SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 9 / Schnitzer Steel Industries, Inc. Form 10-K 2017 The table below sets forth, on a revenue and volume basis, the sales of finished steel products during the last three fiscal years ended August 31: 2017 2016 2015 Revenues (1) Volume (2) Revenues (1) Volume (2) Revenues (1) Volume (2) Finished steel products $ 280,206 495,516 $ 269,355 488,212 $ 363,795 539,984 _____________________________ (1) Revenues stated in thousands of dollars. (2) Volume stated in short tons (one short ton = 2,000 pounds). The metals recycling operations within CSS produce substantially the same recycled scrap metal products as those produced by the metals recycling operations within AMR and are exposed to similar market and competitive forces. Customers CSS’s finished steel customers are primarily steel service centers, construction industry subcontractors, steel fabricators, wire drawers and major farm and wood products suppliers. During fiscal 2017, CSS sold its finished steel products to customers located primarily in the Western U.S. and Western Canada. Customers in California accounted for 53%, 48%, and 46% of CSS's steel revenues in fiscal 2017, 2016 and 2015, respectively. CSS’s ten largest steel customers accounted for 51%, 45% and 42% of its steel revenues during fiscal 2017, 2016 and 2015, respectively. No CSS steel customer accounted for 10% or more of consolidated revenues in fiscal 2017, 2016 and 2015. The metals recycling operations within CSS also sell ferrous and nonferrous recycled metal products, primarily to steel mills, foundries and smelters in Asia. Distribution CSS sells finished steel products directly from its mini-mill in McMinnville, Oregon and its owned distribution center in City of Industry, California (Los Angeles area). Finished steel products are shipped from the mini-mill to the distribution center primarily by rail. The distribution center facilitates sales by maintaining an inventory of products close to major customers for just-in-time delivery. CSS communicates regularly with major customers to determine their anticipated needs and plans its rolling mill production schedule accordingly. Finished steel shipments to customers are made by common carrier, primarily truck or rail. CSS delivers recycled ferrous scrap metal to export customers by bulk ship using its deep water terminal facility in Portland, Oregon, and nonferrous recycled scrap metal to export customers in containers by ship. Supply of Scrap Metal We believe CSS operates the only mini-mill in theWestern U.S. that obtains its scrap metal requirements from an integrated metals recycler. CSS's metals recycling operations provide its steel mill with a mix of recycled metal grades, which allows the mill to achieve optimum efficiency in its melting operations. Energy Supply CSS needs electricity to run its steel manufacturing operations, primarily its EAF. CSS purchases electricity under a long-term contract with McMinnville Water & Light (“MW&L”), which in turn relies on the Bonneville Power Administration (“BPA”). We entered into our current contract with MW&L in October 2011 that will expire in September 2028. CSS's steel manufacturing operations also need natural gas to run its reheat furnace, which is used to reheat billets prior to running them through the rolling mill. CSS meets this demand through a natural gas agreement with a utility provider that obligates CSS at each month-end to purchase a volume of gas based on its projected needs for the immediately subsequent month on a take-or- pay basis priced using published natural gas indices. Energy costs represented 5% of CSS’s cost of goods sold in fiscal 2017 and 6% in each of fiscal 2016 and 2015. Backlog CSS's steel manufacturing operations generally ship products within days after the receipt of a purchase order. As of September 30, 2017 and 2016, CSS had a backlog of finished steel orders of $19 million and $5 million, respectively.