Demand slowdown unlikely, trade 'war' causes minimal tension (so far), automation grows, recruiting talent requires some ingenuity

November 2018 -  Leaders of the Copper and Brass Servicenter Association agreed to talk with Modern Metals about major issues that red metals companies contemplate on a daily basis. The participants were Dicky Farmer, co-president, Farmers Copper, Texas City, Texas; Joe Napolitan, vice president of sales, Mueller Brass Co., Port Huron, Michigan; and Lance Shelton, vice president, Christy Metals, Northbrook, Illinois.

Q: Describe the supply/demand balance for copper and copper alloys, based on what customers are ordering today and what they forecast for future business.

Napolitan (pictured): “If you look at the CBSA Flash Report, consumption is up in most product lines. The supply/demand balance is leaning toward shortfalls. That has meant longer lead times. Mueller makes brass rod and copper bar. Rod consumption is somewhat flat this year. Copper bar is up 11 or 12 percent. Business conditions remain strong.”

Farmer: “We have had a good year. We don’t see any signs of a slowdown. As mill lead times extended, that placed pressure on us to plan our inventory purchases. We must forecast into our system and build in safety stocks. The first half of 2019 looks good so far. We have some backlogs, and many customers have a lot on their plate for next year. Copper bar is one product that seems particularly strong. Our bearing bronze inventory has turned well; sales are up in that product.”

Shelton: “As far as supply, we have a block space program with producers, which helps when lead times are out four to eight weeks. As an example, by blocking space, if we agree to buy 2 million pounds from a mill, we must take it all. We get a two-week lead time so we know what we are going to get. On the downside, you are only getting 2 million pounds from that mill and cannot get more. That is why we stock one to two months of inventory for customers and why we can offer a one- to two-week lead time.

“Demand is strong now. Our September volume in pounds was up 12 percent versus September 2017. We think it will be up 12 to 15 percent in the fourth quarter and, conservatively, we expect pounds to be up by the same amount in 2019.”

“We stock one to two months of inventory for customers and we can offer a one- to two-week lead time,” says Christy Metals’ Lance Shelton, which is the result of block spacing in producers’ rolling schedules.

Q: Has your company or any customers experienced effects, directly or indirectly, from the trade policies of the United States, of its allies in NAFTA or beyond?

Napolitan: “The industries we serve haven’t seen an immediate impact but we are all watching it closely. The most recent round of tariffs may impact finished products. Some of importing by big box retailers could impact long-term domestic demand. If the supply chain moves more toward U.S. manufacturing, that would help us.

“The customers we lost over the years might come back. In the plumbing market, for example, we sold large volumes to the faucet manufacturers. Twenty-five years ago, if you shopped at Lowe’s or Home Depot, you would find ‘made in America’ products predominantly. In the late 1990s and early 2000s, faucet producers had multiple plants in the United States and Canada. Now they have about half that; faucets could be made more cheaply in China. So they adopted a buy-it-rather-than-make-it strategy. That hurt our industry tremendously.

“It takes a long time for duties and tariffs to trickle down. In some cases, customers moved their volumes offshore. Those large shifts don’t easily come back. Several supply chain teams at large OEMs are working their tails off analyzing costs. They are trying to determine what impact the tariffs will have on appliances, for example. They are looking into alternative supply chains.”

Farmer (pictured): “Our company has not seen any direct impact. We think it will trickle down but we don’t know when it will catch up to copper and brass. If you have a petrochemical plant that is doing a turnaround, finished steel products going in there are 25 percent higher. Then you have a labor shortage. That is escalating prices, alongside transportation, so there are definite inflationary issues.”

Q: Has there been anything new in the regulatory landscape that affects your business?

Farmer: “The corporate tax break has had a positive impact on our industry. Some of the deregulations under the new administration, like helping coal and petrochemical industries, help. The Trump Administration has kept its promises to the U.S. energy sector. It finalized a rule allowing faster approval for small-scale exports of natural gas, including LNG. That’s a positive thing for downstream.”

Napolitan: “I agree about the corporate tax cuts benefiting business. Machine tool shows are packed; there is a lot of buzz. I see a fair amount of investment in new machines and equipment. At Mueller Brass, we are investing in the plant.

“As far as other regulations, it is nice to see the administration tapping its foot on the brake from what we were experiencing. We see more hurdles in Europe with REACH and ROHS [human health and environmental reporting requirements]. Prop. 65 in California is more paperwork and labeling instructions. We get questions from customers about what it means for them. Time, money and paperwork are associated with understanding it, and becoming compliant.

“There was a high-profile case—the drinking water supply in Flint, Michigan. That event triggered other communities to also replace thousands of service lines with copper tubing. This is an example where a potential bad thing turned into a good thing if you supply copper tube, fittings, valves and other components. Around the time Flint was in the news, we had two European gentlemen visit us. When they drove through Toledo and entered our state, they saw the ‘Pure Michigan’ sign and soon after another that said, ‘Flint, 62 miles.’ There’s the irony.”

Q: Factories are modernizing with automation, IIoT, etc. How can CBSA member companies either do so themselves or match the requirements that are demanded by customers that run such factories?

Napolitan: “We have screw machine customers that stage bar stock and walk out at 5 p.m. Friday. They have automatic bar loaders, CNC machines making parts, and so on. Our customers are buying new equipment to get more cycle times—faster feeds and speeds. So we get a lot of different requests: Can you make shorter lengths? Do you have a way to cut it? They can run at higher speed if the bars are shorter than mill lengths.

“We bought in-line detection, technology that provided a tremendous improvement in quality. It detects surface finish, dimensional stability and straightness, automatically. What we spend on allows us to accomplish several tasks, rely on less labor, and achieve greater throughput with less input.”

Farmer: “We do a lot of bus bar business, with in-house bending and punching, all of which is CNC automated. We have a machine, give it a program, and that tells it where to punch. The same profile goes to the next machine, which bends it to a preset radius. As a result of our automation, we have received more multiple-cut and high-volume orders. A lot of customers were cutting in house but they are booked, so they want us to do it for them.”

Q: What are you are doing to recruit, train and retain people?

Napolitan: “We use Monster, Indeed, ads in newspapers, signs up on the building. We had difficulty hiring people and quickly fell victim to Inflation 101. We found that our incoming hourly rates were not competitive locally. Most of our mills are unionized so you have to go to union and tell them you want to increase wages for a portion of the members—new hires—by $1 or $2 per hour. So the older employees asked, ‘Where is our raise?’

“You hope half the applicants pass the drug test. If new hires last six months, they usually stay. We have a high retention rate once they know their job. Kudos to our senior employees who mentor them, and explain how to do it and why.”

Farmer: “It’s been difficult for us to get help that wants to work hard. We typically go through a temp-to-hire pipeline. That way we get a feel for that individual and whether they are willing to step up to the plate.

“Some of the people you hire don’t realize that they have to be there on time. The other issue is they are on their feet all day with no breaks. It’s hard work. It’s 90 to 95 degrees with humidity at 90 to 95 percent.

“Once we do get a good employee, they want more money. So we are having to bring wages up, and increase the wages of our older employees. But we have a strong retention rate. Our old-timers are remarkable. We are blessed in that way.”

Shelton (pictured): “It has been extremely difficult to retain production shop employees as well as inside sales. We are using incentives for inside sales as well as commissions and we have a bonus plan in place for machine operators.

“To find the right people, we use temp agencies and then we hire the best from there. The trades are so hard to find. Slitting operators are unique. Hourly rates in trades in Chicago have grown 46 percent. In inside sales, the percentage increase is higher: 52 to 60 percent. We use incentives because we don’t want to lose salespeople and we offer a lot of overtime in production.”

In an effort to prevent legacy knowledge from walking away, “We have one guy who has worked for 43 years at two of our companies. We don’t want him to retire, so we pay him to work three days a week and we gave him more vacation time. He is training people so we don’t lose the knowledge.” MM