An investor’s guide to key operations of Steel Dynamics
A must read overview of Steel Dynamics (Part 2 of 11)
What are the key markets for Steel Dynamics?
Steel Dynamics (STLD), like other steel companies like Arcelor Mittal (MT), United States Steel Corporation (X), and Nucor Corporation (NUE) supplies its products to a host of end consumers. The demand from these end consumers is a key driver for steel companies.
The chart above shows the distribution of revenues for Steel Dynamics by end markets. As you can see construction sector is the biggest buyer, followed by automotive. This is understandable given the same pattern existing in the overall steel consumption in the U.S.
Although Steel Dynamics revenue break up differs for energy and manufacturing sector when compared to the trend in the economy. While energy makes up almost 10% of the steel consumption in the U.S., for Steel dynamics it makes only around 3% of the revenue. US Steel corp is the biggest supplier of steel products to energy sector in the North American market.
Distribution channels of Steel Dynamics
Steel Dynamics uses the below mentioned distribution channels for selling its products.
Direct Sales: Direct sales account for a third of total sales at Steel Dynamics. This channel helps it to reach its customers directly. But since a lot of customers want customized products, in small lot sizes, they prefer to buy steel from metal service centers.
Metal service center: A Metals service center acquires primary products like carbon steel, aluminum, stainless steel, brass, copper, titanium, and alloy steel from metals producers and process them to customer specifications. This means producing custom lengths, widths, shapes and surface characteristics for each customer. This remains the most important channel for Steel Dynamics and it gets around 61% of its sales from this channel.
Fabricators: Fabricators use the raw steel produced at steel mills to produce various components for their customers. Steel Dynamics has its own fabrication facilities which account for 6% of Steel Dynamics sales.
After looking at the end markets and distribution channel for Steel Dynamics, we will now look at its integrated business model.
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