speaker Change: That is not certainly something that we are we forecast and in our expectations.
Speaker Change: And then couple of other areas of significant improvement that we expect on the cost side.
Speaker Change: Not only.
Speaker Change: Is is the second quarter higher on the cost side for.
Speaker Change: You know in relation to fixed costs in the in the in the seasonal shutdowns that occur in our second quarter, but also the higher costs related to some of the harsh weather that we saw driving gas and electricity prices, a little bit higher as well as scheduled outages that we added in the quarter.
Speaker Change: So all in from.
Speaker Change: From an EBITDA per ton basis, we certainly see a recovering sort of where we were from Q1 into Q2.
Speaker Change: And seeing that bounce back in Q3.
Speaker Change: Helpful. Thank you and then for a follow up if I could on the positive side your volumes were considerably better than we expected.
Speaker Change: Nine.
Speaker Change: The 9% year over year on rebar in North American and I imagine, it's around 4% and merchants went up despite seasonality and rebar went down less than normal Q whatever quarter. So do you think he brought forward some demand or can you help us understand is that just greater production from some of your expansions like what drove that.
Speaker Change: Better than at least we expected volumes.
Speaker Change: There's probably some pull forward of demand in that number but in general we feel really good about where things are I mean, if we look at our bidding I'm talking on the rebar side. If we look at the bidding activity that remains very strong you saw our booking numbers and they continue to be strong as well.
Speaker Change: As we move into March so we feel really good about where we are on that front.
Speaker Change: If we look at the merchant side, we see good demand for our products and I think there is.
In general there is a level of optimism about the economy that is going to help pull some of that product through the through the service center. So we feel good about where that is.
Speaker Change: I think it's sustainable.
Speaker Change: Thanks again.
Speaker Change: Thank you so much.
Conference Operator: The next question will come from Mike Harris with Goldman Sachs. Please go ahead.
Speaker Change: Yes. Thank you good morning.
Speaker Change: Quick question around the <unk>.
Speaker Change: North American rebar market.
Speaker Change: If you could how would you describe the.
Speaker Change: Current supply demand balance and how do you see utilization rates are.
Speaker Change: Turning over to next year or so.
Speaker Change: If you could.
Speaker Change: Yeah absolutely.
Speaker Change: This is a picture we've been while the last several quarters and.
Speaker Change: And obviously the second quarter is our weakest seasonally and yet it was actually quite strong from a demand perspective.
Speaker Change: And so we would see the supply demand balance as really quite well balanced right now and I think thats why youre seeing the opportunity to move prices and our confidence in our ability to move prices. So we.
Speaker Change: We know in the case of our mills, we are really with the exception of Arizona, where we're ramping it up we are really fully utilized at this juncture.
Speaker Change: Okay. Thanks.
Speaker Change: A follow up how would you describe the likelihood and potential impact of a composite rebar disrupting the steel industry and I guess what factors.
Speaker Change: Is most critical in determining its adoption.
Speaker Change: This product has been around for a long time.
Speaker Change: And what we find is we in different forms.
Speaker Change: I would say and what we believe is that it absolutely has an application in the market, but we don't see it as a material threat to our market position at this juncture.
Speaker Change: There are some limitations in its application.
Speaker Change: And specifically the challenges of fabricating it and so forth that give it less applicability to the markets overall.
Speaker Change: Okay. So more of a niche application not necessarily opportunity for broader adoption is one way to look at that I guess I think thats right Mike.
Speaker Change: Okay, alright, thanks, a lot.
Speaker Change: Thank you.
Conference Operator: Again, if you have a question. Please press Star then one our next question will come from Andrew Jones with UBS. Please go ahead.
Speaker Change: Okay.
Andrew Jones: Hi, Jess just wanted to ask a couple of questions about like the sales model.
Andrew Jones: Drive to say I mean, clearly the market's been worrying about the impact of trade policy.
Andrew Jones: And just kind of.
Andrew Jones: On a longer term view.
Andrew Jones: I noticed some of your structural drivers infrastructure investments Sighful doesn't look like it's changed in a person in the presentation.
Andrew Jones: Is there any elements of that you see.
Andrew Jones: Being at risk in some of the.
Andrew Jones: Federal driven aspects to the demand spectrum, and where do you see the most risk.
Andrew Jones: You have any sense on quantifying any of that and also.
Andrew Jones: I guess also along the tough question I may Miss PSG mill seems to have broken ground. That's obviously.
Andrew Jones: Be coming on at some point.
Andrew Jones: One 5 million tonnes of new capacity this year.
Andrew Jones: How do you see that market playing out in the longer term because it seems like there's quite.
Andrew Jones: Quite a few risks that thanks a lot.
Andrew Jones: Yes, I think just let me tackle your questions one at a time so on trade policy.
Andrew Jones: We continue to believe that even with some of these incremental projects that we are in for a period of very substantial demand. So let's just start with you called it out infrastructure infrastructure.
Andrew Jones: Remained strong we think that's going to remain strong we don't see anything in the in the current dialogue, but it really disrupts that and then as to trade policy, specifically when we think about trends like re shoring theres been some really significant.
Andrew Jones: Desman announcements in the U S that are going to be leading to some substantial rebar demands I'm thinking about you know apple talking about investing $500 billion I'm thinking about Tms C. At 100 billion, Eli Lilly at 27 billion.
Andrew Jones: Honda, they're talking about a big re shoring investments. So so these are I think are in part consequences, maybe not directly but.
Andrew Jones: But certainly consequences of the trade policy.
Andrew Jones: And I think theyre going to lead to a strong backdrop of demand.
Andrew Jones: For us over the next couple of years on that side of the equation.
Andrew Jones: If I move to your question about PSG, yes, it's an incremental supply in the Mojave region. So.
Andrew Jones: It's.
Andrew Jones: Our story is really about growing demand and as.
Andrew Jones: As we look at it we look at the combination of infrastructure. The nonresidential construction spend the residential construction spend and there we believe youre going to see across those end markets substantial demand. So.
Speaker Change: Yes, its and its additional capacity, we think it's absorbable and I think the point that's important to make on that project is.
Speaker Change: It's not going to be producing anything for several years at this point right. So.
Speaker Change: So so I think I think we're comfortable with with that project coming to the market.
Speaker Change: No that's helpful and then just on.
Speaker Change: The cadence of it.
Speaker Change: The timing of some of the capacity of the Sis.
Speaker Change: Our expectations for the demand trajectory over the next of Yale So I mean with that capacity coming in and maybe being a bit of a lag to some of this demand uplift I mean.
Speaker Change: How do you see that playing out over the next few quarters do you think the market's going to tighten further or do you think it will do some before it before that kind of tightness. We emerge is like well how do you see it playing out over the next 12, yes, I think I think if we look at the timing of the expected startup. So first of all the optimists capacity is already in the market.
Speaker Change: <unk>.
Speaker Change: And high bar is coming on a little bit later this year.
Speaker Change: And Nucor has a facility coming on in a little bit later this year. So those have to go through a startup in these startups take some time. So we don't we're not really viewing incremental capacity is a 25 issue and so therefore I think we think we're going to experience. Some good strengthening over the course of <unk>.
Speaker Change: 2025.
Speaker Change: And then as we go into 2006.
Speaker Change: We expect a lot of these projects are going to start to be shovel ready and start to be demanding rebar. So the incremental demand should step up in 2006 and that should help absorb the incremental capacity. So so so we're our baseline would be.
Speaker Change: We stay in a relatively balanced position and therefore that we can sustain these higher margins that we're talking about.
Speaker Change: Okay, that's clear thanks.
Andrew Jones: Thank you I will jump back in the queue. Thank you Andrew.
The next question will come from Timna Tanners with Wolfe Research. Please go ahead.
Timna Tanners: Hey, guys I didn't hear anyone ask about Europe I got back in the queue I thought a can we find out if the 4 million and gas. We made was in your guidance and B. How do you think about the timing of the benefit from this great Big German stimulus is that what is that more of a 2026 event as well.
Timna Tanners: And also for the tariffs I assume that's also something that would benefit on a lag.
Timna Tanners: <unk> percent or so cap, they're trying to get to on imports any color there would be great.
Speaker Change: Yes, Timna I'll start on the natural gas in the forecast and Peter can add some color on the overall market.
Timna Tanners: We did and <unk>.
Timna Tanners: Dissipate.
The natural gas a refund what we didn't necessarily anticipate was the unusual strength in terms of the demand in the Polish market and the metal margin expansion that we saw certainly later in the in the quarter and so that's what drove us to.
Timna Tanners: The at the that the overall black result for the for the month or for the quarter and as.
Timna Tanners: As we look forward as we've said we think that.
Timna Tanners: Continuing.
Timna Tanners: The good demand backdrop and in Poland.
Timna Tanners: <unk> with a metal margins at levels similar to where we are today should enable us to continue with a close to breakeven results in that market, even without a gas a credit in the third quarter for us.
Speaker Change: And just jumping in on the broader situation in Europe Timna.
Timna Tanners: What we see is we see a new sense of urgency in Europe.
Timna Tanners: And you mentioned, Germany, but I think it's really across.
Timna Tanners: Many countries in Germany, and so let's start with the European Commission on some of the trade restrictions that should help support kind.
Timna Tanners: Steel production in steel margins in the region. So a.
Timna Tanners: Whether it's the.
Timna Tanners: The.
Timna Tanners: The melted and poured restrictions some of the changes to see Bam.
Timna Tanners: These types of things I think are going to be generally very helpful for for our business in Poland and then if we get to Germany specifically.
Timna Tanners: Again whats been interesting for me is to watch the pace at which this is all kind of move through the system. So I would expect that some of the kind of trade restrict restrictions that we're talking about from the European Commission could benefit 2025, and then in all likelihood to get a.
Speaker Change: Graham like the program in Germany ramped up on the infrastructure and the defense spending that's probably more likely impacting 'twenty six but it could have a strong impact on 2006 and I think the other thing too that you didn't note, but I think it's worth calling out as in Poland. We're seeing some very significant.
Speaker Change: Kind of infrastructure and broader economic investments, we've talked a lot about recovery and resilience on prior calls, but there is an infrastructure bill in Poland that.
Speaker Change: Over the next couple of years that will impact.
Speaker Change: Bridges, and airports and roads and that will have substantial substantial.
Speaker Change: A substantial impact on the on the demand for rebar in that market.
Speaker Change: And Theres also a big nuclear project, that's being talked about in Poland that will be a multiyear project with substantial demand and.
Speaker Change: And of course last but not least.
Speaker Change: To the extent that there is an end to the war in Ukraine, I think we can expect.
Speaker Change: Something from the rebuild there so hard to say what exactly that will be at this point, but over I think.
Speaker Change: Kind of overarching comment is I think there are a number of green shoots that have emerged in Europe that we should be really optimistic about.
Speaker Change: Thanks, Dan Thank.
Dan: Thank you.
Conference Operator: The next question will come from Andrew Jones with UBS. Please go ahead.
Andrew Jones: Hey, so just a follow up on the <unk> question, let's start with the cold.
Andrew Jones: Just curious about any differences between the market in the western market in the eastern.
Andrew Jones: Given your comments it sounds like Youre getting those price increases above scrap from what you're saying obviously been leased out.
Andrew Jones: With just small doesn't seem to imply that whats what do you think is being missed Bobby in the stages of some regional aviation or is the.
Andrew Jones: Some sort of lag I mean, how do you explain that basically.
Andrew Jones: Yeah I.
Andrew Jones: I mean, there are always some regional variations in the rebar market and I think it's no different.
Andrew Jones: What youre seeing right now.
Andrew Jones: Just it's just the fact of the market and it has to do with where the demand is where the projects are at the time.
Andrew Jones: But again across each of our markets. What we see is we see a number of kind of projects that are coming to the market and in new projects that are being added to backlog and so forth. So we're confident that the demand is going to emerge in that.
Andrew Jones: That's going to enable us to get price.
Andrew Jones: Okay. Thanks.
Conference Operator: At this time there appears to be no further questions. Mr. Matt I would now like to turn the call back over to you for any closing remarks.
Conference Operator: Thank you very much at CMC, we remain confident that our best days are ahead. The combination of the structural demand trends, we have noted operational and commercial excellence initiatives to strengthen our through the cycle performance and value accretive growth opportunities create an exciting future for our company and one in which we.
Conference Operator: So we can substantially grow our returns on our invested capital we are committed to a balanced capital allocation strategy that includes investments in our company's future and our return of capital to our shareholders. Thank you for joining us on today's call. We look forward to speaking with many of you during our investor calls in.
Conference Operator: In the coming days and weeks.
Conference Operator: This concludes today's CMC conference call. Thank you for your participation you may now disconnect.
Conference Operator: Okay.
Conference Operator: Okay.
Conference Operator: [music].