Transformer Failure Impacts Production at Commercial Metal Plant

Commercial Metals Company, announced that Structural Metals, Inc. (SMI Texas), its steel minimill located in Seguin, Texas, has experienced an unanticipated failure of its primary and principal backup electric arc furnace transformers. A second replacement transformer has been installed, is in service and the melt shop in production.

Because of the third transformer's lower electrical capacity, SMI Texas' melt shop production will likely be reduced 15 to 25 percent compared to prior production levels with the primary transformer in operation. In order to continue SMI Texas' rolling mill production at near existing levels, SMI Texas will roll billets from other CMC owned minimills as well as purchase billets from unrelated parties. In addition, finished steel products, principally reinforcing bar, will likely be purchased as needed from unrelated parties to supply SMI Texas' customers.

Company engineers and consultants are continuing to evaluate the cause for the transformer failures. While difficult to predict at this time, it is anticipated that the primary transformer could be repaired and back in full service in as short a period as one to two months or, in the event a complete rebuild of the transformer is required, it could be approximately four to six months before it is returned to service. CMC maintains business interruption insurance which should cover a substantial portion of the reduction in profitability at SMI Texas as a result of the production curtailment.

CMC Chairman, President and CEO Stanley A. Rabin stated, "We are confident that our team of engineers and operators will be able to return the melt shop to full production within a reasonable time given these difficult circumstances. Nonetheless, the curtailment will reduce operating results for SMI Texas during our fourth quarter and possibly beyond. We will likely not recognize the income from the business interruption insurance recovery until such time as the claim is submitted and reimbursement by the insurance company considered probable. Although it is unfortunate that this outage has occurred during a period of peak demand, customers of SMI Texas should continue to receive adequate and timely deliveries of steel products."

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