Thursday | 17 December, 2015 | 11:46 am

Expansion era

Written by By Nick Wright

Gerdau Special Steel’s increased casting capacity reflects demand for value-added SBQ

December 2015 - Ever since Brazilian steel producer Gerdau acquired Quanex Corp. and its Macsteel subsidiary in 2008, it has warded off complacency and comfort in spite of being one of the largest SBQ producers in the United States. Gerdau pumped $320 million into its metal shops and SBQ rolling mills in Fort Smith, Arkansas, Jackson, Michigan, and Monroe, Michigan, in 2011. The purpose was to strengthen its presence in the SBQ-hungry North American automotive industry, which has enjoyed a rebound in sales and production since the 2009 bailout and restructuring. Some of the $320 million Gerdau invested in SBQ went to its sister company’s (Gerdau Long Steel North America) SBQ mill in St. Paul, Minnesota.

Gerdau Special Steel North America also expanded its heat treating in Huntington, Indiana, by adding a fifth quench and temper line, giving the facility capacity up to 84,000 tons of steel annually to aid the automotive industry’s switch from hydraulic-powered to electric-powered steering systems. The automotive supply chain is the strongest market for bar finishers, processors and distributors that buy Gerdau’s SBQ.

Two such customers, Kreher Steel and Magellan Corp., fill different roles in the SBQ supply chain but ultimately enjoy similar highs and weather the same lows of steel demand cycles. Nonetheless, there’s no end in sight for the need of high-quality SBQ.

MM 1215 bar image1

Many customers have only one approved source for their end use applications, and that is Gerdau Special Steels, according to a cold drawer and distributor.

Lock, stock, barrel

Based in suburban Melrose Park, Illinois, Kreher Steel has sourced SBQ from Gerdau Special Steel since 2008, and specifically heat treated product since 2009. The company has five locations in the U.S. and one in Canada. Beyond the bar itself, Kreher has taken advantage of the value-added services Gerdau Special Steel offers. The markets and product requirements have become more stringent among end users, making it important to have consistent quality from a reliable vendor rather than getting third-party processing involved. 

About half of Kreher Steel’s sales are made up of SBQ orders, President Joe Druzak says. End users buy SBQ to make fasteners like bolts that end up in construction projects such as wind turbines and bridge repair. Agriculture, mining, automotive and oil and gas industries are regular SBQ consumers. The bar goes into high-end hand tools for the railroad industry, as well as race car axles, for example.

But within the last five years, gun barrels have been an active market for Kreher Steel, which was founded in 1978. Gerdau Special Steel’s products are ideal for that application because the company uses a continuous rotary casting process at its Jackson and Fort Smith mills.

“No one else in the United States” uses this rotary cast process, says Druzak. When the steel is heated in the caster, it’s in a round mold. As the mold turns, the steel forms and solidifies as a straight billet. 

“It’s well-suited for gun barrels because there’s minimal distortion in the barrel when the gun manufacturer drills it out,” says Druzak. “It’s a critical application that requires a high-end product. If a gun barrel blows up, someone could get hurt.” Worse, someone could die. “We have never had a claim with Gerdau’s product for gun barrels,” he adds.

MM 1215 bar image2

It is important to have consistent quality from a reliable vendor rather than getting third parties involved.

Druzak describes the last year as a tale of two worlds in manufacturing. Automotive industry demand is steady and growing. On the other hand, another big market, oil and gas, has struggled in the wake of low oil prices and low rig counts, which directly affect steel demand.

Although Kreher buys SBQ from many mills, Druzak says one big benefit of working with Gerdau Special Steel is that many customers say it is the only approved mill for whatever the bar product ends up becoming. “It’s not even a decision to be made. The OEM will say it only has one approved source for its application,” says Druzak. That speaks to the market’s perception of Gerdau Special Steel’s quality. “Not every mill is able to get that level of acceptance in the marketplace.”

Auto aligned

The market strategy of Magellan Corp. is different than a traditional domestic service center. The Deerfield, Illinois, firm buys value added SBQ worldwide, including quench and temper product. Because Magellan is more of a master distributor that in turn sells to service centers and other high-volume customers, it buys SBQ of varying sizes and lengths. Founded in 1985, Magellan was absorbed in 1998 by cargo shipping conglomerate Seatrade International Inc. It has a warehouse at the Port of Chicago and space at the Port of Houston. President Bob Arthur sees trends in the SBQ market similar to what Druzak at Kreher observes. “This year, similar to most of our industry, has been a challenge. The areas we’re in have been hit very hard by macroeconomic forces, whether it’s petrochemical, transportation or mining,” says Arthur, predicting similar conditions for 2016. “Our main focus is in the larger diameter bar, so we’re relatively nonautomotive in scope.”

Gerdau Special Steel’s Director of Marketing Chuck Short says lot size is important to service centers right now. Most service centers are trying to get the smallest lot possible so they don’t sit on excess inventory. 

But Magellan will buy minimum order quantities from Gerdau Special Steel because it’s a master distributor and can take on the risks of inventory more so than a service center. “We live by the sword and die by the sword,” says Arthur, regarding inventory risk.

MM 1215 bar image3

2015 has been challenging for many bar producers and distributors and that is likely to persist in 2016.


A big part of Gerdau Special Steel’s reputation in the SBQ market can be chalked up to its post-recession expansion projects. In 2012, it completed its Monroe facility revamp. It was done in three phases, first by installing a new caster that casts larger blooms and yields a higher reduction ratio (the relationship between starting cap size and finished roll size). It also installed a new vacuum degasser that purifies steel by removing pesky elements like oxygen and hydrogen.

Second was its new rolling mill and reheat furnace, completed last January. Third was the installation of surface inspection and straightening equipment, which doubled Gerdau Special Steel’s inspection and straightening capacity in Monroe. 

“Most customers expect SBQ inspection before shipment. Much of the product goes into forging applications where there’s little room for error,” explains Short. “Internal integrity is vital to them.”

Current combined capacity of Gerdau Special Steel’s three mills is about 1.4 million tons of rolled bar. “Our view of the long-term market is that there will be increasing demand for SBQ,” Short says. The megatrend forecast, however, reflects an anticipated uptick in U.S. manufacturing, especially in the auto industry.

“That’s why we expanded: to support our distribution market. We’ve suffered with limited capacity in the past, and one thing we realized when we made the capital expenditures in Monroe is that we needed consistently available capacity if we’re going to support distribution,” Short says.

When the five quench and temper lines at Gerdau Special Steel’s Indiana location are factored in, service center customers can rely on a strong value-added product, no matter the market conditions. MM


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