Service Centers
Wednesday | 13 April, 2016 | 9:47 am

Capital ideas

Written by By Corinna Petry

Not every one got so spooked by 2015 that they buried the piggy bank

April 2016 - Buy low. Sell high. A simple recipe but so hard to get it right. Although service center executives we talked with may be less than gung-ho on market conditions, they do appreciate more space, new equipment, a tuck-in acquisition here and there—and yes, they even want inventory. 2016 may be the kind of year in which doing more with less is not the way to go.

Sure, you say, it’s easy for companies with deep pockets to invest, but small and midsize companies are doing it, too. We’ll start with the biggest, though: Reliance Steel and Aluminum Co., which took in revenues of $9.35 billion last year. James D. Hoffman, executive vice president and chief operating officer, says Reliance wants operators in the field to pitch ideas for improvements and upgrades. If the opportunity is compelling, Reliance will open the pocketbook.

“We are expanding a couple toll processing operations, based on the new aluminum consumption by the North American auto industry. We’re adding big pieces of machinery in the Midwest and in Mexico. Right now the market for automotive aluminum has legs,” says Hoffman.

Reliance is installing more slitting and laser blanking capacity, material handling equipment and putting up building additions to store coils. “Conservatively, all of these projects are scheduled to come on in May/June, and we expect any bugs will be worked out by the end of summer.”

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Space, material handling, the latest shearing and sawing technologies are among the projects on which service centers are willing to invest.

Reliance recently purchased St. Louis-based Tubular Steel Inc. “We already infused some cash into their capital requirements. They are buying new saws with better tolerances to replace 15-year-old models,” Hoffman says.

As a whole, the Los Angeles-based company spent about $180 million on capital projects last year, and the 2016 budget is similar. Most of this spending targets growth rather than maintenance.

“We call it growth when replacing one old machine with two new pieces of equipment. A tube laser, for example, takes work out of a customer’s shop, saves them money and gives them back a great product. Providing value-added services is our lifeline,” Hoffman says. 

When the construction market tanked, fabricators went out of business left and right. Those that survived didn’t buy equipment, but Reliance planned on an eventual recovery and purchased machinery. Those fabricators today “are coming to us not just with plate and beam orders, but we can do all the miter sawing, hole drilling and deliver the material to the construction site for them,” he says.

“We spent money on beam splitters and CNC machines to tap, drill, bevel and etch part numbers,” Hoffman says. “We can afford to upgrade and get the best technology that comes out. We have a fiber-optic tube laser that moves twice as fast as the old machine. We are filling a void created by customer demand, performing more and more downstream processes and our customers don’t mind paying for it,” says Hoffman. “We aren’t competing with our customers, just offering them more.”

‘Dog eat dog’

Churchill Steel Plate, a Twinsburg, Ohio, processor, has added a straightening furnace but in the current market, “a lot of service centers are fighting over the same business in a game of cash flow, excess capacity, pricing and margins. There is too much steel and OEMs can shop around,” President Jim Stevenson says.

However, his company continues to grow in spite of the “dog eat dog” environment. “We added 27 percent more sales through new accounts in 2015. In 2016, we are still getting new customers, with sales through the Internet and advertising. We are grabbing market share from others. If the economy helped us at all, we’d be in really good shape.”

Shear capacity

A specialty distributor in Cincinnati is also plotting a path to growth. 

“We are looking at upgrading and installing shear capacity. We specialize in small quantities of cut-to-size pieces of aerospace quality stainless steel,” says Jim Schneible, sales manager for Slice of Stainless Inc., a supplier of stainless steel and nickel alloys.

“Our customers are job shops and prototype manufacturers. We ship all over the world, supplying less-than-full sheet and proper blank sizes, [particularly to users that need to test] how different metals perform in different conditions. 

“We have three shears now but one is getting older so we’re looking to upgrade that and add capacity because business has been pretty steady,” Schneible says. The company expects to spend $150,000 for the shear but will also invest “considerably more than that” to add inventory. “We offer 19 grades of stainless already; some are in high demand and we want to balance supply and the demand our customers have for the alloys we carry.”

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Slice of Stainless will soon pull the trigger on expanding its existing facility by 50 percent, which will also require the purchase of racks. “A larger space would be easier to manage,” Schneible says.

Energy tubulars

The past 18 months have proved challenging for many metal buyers and sellers. 

“The biggest issue affecting distribution is excess inventories. It’s not only that which exists on the ground, but excess global capacity. There is almost a parallel with oil right now,” says Steve Baroff, president of Specialty Pipe & Tube, which carries large-diameter, heavy-wall seamless pipe. 

“Demand [for energy pipe] is soft but it will bounce back,” he predicts. “As a master distributor, we are committed to carrying inventory. When holes develop in customers’ stock, we are in a position to fill those needs.”

Specialty Pipe & Tube doesn’t “need to kick the can to the next half of the year. We are looking to build inventory: It’s about positioning. There are still opportunities in the market. We’re exposed to oil and gas and mining, but we continue to diversify our mix to be relevant.”

Baroff says a good amount of the company’s product is not commoditized but “it’s slow-moving and unwieldy product to carry. So we maintain robust inventory against the grain.” The distributor will also invest as needed in automatic bandsaws, material handling equipment, IT and marketing.

Closing the gap

“It’s almost counterintuitive—given the year we had in 2015—to spend money,” says Bill Chisholm, president and CEO of Samuel, Son & Co. Ltd., Mississauga, Ontario. But Samuel launched a strategic review three years ago of its processing capabilities and technologies. “We noticed we had not been making all the investments that our competitors had been making.”

The work to close that gap is ongoing. “Probably our biggest investment is in Columbia, Tennessee, where we have a new blanking line for tailor-welded blanks for General Motors. It’s running on three shifts, and now we are about to go to four shifts seven days a week,” he says.

Samuel’s impetus—much like the decisions Reliance is making with its toll processing services—is the multi-material and lightweighting strategies among automakers. “We built our lines so we can switch back and forth from aluminum to steel,” says Chisholm. Samuel’s board just approved a second blanking line in Columbia, “and yes, we have sold that line out, too.”

Furthermore, “We surveyed what to do with the third bay and we plan to install a 84-inch-wide slitter. We already bought it and it’s sitting in the box. We are deferring installation until the second blanking line is running, and until every customer is brought through [with finished orders].”

The first blanking line features an 800-ton press from Blow Press, Guelph, Ontario. The second blanking line is a European design. “The first blanking line produces large blanks for the new crossover Cadillac, so it’s high tonnage and the new business coming in the door is aluminum.” Samuel runs 45 dies approved for GM and its vendors.

“We took advantage of changes in the supply chain, particularly the growing use of AHSS and aluminum, with blanking capacity, to remain strong in automotive,” Chisholm says.

Several other capital projects are recently completed or under way. In Georgia, Samuel built a greenfield service center with a racking system, coiling and inventory handling. In addition, “We doubled the size of our plant in Denver, featuring plasma cutting of aluminum.”

At a Markham, Ontario, tube center, Samuel erected a 40,000-square-foot addition and installed automated high-speed rotunda saws that replace separate deburring, cutting and washing processes.

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Although it may seem counterintuitive to spend money when prices are struggling to regain traction, pockets of opportunity are popping up.

In Portland, Oregon, Samuel installed new aluminum saws. In Winnipeg, Manitoba, the company commissioned a 96-inch-wide, heavy-gauge Andritz Herr-Voss Stamco Inc. stretch leveler “to provide the most capable product in the region.” Markets served include oil and gas, agricultural equipment and the Canadian Mint, plus general construction.

Samuel added two plate burning machines from Kinetic Cutting Systems Inc., which drill, tap and bevel edges—it is nearly a complete CNC machine, says Chisholm—at its custom plate processing facility in Vancouver, British Columbia, and at its Frontier facility in Pittsburgh. 

A new coil processing facility in Surrey, British Columbia, with a slitter and cut-to-length lines has opened; and a new Trumpf fiber-optic laser plate burning line in Hamilton, Ontario, was commissioned.

“We are making these investments in down years knowing demand will return and that we will be prepared,” Chisholm says, adding, “We now have the correct equipment in the right places.”

In each market Samuel services, customers “are getting the best material possible,” he adds. The main idea is to keep the 160-year-old franchise sustainable for the long term.


James Hoffman at Reliance emphasizes that good ideas will travel. “We want our subsidiary vice presidents and operators in the field to look for opportunities. We want their ideas. We want them to tell us what they need. A lot of the conversations are short and sweet. We expect our folks in the field to do their homework—to go through a cost benefit analysis, to do the math.

“What will it do for their margins? If it doesn’t work in Atlanta, maybe it will work in Indianapolis. We can always move the equipment,” he says.

With low interest rates, money socked away in a bank isn’t really working too hard. Putting money back into the business should offer a far better return. MM


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