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Southland Tube
is gambling that its new large-diameter HSS mill—beginning
commercial production this month—will find a home in the South
despite the tube industry’s overcapacity.
By
Tim Triplett,
Editor-in-Chief
Sidebars
and Tables:
When
Copperweld rebuffed Southland Tube’s bid for its Birmingham,
Ala., tube mill in late 2003—opting to close the plant rather
than sell it—John R. Montgomery was upset. His frustration
soon turned to inspiration, however.
Acquisition
of the Copperweld plant, just a mile down the road, would have immediately
given Southland the capability to produce large-diameter tubular
products. “But they chose not to sell it to us, which disappointed
me greatly,” recalls Montgomery, Southland’s president
and chief executive officer. “I pouted like a baby for awhile,
because I really thought we had it. Then we started looking at what
it would cost to put in our own mill.”
With
persistence, and a solid history of good relations with its bankers,
Southland was able to secure the necessary financing for the $35
million project in spring 2004. The process of funding the project
was made easier by the fortunate market conditions in 2004 when
the price of steel reached new heights.
“When
we started talking to the banks in September 2003, we had no idea
that 2004 would be as good as it was for everybody in the steel
business.” Montgomery says. “We were going to make it
happen either way, but that certainly didn’t hurt.”
Southland
operates four ERW (electric resistance weld) tube mills—two
producing mechanical and two producing structural products. The
new fifth mill doubles the company’s capacity to 30,000 tons
a month.
“The
biggest concern I had about our business was that customers wanted
to buy the complete size range from us. Until [we built] this facility,
we had no way to provide that. This rounds out our range as a full-line
supplier,” Montgomery says.
Construction
crews broke ground for a 200,000-square-foot plant adjacent to the
company’s existing Birmingham facilities in August 2004. Southland
will commission the new mill Sept. 19.
To
equip the mill, Southland executives met with equipment builders
in the United States, Europe, Japan and Canada. After careful study,
they purchased the following series of components: a slitter made
by Canada’s Nova Equipment; an entry line made by Oto Mills
of Italy; an accumulator built by Oto Mills under license by SMS
Mannesmann of Germany; a linear forming cage system licensed by
DMS of France and built by Loeco of Germany in Cleveland; the tube
mill made by Rafter Equipment Corp. in Strongsville, Ohio; a tube
saw made by Nakata Engineering of Japan; and the packaging line
designed by MAIR Research of Italy. All the disparate equipment
is tied together by controls from Siemens.
“A
tube mill has to have so many different components built by so many
people all over the world. Siemens technology pulls the whole thing
together so they can talk to each other,” explains John Montgomery
Jr., vice president and general manager of the family-owned company.
Until
now, Southland’s tube-making capability was limited to 5-by-5
inch squares or comparable rectangles, up to a quarter-inch wall
thickness. The new mill takes the range up to 10-by-10 inch squares
or comparable rectangles at a half-inch thick, giving the company
deeper penetration into the hollow structural sections market.
“We’re
expanding our product offering to our current customer base, which
is primarily distribution,” adds John Jr. About 85 percent
of Southland’s business goes through service centers.
Southland’s
new mill also will give it the opportunity to pursue large OEM customers
who buy mill direct. “We don’t intend to step on the toes
of our service centers,” emphasized the elder Montgomery. “Service
centers got us where we are today, and we are counting very heavily
on them for this new mill. They know how we do business, so we don’t
have to resell them.”
Service
centers seeking greater efficiencies are anxious to cut down on
the number of suppliers they deal with, “and we’re going
to make it easier for them,” he adds. “In the past if
they wanted to buy 2-square, 3-square or 4-square from us, they
had to go somewhere else for the 10-square. Now they can consolidate
their tube buy to one facility.”
Montgomery
acknowledges there was already more production capacity than demand
in the tube market. “There is another company [Independence
Tube] that has made the decision to move into the South. There will
be excess capacity in this part of the country.”
So
how does he justify bringing a new mill into a crowded field? “When
Copperweld closed their doors in the South, there was a need for
one more mill,” he says, adding he wasn’t the only one
who felt that way. “I visited five major customers and told
them confidentially of our plans. I asked them if this was the right
move. Every single one of them said, ‘Do it!’”
Montgomery
expects the tube market to experience significant consolidation
in the near future. Indeed, the process is well under way, as evidenced
by more than a dozen tube mill mergers in the past two years, the
most recent being Atlas Tube’s acquisitions of Copperweld’s
assets and Maverick Tube’s HSS business.
Montgomery
is convinced Southland is well positioned to succeed in this tightening
arena. “The equipment and technology we’ve put in this
new facility, and the money we’ve put into our existing facilities,
should make us the low-cost producer. We’re going to continue
to build our business on service, and if we’re the low-cost
producer, we should be able to compete with the rest of the world.”
With
a rail facility on-site, Southland can ship anywhere, but the plan
is to focus primarily on its home market in the South.
Southland’s
new large-diameter mill is the latest in a series of expansions
dating back to 1995, when the company spent $2.5 million on a new
slitting line and a facility to house it. In 1999, it added its
first structural mill, a $5 million project, followed in 2002 by
a similar investment in a second structural mill. The recent addition
of the 10-inch tube mill brings the company’s total investment
in plant and equipment over the past decade to more than $48 million.
In
1996, Montgomery’s first full year of ownership, Southland
recorded sales of $26.8 million, shipping over 51,800 tons of steel.
In 2004, the company’s revenues jumped to $118.5 million on
shipments of 133,000 tons, as the price of flat-roll (tube feedstock)
reached historic highs over $750 per ton.
Southland
hired 23 new workers to man the new mill, and expects to hire a
similar number when a second shift is added. Every employee had
an opportunity to apply for a position in the new facility, which
is a source of pride for Southland’s dedicated non-union workforce.
Montgomery believes strongly in promoting from within and treating
his 180 employees like family. They often respond in kind.
He
told the story of passing the plant early one Sunday morning and
spying some activity. Investigating, he encountered an employee
on a forklift, who explained to his boss that he couldn’t sleep
because he had left his work area in disarray. So he came in early
on his day off to put things right.
That
type of work ethic and company culture is simply a byproduct of
treating people like you would want to be treated, Montgomery says.
Sales-Driven
Sons of the South
“I’ve always been in sales, and that’s all I want
to do. I love to relate to my customers,” says John R. Montgomery,
Southland Tube’s president. “It’s a powerful tool
for customers to be able to deal directly with the owner. We are
in a sales-driven business.”
Montgomery
began his career in 1969 soon after graduating from Auburn University.
He sold for Republic Steel in Birmingham and Cleveland. After six
years in sales with Republic, he took a job at Hanna Steel, Fairfield,
Ala., where he stayed for 21 years, advancing to executive vice
president.
The
Montgomery family, which had held a principal position in Hanna
Steel, acquired Southland in July 1995. Son John Jr. followed in
his father’s footsteps, from Auburn to Southland. Montgomery’s
father, John E. Montgomery III, who spent 35 years in the steel
business, remains a trusted advisor.
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