Texas-based Commercial Metals Co. said Tuesday it plans to acquire assets from a Brazilian rival that would double its share of a key construction material.
The company plans to pay $600 million in cash for the U.S. steel-reinforcing-bar assets of Brazil's Gerdau SA, adding four mills and 33 fabrication plants.
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Gerdau's exit from the U.S. rebar market would leave Commercial Metals and North Carolina-based Nucor Corp. as the two dominant domestic suppliers of rebar, which is used to strengthen concrete used for commercial buildings, bridges and road projects.
Analysts said the move could further reduce pricing pressure from lower-cost imports. Rebar imports were on pace to drop 17% in 2017 compared with a year earlier, according to the Commerce Department. Tariffs and higher prices for the scrap steel used to make it discourage foreign producers from selling rebar in the U.S. at discounted prices.
The proposed deal would increase Commercial Metals' steel-making capacity by about 60% to 7.2 million tons a year. Its share of rebar consumed in the U.S. would rise to about 40% a year from about 21% now, analysts at Jefferies estimated.
"This acquisition represents a unique opportunity to acquire quality assets," Commercial Metals Chief Executive Barbara Smith said during a call with analysts. "Having the larger footprint and a larger geographic presence gives us all sorts of options."
Domestic rebar producers are aiming to add production closer to where rebar is used to reduce transportation and warehousing expenses.
Commercial Metals, based in the Dallas suburb of Irving, is counting on an improving rebar market to support its investment in the Gerdau plants.
The company and Nucor are both building new mills in anticipation of rising demand for rebar from expanding construction activity in the U.S. this year. Analysts said the rebar market would further benefit from a comprehensive U.S. infrastructure program being discussed by the Trump administration.
Profits from the rebar have been lackluster in recent years as a rising volumes of low-cost foreign rebar drove down prices in the U.S. Ms. Smith said Gerdau's plants have been operating well below their maximum production rate. "Margins have been quite compressed," she said.
Commercial Metals shares rose almost 10% in early trading and were recently up 7.7% at $22.95.
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(END) Dow Jones Newswires
January 02, 2018 14:53 ET (19:53 GMT)