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Integrated Business Of Commercial Metals Company

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Jan. 16 2015, Updated 9:28 a.m. ET

Integrated business of CMC

In the previous article, we saw that Commercial Metals Company (CMC) operates four business segments. Now, let’s look at the integrated business of Commercial Metals Company.

CMC’s steel mills, metal recycling, and fabrication operations represent a vertically integrated model for a steel play.

The steel scrap that CMC’s metal recycling division processes acts as a primary raw material for the company’s steel mills. Since CMC employs electric arc furnaces for steel production, the company uses steel scrap as the raw material.

Nucor Corp. (NUE) and Steel Dynamics Inc. (STLD) also have scrap processing facilities. Currently, both companies are part of the SPDR S&P Metals and Mining ETF (XME). Investors can also access the steel industry through ArcelorMittal S.A. (MT), the world’s largest steel manufacturer.

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Downstream operations

Commercial Metals Company also has downstream operations, which are also referred to as fabrication. The steel that CMC’s steel mills produce acts as the raw material for the company’s fabrication segment. This segment is a major player in rebar fabrication.

The chart above shows the breakdown of CMC’s 2014 revenues. As you can see, roughly 42% of the company’s shipments from integrated manufacturing were of rebars and rebar fabrication.

Scrap and semi-finished products accounted for around one third of CMC’s 2014 shipments. MBQ (merchant bar quality) and wire rods totaled one fifth of the shipments. Typically, manufacturers use merchant bars in fabricated products like furniture.

Other components of CMC’s business are the marketing and distribution of steel and other industrial raw materials. We will discuss these in the next article.

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