8 / Schnitzer Steel Industries, Inc. Form 10-K 2021 Energy Supply We require electricity to run our steel manufacturing operations, primarily its EAF. We purchase electricity under a long-term contract with McMinnville Water & Light (“MW&L”), which in turn relies on the Bonneville Power Administration. We entered into our current contract with MW&L in October 2011 that will expire in September 2028. Our steel manufacturing operations also need natural gas to operate the reheat furnace, which is used to reheat billets prior to running them through the rolling mill. We meet this demand through a natural gas agreement with a utility provider that obligates us at each month-end to purchase a volume of gas based on our projected needs for the immediately subsequent month on a take-or-pay basis priced using published natural gas indices. The combined electricity and natural gas costs for our steel mill represented approximately 1% of our consolidated cost of goods sold in each of fiscal 2021, 2020, and 2019. Competition We compete in the U.S. and in Western Canada for the purchase of scrap metal with large, well-financed recyclers of scrap metal, steel mills that own metal recycling facilities, and with smaller metals facilities and dealers. Our auto stores compete for the purchase of endof-life vehicles with other auto dismantlers, used car dealers, auto auctions, and metals recyclers. In general, the competitive factors impacting the purchase of scrap metal and end-of-life vehicles are the price offered by the purchaser, the proximity of the purchaser to the source of scrap metal and end-of-life vehicles, and the purchaser’s ability to efficiently collect the scrap metal and end-of-life vehicles from certain suppliers’ locations. We also compete with brokers that buy scrap or recycled metal on behalf of domestic and foreign steel mills. Demand for our products is cyclical in nature and sensitive to general economic conditions, structural and cyclical changes in markets, and other factors. We compete globally for the sale of processed recycled metal to finished steel and other metal product producers. The predominant competitive factors that impact recycled metal sales are price (including duties and shipping cost), reliability of service, product quality, the relative value of the U.S. dollar, and the availability and price of raw material alternatives, including recycled metal substitutes, such as pig iron, direct reduced iron, and hot briquetted iron (all three derived from iron ore), and semi-finished products, such as steel billets. Our ability to compete in certain export markets may be impacted by sanctions and trade actions, such as tariffs, quotas, and other import restrictions, and by licensing and inspection requirements. Further, our ability to sell into certain countries may be subject to product quality requirements. Such restrictions may require us to perform additional processing and packaging of certain recycled nonferrous metal products, as well as engage in increased inspection and certification activities, in order to continue selling into the affected markets. We also compete for the sale of used auto parts to retail customers with other self-service and full-service auto dismantlers. The auto parts industry is characterized by diverse and fragmented competition and comprises a large number of aftermarket and used auto parts suppliers of all sizes, ranging from large, multinational corporations which serve both original equipment manufacturers and the aftermarket on a worldwide basis to small, local entities which have more limited supply. The main competitive factors impacting the retail sale of auto parts are price, availability and visibility of product, quality, and convenience of the retail stores to customers. Our ability to process substantial volumes of recycled metal products, our use of advanced processing and separation equipment, the number and geographic dispersion of our locations, our access to a variety of different modes of transportation, and the operating synergies of our integrated platform provide our business with the ability to compete successfully in varying market conditions. Our primary domestic competitors for the sale of finished steel products include Nucor Corporation’s manufacturing facilities in Arizona, Utah, and Washington, and Commercial Metals Company’s manufacturing facility in Arizona. In addition to domestic competition, we compete with foreign steel producers, principally located in Asia, Canada, Mexico, and Central and South America, primarily in shorter length rebar and certain wire rod grades. The principal competitive factors in the steel market currently are price, quality, service, product availability, and the relative value of the U.S. dollar. For more than a decade, our steel manufacturing operation, as part of a U.S. industry coalition, petitioned the U.S. Government under our international trade laws for relief in the form of antidumping and countervailing duties against wire rod and rebar products from a number of foreign countries. Many of those cases were successful and led to a decrease in finished steel imports into our domestic markets from the peak reached in fiscal 2016. During fiscal 2021, antidumping and countervailing duty orders were in effect related to imports of rebar and wire rod from many countries. The duties imposed as part of these orders are periodically reassessed through the administrative review process. In addition, every five years the U.S. Government conducts sunset reviews to determine whether revocation of the orders would likely lead to resumption of dumping and subsidization and negatively impact the U.S. domestic industry. Affirmative decisions allow the orders to continue for an additional five years, and all current orders have completed at least one sunset review. There are also a number of antidumping and countervailing duty orders in effect in Canada covering rebar from many countries that we expect will continue to lead to a reduction in the volume of imports into Canada from these countries.
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