Fisher Investments on Materials: The Production Process

Fisher Investments believes a good understanding of how basic materials are produced provides a foundation for further analysis and insights into costs, potential production bottlenecks, and other risks faced by producers. Fisher Investments considers the following basic life cycles:

• Metals
• Chemicals
• Concrete
• Paper

Upstream Versus Downstream
An operation is considered upstream if it is closer to the starting point of the production process — usually involving pulling actual raw material out of the ground. Downstream operations are closer to the finished product purchased by end consumers. The terms stem from the metaphor of a stream or river. A river's flow starts upstream at its source and ends downstream. The closer the source, the farther upstream you are. In steel making, an iron ore mining operation is about as far upstream as you can go. By comparison, a steel producer is downstream and a steel distributor is even farther downstream. Upstream and downstream operations usually have very different margins, business models, and benefit from different economic environments. As Fisher Investments on Materials describes, vertically integrated producers have both upstream and downstream operations complementing each other.