2007 Editorial

Service center companies announced more than 20 mergers in 2006 and about 15 more through the first eight months of 2007, continuing the consolidation trend that is reshaping metals distribution. Figures from the latest MCN Service Center Top 50 survey quantify the growing clout among the industry’s biggest players.

Ryerson Inc. remains on top of the Top 50 with $5.9 billion in 2006 revenues. Not far behind is Reliance Steel & Aluminum Co. at $5.74 billion. (Ryerson may soon be purchased by Platinum Equity, however, which would widen the gap once again. Platinum Equity already owns the PNA Group, ranked No. 12.)

Eleven other companies in this year’s ranking topped the $1 billion mark, including ThyssenKrupp Materials NA, Russel Metals, Samuel, Son & Co., O’Neal Steel, Worthington Steel, Carpenter Technology Corp., Metals USA, Macsteel Service Centers USA, Namasco Corp., the PNA Group and A.M. Castle & Co. (see article).

The Top 50 generated combined revenues of approximately $50.5 billion in 2006, eclipsing the $50 billion mark for the first time. It’s difficult to calculate the total size of the service center market, as the line between value-added processing and parts manufacturing continues to blur. But according to Purchasing magazine, the U.S. and Canadian metals distribution industry generated $126.5 billion in 2006 net sales. Thus by that measure the Top 50 accounted for about 40 percent of all service center business last year.

The service center industry has experienced remarkable growth since 2003, fueled by prices for steel, aluminum and copper that have far exceeded historical norms. However, the rate of revenue growth among the Top 50 has slowed from around 40 percent in 2004, to 20 percent in 2005, to less than 10 percent last year. Based on mid-year 2007 predictions by service center executives, that growth rate is likely to slow to around 4 to 6 percent this year. Metals prices have moderated and the economy has cooled, making the market less certain.

After publishing last year’s service center ranking, I received an e-mail from a reader who took exception to our headline stating that MCN’s Top 50 represents “the largest, most successful service centers in North America.” They may be the largest, he contended, but size is not the only measure of success.

I must agree. While total annual sales is the only practical way to compare service centers—most of which are privately held and reluctant to share additional financial information—revenue is only one benchmark of a company’s accomplishments. It doesn’t factor in profitability, return on investment, quality standards, on-time delivery, employee retention or all the other possible measures of a company’s achievement.

Despite all the press about the big getting bigger, the service center market is still populated by a few thousand relatively small, family-run companies that account for 60 percent of the business. Their success stories too often go unheard.