With about $50 million in annual revenues, JDM Steel Service is a relatively small, flat-rolled distributor in south suburban Chicago. Merlo admits that JDM has “gone out on a limb” by investing $5 million in an SCS processing line, which is still a very young, emerging technology. But he feels confident this move will result in the growth of both the company’s service center and toll processing businesses.

“I can’t put a number on it, but SCS has a lot of upside potential. It’s going to increase slowly, taking a good year or two before we see anything approaching full capacity. But there is a lot of buzz about the SCS technology. We are getting a lot of inquiries and we are doing a lot of trials. You never know when some of them are going to pop,” says Merlo.

In anticipation of this new business, the company is in the process of adding 26,000 square feet of coil storage space to its 83,000-square-foot leased building—a 30 percent expansion to be completed in about six months.

Merlo sees SCS as a means for JDM to specialize and capture a promising niche in a consolidating steel market increasingly dominated by larger players. “Our goal is to slowly and steadily increase our business while maintaining our profitability,” says Merlo. “We are not looking to put in five locations in five different places. We want to stay a small, midwestern service center with small, sustainable, profitable growth of perhaps 5 percent a year.”

SCS (short for smooth, clean surface) is an environmentally friendly, mechanical brushing system patented by The Material Works, Red Bud, Ill. Marketing it as an alternative to pickled and oiled material, TMW claims that brushing commodity-grade hot-rolled black steel with its SCS process gives it a smooth, rust-resistant, oil-free paintable surface at a lower cost (see sidebar on page 40).

JDM Steel is a successor company to Northern Industries, a 35-year-old service center in Crestwood, Ill., which closed its doors about two years ago. Merlo, a co-owner, bought out his partners—sons of the company founder—and moved one of the company’s two cut-to-length lines 13 miles away to Chicago Heights. Besides SCS, the company sells cut-to-length hot-rolled and hot-rolled pickled and oiled steel to manufacturers of railroad cars, ground storage tanks, tractor trailers, electrical enclosures and farm equipment, as well as fabricators of tubing and other products.

“While legally Northern Industries was closed and JDM is a new company, I just transitioned the business. We never shut down and we never lost any customers. We just continued operating it as JDM, but with just one cut-to-length line,” Merlo explains. The second line was sold off.

Currently JDM sells about 6,000 tons of steel a month, as well as toll processing about 2,000 tons a month. In addition to its 72-inch Red Bud cut-to-length line, which has the capability to level, cut and trim about 180,000 tons of steel a year, JDM also has two shears—an Amada half-inch by 10-foot shear and a Niagara 3/16ths-inch by 20-foot shear—as well as the quarter-inch by 76-inch SCS line, which was installed in January. Red Bud Industries produces and installs the SCS equipment in partnership with TMW. 

TMW happened upon what became the SCS process while looking for a product to compete with temper passed steel, Merlo explains. “TMW’s stretcher-leveled product was really nice, but it didn’t have the same surface as tempered material, so they went to 3M and got some brushes designed to produce a better surface. They discovered that, after a few years, the unbrushed side was rusting while the brushed side wasn’t.”

TMW has since developed both sheet-to-sheet and coil-to-coil SCS lines. With the coil-to-coil line, such as the one that JDM installed, the hot-roll is fed through a series of brushes. Water washes off all of the scale except for a microscopically thin, 1 micron layer of “wustite.”

“What you are left with is a beautiful, paintable hot-roll substrate that really doesn’t rust as long as it is kept in a controlled environment,” Merlo says, and is a good alternative for most pickled and oiled applications.

By having the SCS line in-house vs. sending hot-roll out to be pickled and oiled, Merlo estimates that JDM is saving about $75,000 a month at its current rate of production. That saving would be substantially higher should JDM run the line at its 18,000 to 20,000 ton per month rated capacity.

“There are millions of tons consumed in pickled and oiled, so it isn’t going to take that much [to fill the line up]. We only need a small piece of the market,” Merlo asserts. The tubing market represents particularly strong potential, he adds. “If we can just get one tuber to start using SCS instead of pickled and oiled, that company alone could bomb us with 5,000 to 8,000 tons a month of product.”

JDM’s job now is to convert customers to SCS, which calls for educating them about a completely new and unfamiliar process. “It is tough to get customers to make the change from a product they have been using for 20 years,” Merlo admits, “but almost daily some customers are trying it and most of them love it.”

JDM is also getting business because of the SCS line’s corrective leveler, which is necessary to get the steel extremely flat so the brushes clean the surface uniformly. Thus running coils through the line produces the side benefit of improving the shape of the steel, Merlo says.

“Often in the past we would have to send light-gauge steel out for temper passing, but sometimes we don’t have to do that now. We just send it through the SCS line,” Merlo says. “We’ve had several customers who didn’t really need SCS, but wanted to run their coils through the line to see if it helped the shape.”

Its SCS capability is not the only way JDM differentiates itself from the competition. Over 85 percent of JDM’s business is on contract, which ensures that the customer gets his metal on time at competitive prices, while JDM receives a commitment from the customer to buy certain sizes in certain quantities over a set timeframe. This takes a lot of the volatility out of pricing, and a lot of the guesswork out of purchasing and inventory management, he notes. “We don’t just lay in thousands of tons of pattern sizes and sell them on the street to a guy who calls out of the blue once a month or so. We try to set up our business so that we have contractual or program types of accounts,” says Merlo .

JDM has also benefited by being a member of the North American Steel Alliance. “It is an important part of our business,” says Merlo, who is on the board of the service center buying cooperative. “NASA is recognized by its preferred suppliers as a single entity so it gives us a larger presence in the market. It helps us stay competitive.”

SCS Gains Traction Worldwide

Three years after its conception, the SCS flat-rolled steel brushing process is really starting to catch on, says Kevin Voges, president of The Material Works, Red Bud, Ill., the company that patented this technology and launched it in 2003.

“There are all kinds of problems with pickled and oiled and black hot-rolled steel,” maintains Voges, who originated the SCS process. The oil on pickled-and-oiled steel makes it more difficult to flame cut and weld, and the oil must be removed before the steel can be painted. SCS eliminates these drawbacks and significantly lowers manufacturing costs.

Voges reports that 10 SCS lines are either up and running or under construction at a mix of steel service centers and independent toll processors worldwide. He expects four more lines—three at service centers and one at a tubing fabricator—to be ordered soon.

“We are definitely seeing interest in SCS accelerating,” says Voges, who notes that smaller service centers were the early adopters, but larger processors are now following suit. Feralloy Corp. installed an SCS sheet line in mid-April to produce roller-leveled blanks, and Central Steel & Wire Co.’s SCS sheet line, a joint venture with TMW to produce temper passed blanks, is expected to come on-stream in May or June. Heidtman Steel Products has three SCS lines.

“Like anything new, it’s the small guy who first takes the risk followed by larger companies. That is what we are seeing now. Next we expect to see mills and global interests come on board,” says Voges. Two foreign companies—Servosteel, the United Kingdom’s largest processor, and Belgium’s Holvoet NV—have installed SCS lines, and Voges is optimistic that more will follow.

While Voges maintains that SCS brushed steel is an excellent alternative to pickled and oiled and flat-rolled black, he admits it isn’t for everyone. “SCS does not work for deep-draw stamping, porcelain enameling, electrolytic plating or such downstream materials as cold-rolled, galvanized and pre-painted steel,” he says. “To make it last longer than pickled and oiled without the use of rust-inhibitive oil, a micron layer of scale (called wustite) is left on. That layer will powder and cause problems in those products.”

TMW plans to address that shortcoming with a sister process to SCS called Eco Pickled Surface (EPS), which is still under development. TMW plans to have its first EPS coil line up and running at its Red Bud facility in June. Voges declined to discuss the specifics of his new pickling system at this time.