http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8408/Top-50.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5833&ModuleID=14025&ArticleID=8408 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8408&PortalID=51&TabID=5833 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8408/Top-50.aspx MCN Top 50 Service Center Industry Giants In its annual survey, Metal Center News ranks the largest, most successful service centers in North America. By Tim Triplett, Editor-in-Chief Click Here for the 2012 complete Top 50 List Revenues among the industry’s Top 50 service center companies jumped by about 10 percent last year as the industry, and the country, continued their recovery from recession. The Top 50’s combined revenues totaled approximately $51.6 billion in 2011, up from $46.8 billion the previous year. The Top 50 range from over $8 billion in annual sales down to $122 million, including 15 companies that took in a billion dollars or more last year, according to the findings of the latest Metal Center News survey. For its annual Top 50, MCN polled the industry’s largest players in July and August and ranked them based on total revenues for their last completed fiscal year, which for most was calendar year 2011. With half the current fiscal year in the books, respondents also were in a good position to forecast their expectations for the remainder of 2012. If their estimates for the second half prove accurate, the Top 50 will see their revenues grow by another 10 percent this year, to over $57 billion. That will still leave them more than 6 percent below their $60 billion peak in 2008, however, (see Top 50 Combined Revenues chart). Once again, Los Angeles-based Reliance Steel & Aluminum Co. ranked as the market leader with $8.1 billion in 2011 revenues. Ryerson Inc. of Chicago took the No. 2 spot with over $4.7 billion in sales, followed by Kloeckner Metals Corp. (the merger of Macsteel and Namasco) with $3.3 billion. Rounding out the Top 10, in order, were: Samuel, Son & Co. Ltd. and ThyssenKrupp Materials NA, both reporting revenues of about $3.1 billion; Russel Metals, $2.7 billion; O’Neal Industries, $2.5 billion; Metals USA Holdings Corp., $1.9 billion; Steel Technologies LLC, $1.7 billion; and Worthington Steel, $1.6 billion. The industry’s efforts to “rightsize” operations appears to be an ongoing trend. In total, this year’s Top 50 now operate about 1,300 stocking locations with over 112 million square feet of space—down from 1,650 stocking locations totaling over 130 million square feet reported last year. These facilities are staffed by a combined workforce numbering about 56,200, down slightly from the 57,000 employed last year. Though consolidation has been ongoing for years, many in the industry believe the lack of clarity around the current economy is slowing down dealmaking in the service center sector. “The problem is with uncertainty, and how it affects sellers’ expectations vs. buyers that want to be reasonably conservative in what they’re paying for,” says Wayne Bassett, president and CEO of Samuel, Son & Co. Noteworthy transactions M&A activity has been heating up in the past year, but the number of deals consummated has been relatively modest. The notable exception is the mega-merger between Namasco and Macsteel Service Centers USA in the first quarter, which created Kloeckner Metals, now the third ranked service center organization in North America. At press time, the market was keeping a close eye on Platinum Equity, the investment group that owns Ryerson Inc. Platinum purchased a 6 percent stake in A.M. Castle & Co. last month, fueling speculation that it might acquire the company and merge it with Ryerson’s operations. Both companies are based in Chicago, and Castle’s strength in nonferrous markets such as aerospace would make it a good addition for Ryerson, analysts say. A combination of the two would create an enterprise with over $6 billion in annual revenues, but would still leave Ryerson in the No. 2 spot behind Reliance. Market leader Reliance continues its growth through acquisition strategy, but has expanded its focus to achieve greater regional and product diversification. For example, its purchases in the past year have included Airport Metals, an Australian specialty metals distributor; Worthington Steel’s Vonore, Tenn., plant, which will be used for toll processing; National Specialty Alloys and Continental Alloys and Services, both based in Houston’s thriving energy market; and McKey Perforating Co., which manufactures perforated metal products. All total, Reliance has completed 51 acquisitions since its 1994 public offering. As large as it is, Reliance still only claims about a 6 percent share of what remains a highly fragmented service center industry. Ryerson grew its international footprint in February by acquiring a 50 percent stake in Açofran Aços e Metais LTDA, a steel service center based in São Paulo, Brazil. Last December, the company acquired Turret Steel Industries Inc. and Sunbelt-Turret Steel Inc., expanding its presence in the long-products market. Most recently, Ryerson opened a new bar processing depot and service center in DeKalb, Ill., following closely on the opening of a new plate processing facility in Eldridge, Iowa. Canada’s Samuel, Son & Co. Ltd. expanded its service center holdings in the past year with the purchase of Doral Steel and Basic Stainless, as well as opening two new service centers in the U.S. and Canada. Wayne Bassett, Samuel president and CEO, says he has never seen more inquiries from sellers whose companies are in the $25 million to $150 million range, yet it is yielding few transactions. “It’s difficult to get pricing together right now between the two sides. The problem is with all the uncertainty. Buyers still want to be reasonably conservative in what they pay.” Methodology To rank the Top 50, Metal Center News conducted a fax and e-mail survey in July and August of the magazine’s largest subscribers. Where available, secondary sources were used to confirm information. In most cases, however, figures from privately held companies are presented without independent verification. Companies are ranked based on total revenues from metals processing and distribution during their last completed fiscal year, which for most was calendar 2011. Service Center Top 10 Profiles No. 1 Reliance Steel & Aluminum Co., Los Angeles—With over $8.1 billion in revenues last year—70 percent more than its closest competitor—Reliance continued to lead the industry. Reliance’s 2011 sales improved by 29 percent over the previous year. Much of its sales growth is the result of an aggressive acquisition strategy. The company has completed 51 acquisitions since its 1994 public offering, including a handful of relatively small deals in the past year. They included the purchase of Australia’s Airport Metals from Samuel, Son & Co.; Worthington Steel’s Vonore, Tenn., processing plant; National Specialty Alloys of Houston; McKey Perforating Co., New Berlin, Wis.; and Continental Alloys & Services, also based in Houston. Reliance now operates over 220 locations with more than 10,000 employees in 38 states and nine foreign countries. As large as it is, Reliance still only claims about a 6 percent share of what remains a highly fragmented service center industry. No. 2 Ryerson Inc., Chicago—Ryerson’s revenues grew to $4.7 billion in 2011, up from about $3.9 billion the prior year. Ryerson now operates 102 stocking locations with over 4,000 employees. Owned by the Platinum Equity investment group, Ryerson has made a few acquisitions and opened up a few new locations in the past year or so. In February, Ryerson expanded its international footprint by acquiring a 50 percent stake in Açofran Aços e Metais LTDA, a steel service center based in São Paulo, Brazil. Last December, Ryerson acquired Turret Steel Industries Inc. and Sunbelt-Turret Steel Inc., steel service centers headquartered in Pittsburgh, expanding the company’s presence in the long-products market. The company also purchased Streetsboro, Ohio-based Singer Steel in March 2011. Most recently, Ryerson opened a new, 150,000-square-foot bar processing depot and full-line service center in DeKalb, Ill., 50 miles west of Chicago. This investment followed the opening of a new plate processing facility in Eldridge, Iowa. No. 3 Kloeckner Metals, Roswell, Ga.—Formed through the merger of Namasco and Macsteel early last year, Germany’s Klöckner & Co. created the industry’s third-largest general-line service center chain with $3.3 billion in 2011 sales, up from about $2.5 billion the previous year. Kloeckner supplies steel and nonferrous metals from 57 distribution locations across North America. Most recently, Kloeckner announced plans to build a 100,000-square-foot light-gauge flat-rolled processing center on the campus of ThyssenKrupp’s carbon mill in Calvert, Ala. No. 4 Samuel, Son & Co. Ltd., Mississauga, Ont.—Although based in Canada, Samuel is a major player on both sides of the border, and most of its growth in recent years has been in the United States. Its deals over the past year have included the purchase of Stanrail Corp., an Indiana maker of railcar components; Doral Steel, a distributor with locations in Ohio and Tennessee; and Basic Stainless, a specialty distributor based in Wisconsin. The company also has opened new service centers in Dartmouth, Nova Scotia, and Tampa, Fla. One of the largest family-owned enterprises in North America, Samuel saw $3.1 billion in revenues in 2011, up from $2.5 billion in 2010. The company now operates over 100 stocking locations with over 4,600 employees in the U.S and Canada, as well as Mexico, Australia, China and the United Kingdom. No. 5 ThyssenKrupp Materials NA, Southfield, Mich.—The North American distribution arm of the German steel giant reported $3.1 billion in 2011 revenues, up from $2.4 billion in 2010. It currently operates 80 stocking locations manned by 3,100 employees. The company is focused on value-added processing and distribution of aluminum, copper, brass, specialty metals, steel and plastic products. No. 6 Russel Metals, Mississauga, Ont.—The second-largest distributor in Canada, behind Samuel, Russel carries on business in three distribution segments: metals service centers, energy tubular products and steel distributors. The company currently operates 69 locations with over 2,500 employees. Russel finished 2011 with $2.7 billion in sales, up from $2.1 billion in 2010. Recent acquisitions by Russel include distributor Alberta Industrial Metals, Red Deer, Alberta, and Siemens Laserworks, a value-added laser processing with facilities in Saskatoon, Saskatchewan, and Edmonton, Alberta. No. 7 O’Neal Steel, Birmingham, Ala.—The largest family-owned service center based in the U.S., O’Neal reported revenues of $2.5 billion in 2012, up from $1.9 billion in 2010. O’Neal has been relatively quiet on the acquisition front over the past year. The company now has over 90 locations with 3,700 employees. No. 8 Metals USA Holdings Corp.—Metals USA, Ft. Lauderdale, Fla., reported 2011 revenues of $1.9 billion, up from $1.3 billion the year before. Historically one of the nation’s most aggressive acquirers, Metals USA bought Dallas-based Richardson Trident Co. last year in its largest deal since the company’s 2010 IPO. Metals USA now operates 64 stocking locations manned by 2,200 employees across North America. No. 9 Steel Technologies, Louisville, Ky.—Steel Technologies, a major processor of flat-rolled steel, reported nearly $1.7 billion in 2012 revenues, up from $1.5 billion in 2010. Its 21 facilities, with 1,450 employees, are located throughout the United States, Mexico and Canada. Of recent note, the company is expanding operations in Mexico with plans for new flat-rolled steel processing facilities in Monterrey, Celaya and Bajio. Steel Technologies is owned as a 50-50 joint venture between U.S. steelmaker Nucor Corp. and Japan’s Mitsui & Co. (U.S.A.), Inc. No. 10 Worthington Steel—Both a manufacturer and a distributor, Worthington reported revenues from distribution of nearly $1.6 billion in 2011, up from $1.4 billion in 2010. The company operates 11 stocking locations manned by 1,300 employees. Worthington’s distribution growth in 2011 was aided by a deal with MISA Metals that included the acquisition of three steel processing facilities. Mon, 22 Oct 2012 18:52:00 GMT f1397696-738c-4295-afcd-943feb885714:8408 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8407/Defense-Metals-Market.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5833&ModuleID=14025&ArticleID=8407 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8407&PortalID=51&TabID=5833 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8407/Defense-Metals-Market.aspx Jury’s Out on Question of Sequester Suppliers to the defense industry who have prospered for the past decade are now bracing for the possibility of massive, triggered cuts to government spending. By Dan Markham, Senior Editor For the past decade, metals suppliers to the defense industry have enjoyed a robust business, a byproduct of global conflict. But a different type of threat looming on the horizon has metals producers and distributors shaking in their boots—sequester. Defense contractors say that single concept is the difference between a manageable drawdown of demand from the military sector and utter unpredictable chaos. Sequestration is the term used to describe the automatic, across-the-board default spending cuts that were included in the Budget Control Act of 2011. They were designed as a stick to force Congress to come to a bipartisan solution on spending cuts during the contentious budget talks last year for fiscal year 2013 and beyond. But the committee appointed to make recommendations on austerity failed to reach a consensus, leaving the door open for sequestration, which would trigger roughly $1 trillion in cuts to federal spending over the next decade. The Department of Defense alone is facing upwards of $500 billion in cuts—a possibility that terrifies individuals in the military, in the political arena and throughout the supply chain. Secretary of Defense Leon Panetta is among many who have expressed fears of the effects of such automatic cuts to the defense industry. “Too often today the nation’s problems are held hostage to the unwillingness to find consensus and compromise. And in the face of that gridlock, artificial devices like sequester are resorted to in order to somehow force action. But in the absence of action, sequester could very well threaten the very programs critical to our national security, both defense and domestic,” he said in June. Service center operators who sell into the defense industry agree. “There is no doubt the government needs to cut spending overall, in all the departments,” says Ken Hamel, president of Diversified Metals, Monson, Pa. “But the defense spending cuts being considered worry me. The proposed cuts are much too aggressive.” How likely is sequestration? Initially, most thought Congress would eventually reach a solution that would, if not solve the budget issue, at least kick it further down the road. But as the start of Fiscal Year 2013 approaches in October, the threat is becoming more real. “In theory, this being an election year and defense being important to the economy, it wouldn’t stand much of a chance of actually happening,” says Richard Aboulafia, vice president of analysis with the Teal Group, Fairfax, Va. “But there have been major political changes that make this a very real threat. You used to be able to count on the Republicans to save the day, but the Republicans are shifting to a Tea Party agenda. They’re shifting away from being defense hawks and foreign policy hawks toward deficit and tax hawks. So it’s not really clear they’re going to ride to the rescue.” Still, he says, the smart money remains on a solution before then. The system in Washington was created to avoid radical shifts like the one speculated. “It will become easy to postpone the problem with continuing resolutions or with a negotiated deficit reduction plan next year, or something else that keeps the worst of the cuts from being implemented.” Though the 2013 fiscal year for government spending begins in October, sequestration would not take effect until January. Still, if it happens, any programs are immediately subject to the loss of funds, even ones already under way. Jim McAleese, defense analyst with McAleese & Associates, Sterling, Va., says the impact would be felt most noticeably in the worst area for metal distributors. “Sequester would primarily collapse procurement, since services cannot immediately shed force structure in 2013.” Historically, during such forced cuts, procurement budgets have dipped 50-75 percent, easily the largest hit among the four main defense expenditures. Even if Congress rescues the defense industry from sequester, some of the damage has already been done. Uncertainty has begun to creep into the supply chain, which is never good for efficiency. “Congress, in writing the Budget Control Act, did not design sequester to be rational. And irrationality and uncertainty are subjects of concern to the defense industry. This is not the way to do defense planning and budgeting. Instead, we need to take a rational strategic approach to our budgeting,” said Deputy Defense Secretary Ashton Carter in May. Distributors serving the industry have seen that in action with their customers. “They’re quite uneasy. There’s some slowness and hesitancy while they’re waiting for funding to come through,” says Pat Able, general manager of the government business unit for TW Metals, Exton, Pa. Even without sequester, government spending is undeniably going to decline. The Department of Defense has proposed a budget cut of $259 billion from fiscal years 2013-2017. These would be cuts in the Beltway sense, as “the majority of the initial $259 billion in 2013-17 DoD budget cuts under BCA are actually the forfeiture of future planned funding growth,” says McAleese. The Budget Control Act also establishes a statutory floor in defense spending at the same level as previous war-time peaks. The key question, McAleese asks, is whether the debt reduction compromise will actually take the budget down to its historic floor of $400 billion, more than $100 billion less. In any event, procurement will face significant cuts in the coming years. While the 2013 fiscal plan only calls for a 5 percent cut, that area of spending will take the bulk of the hit for the 2013-17 period. The Department of Defense office proposes $94 billion in cuts from procurement during that time frame, representing 36 percent of the $259 billion total. Within the individual branches, the Navy will sacrifice aircraft procurement to retain its shipbuilding budget, while the Air Force will target its cuts at airlift procurement and combat aircraft. Army procurement will flatline at a lower base level near $20 billion, almost half its average in the recent past. This is consistent with what Aboulafia sees as a change in focus from the campaigns fought in Iraq and Afghanistan. “It looks like you’ll be seeing a shift away from the ground vehicles toward ships, aircraft and strategic systems. The unpleasant reality is that the great upturn [in spending] of the last decade didn’t help the traditional superpower tools at all. All the funding went towards body armor and mine-resistant ambush protection vehicles. The challenge is how to keep the money coming for actual strategic systems rather than just war fighting,” he says. Some such changes are already evident. Keith Harvey, senior vice president of sales and marketing for Kaiser Aluminum, Foothill Ranch, Calif., says his company’s armor business pushed capacity for much of the past decade, but cooled considerably in 2010 as the shift away from MRAPs and Humvees began. But Kaiser’s defense business overall has remained healthy. “Defense in the last 10 years has been fairly steady. It gives extra boost to some of our really strong years and really filled in during 2008-09,” he says. Service center operators tell a similar story. “It’s been positive, in spite of all the news we hear about defense cuts,” says Jerry Bashir, president of Falcon Aerospace, Weston, Fla. “We may see some cuts for the large vehicles, but we continue to see good things in armaments.” Able offers similarly positive observations about materials for maintenance and repair work, a prominent end use for the products TW Metals supplies to the defense industry. As the recent past has demonstrated, conflict that sparks U.S. involvement can break out anywhere on the globe at a moment’s notice, mandating that work gets done to keep equipment in proper condition. “When you look at defense as a total industry, the real focus is on fleet readiness,” says Able. “We learned that lesson about 10 years ago in Afghanistan, when we weren’t ready and spent the first several years ramping up. That attitude, many believe, trumps politics. So while the presidential election will be closely followed by the defense sector, the ultimate result probably won’t have much of an impact on the market. Though there was some concern among suppliers when a Democrat was elected president in 2008, any fears of drastic defense spending cuts never materialized. “There was some trepidation when Barack Obama got in, that he might cut back on spending. But he’s maintained the same type of defense budget as his predecessor,” says Rich Carbone, president and CEO of Tech Steel and Materials, Holbrook, N.Y. That seamless transition tells Carbone that the defense market is somewhat immune to the political squabbling in Washington. Both parties acknowledge the genuine threat of terrorism and the need to be vigilant, while the economic benefit of a strong defense sector is felt nationwide. “When you look at defense spending, it’s spread throughout the whole country,” he says. “There may be some hubs, but the distribution is pretty equal. It’s an engine that generates a lot of jobs.” And congressional representatives of both parties are very protective of jobs in their districts. Even if the levels remain the same, the way government spends its money is always being refined. Changes in leadership, in the executive branch or below, can lead to new approaches to procurement that affect service centers. For example, the demand for quality in all aspects of supply chain management has increased as the federal government looks to improve efficiencies. “On the quality side of the business, you’d better have your capabilities and qualifications and certifications in line,” says Harvey. “They are very stringent on those types of things. Not everybody and their brother can make these products.” Carbone’s company recently qualified for ISO 9000 certification specifically to meet the demands of one of its defense customers. “They sent out a mandate saying that anyone who wants to participate with them must have this level of quality,” he says. Of course, it’s easy for the government’s approach to slide from cautious to burdensome. “Lately a tremendous amount of additional oversight has been brought on by the DoD. Sometimes I feel it’s to justify certain departments being opened,” says Michelle O. Allinson, vice president of sales and marketing for Aerospace Alloys Inc., Bloomfield, Conn. “We’re seeing people scrutinizing things to the point of overkill.” Able says his company has seen a trend toward more long-term contracts, possibly because of the defense department’s plans for a workforce reduction. “There’s been a big turnover in personnel. They don’t have the same level of experience or the manpower, and that’s affecting contracting.” The government’s attitude toward cost cutting will undoubtedly play out when it comes to purchasing, he adds. Inventories will be kept lower and demands higher as the defense supply chain strives to make its dollars go further. Aboulafia agrees. “You’re starting to see contracts go from cost-plus to fixed-cost at an earlier stage in the program. You’re also seeing more talk, if not reality, of work being shifted from the private sector to the government.” Government suppliers should brace themselves for a market where lower margins are the rule, he says. “The last few years were an exceedingly good environment for defense contractors. Now, it’s less so.” Mon, 22 Oct 2012 18:46:00 GMT f1397696-738c-4295-afcd-943feb885714:8407 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8406/Structurals-Market-Report.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5833&ModuleID=14025&ArticleID=8406 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=8406&PortalID=51&TabID=5833 http://www.metalcenternews.com/Editorial/CurrentIssue/September2012/tabid/5833/articleType/ArticleView/articleId/8406/Structurals-Market-Report.aspx HSS Doing OK Despite Weak Construction “I see demand for HSS staying where it is now, flat at a nice level for the rest of the year,” says Jim Hoffman at Reliance Steel & Aluminum Corp. (Photo courtesy Reliance Energy Solutions, Cyprus, Calif.) While nonresidential construction is showing signs of life, it remains years away from its healthy, pre-recession levels. Meanwhile, sales of hollow structural sections are being sustained by strong demand from heavy equipment and transportation markets. By Myra Pinkham, Contributing Editor Even with lackluster nonresidential construction, demand for structural tubing could grow by as much as 10 percent this year on the strength of the heavy equipment and transportation markets. But the outlook for hollow structural sections or HSS is a bit cloudier next year, say the experts, due to concerns about economic uncertainties and rising domestic prices that may attract more low-cost imports. “The HSS market is actually pretty decent given the current level of economic activity,” says Paul Vivian, a partner at Preston Pipe Report, Ballwin, Mo. He estimates that 55 to 60 percent of HSS goes into construction-related applications, mostly nonresidential and infrastructure construction. While showing some modest improvement, construction continues to be quite depressed and is not likely to see a significant pickup for some time. “What has helped HSS up to this time has been manufacturing,” he says, particularly strength in yellow goods, material handling equipment and heavy duty trucks. Although the HSS market continues to struggle with the slow and choppy recovery, it is generally moving in a positive direction, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. HSS consumption increased 13.5 percent in the first half of 2012, compared with the first six months of 2011. Nevertheless, the HSS market remains 25 percent below its recent peaks in 2006-07, he adds. Some observers report that HSS orders have flattened out in recent months. Despite this recent moderation, the year as a whole will likely see consumption increase by 10 percent compared with last year, predicts Jack Meyer, president and chief operating officer of Bull Moose Tube Co., St. Louis. Even on the West Coast, where a greater percentage of HSS is used in construction-related applications, there has been “a pleasantly positive” uptick, adds Chris Knox, vice president of Vest Inc., Los Angeles. Nonresidential construction has improved modestly from its recessionary lows, rising 4.1 percent year on year as of June, according to Metal Strategies. The American Institute of Architects billings index, a leading indicator of construction activity, registered 48.7 points in July, still below the 50-point level that indicates growth, but an improvement over June’s 45.9. The AIA has upgraded its forecast for 2012 U.S. nonresidential construction spending, predicting it will rise 4.4 percent rather than its earlier estimate of just 2.1 percent. The architects group expects a further 6.2 percent gain in nonresidential construction in 2013. Ken Simonson, chief economist for the Associated General Contractors of America, says this is consistent with McGraw-Hill Construction’s Dodge Momentum Index, which climbed 8.1 percent in July, pushed up by gains in both commercial and institutional construction. Industrial construction, especially related to activity in the energy and heavy equipment sectors, is responsible for much of the new demand for HSS products, Plummer says. Some re-shoring, plus construction of new facilities by automakers and their suppliers in the South, also has contributed to this type of industrial building. Despite recent small gains, nonresidential construction is still about half of what it was and could take several years to get back to pre-recession levels, says Jim Hoffman, senior vice president of operations for Reliance Steel & Aluminum Co., Los Angeles. Nonresidential construction is doing little more than just bumping along the bottom, agrees Patrick Knutson, director of sales for Maruichi Leavitt Pipe & Tube LLC, Chicago. “It is seeing some successes, but it isn’t climbing out of its hole yet.” Production of agricultural and mining equipment, cranes, conveyors and heavy construction machinery has a bigger impact on HSS demand than the construction sector, Knutson maintains. Such bottoming is especially true of the types of applications that use the most HSS, which tend to be the first few floors of office buildings, retail stores and warehouses, Vivian notes. “Consumer spending drives that activity. From everything we see, it could be 2015 before that is significantly better. Until then, it will be like a water polo event with everyone just trying to keep their head above water.” The new federal surface transportation bill could kickstart the public works construction sector, which is down about 3 percent year to date, following declines of 7.2 percent in 2011 and 2.9 percent in 2010. But how much that will improve HSS demand is questionable. The 27-month spending measure will have more of an immediate impact on consumption of beams, plate and reinforcing bar, which are the steel products most used in infrastructure construction. HSS might eventually get a boost from increased production of construction equipment, if the highway bill proves to have some legs, Vivian notes. Manufacturing sustains the market Heavy manufacturing continues to do very well, despite macroeconomic concerns over the federal deficit, the sovereign debt crisis in Europe, the slowing of China’s economy and the close presidential election in the U.S., observes Bill Jones, vice chairman of O’Neal Industries Inc., Birmingham, Ala. The Federal Reserve Board reports that overall U.S. industrial production was up 4.4 percent in July versus a year earlier, with durable goods production leading the way in primary metals, computer and electronic products, motor vehicles and parts, aerospace, miscellaneous transportation equipment and miscellaneous manufacturing. But even manufacturing activity has shown recent signs of slowing, with the Institute for Supply Management’s purchasing managers’ index falling below the 50 percent level that indicates growth for two months in a row. “The question is whether this is just a typical summer slowdown or something more,” says Tim Spatafore, president of Marmon/Keystone LLC, Butler, Pa. This uncertainty is one reason distributors are playing it close to the vest, keeping HSS inventories low. With mill lead times short, anywhere from stock to four weeks, service centers can get material in a hurry if they need it, he says. Farm equipment sales, which are up 4.9 percent year to date, are expected to see their third consecutive year of increases and are at a cyclical peak, Plummer says. Farm equipment production has fallen back about 4.4 percent, however. Hoffman attributes that “pull in” to the fact that companies are so busy they can’t handle all the orders that come their way. The drought in the United States could also have an impact on equipment purchases at the end of the year, depending on whether farmers have the need and the funds for replacements. “Purchases of farm equipment tend to have a close correlation to farm income,” Plummer notes. Over the long term, demand for farm equipment should continue to rise given the demographics in the developing world, Hoffman adds. “Increased wealth is affecting the way people eat and that affects the need for farm implements.” North American output of heavy construction equipment was up 10.8 percent year to date through June after a 21 percent gain in 2011 and a 10 percent gain in 2010, according to Metal Strategies. Likewise, mining equipment sales remain robust, fueled by strong commodity prices. Plummer attributes much of the increase to exports. Strengthening of the U.S. dollar and weakening of markets outside of the United States could eventually cool export demand, cautions Jones at O’Neal. “We are seeing the rate of growth in HSS demand slowing compared with the beginning of the year, which is clearly a concern.” While imports of structural steel tubing have increased a bit, they have not hurt the market. Domestic producers of HSS are keeping their prices competitive with other regions of the world, Jones says. Recent price hikes by U.S. tube mills just passed along their increased cost for flat-rolled steel. The long lead times make foreign sourcing risky, he adds. “By the time imports come in, it is uncertain whether they would still be attractively priced. There would need to be a double-digit differential for us to even consider buying imports, and even then we probably wouldn’t.” HSS imports are more of a factor on the West Coast, where they are up about 20 percent this year, says Knox at Vest Inc. Any increase in domestic HSS prices could attract more imports, he adds. “The price discrepancy is significant and that is a concern,” he says, noting that the price spread has been a moving target, fluctuating from quarter to quarter. “Prices have been on a roller coaster ride due to movements in flat-rolled steel and ferrous scrap,” Spatafore says. They declined by $40 per ton in June and another $20 per ton in early July, before increasing $40 per ton later in July and another $40 per ton in early August. “We are passing along price increases, but sometimes not as much as was originally announced because of competitive reasons,” Knutson says. Recent flat-roll price increases have been widely accepted by the marketplace, and HSS price hikes have followed suit, he adds. “But with business cycles being so short, [the acceptance] could be short-lived.” Vivian predicts that HSS will likely see much flatter growth for the rest of this year with no big change in store for the construction market, continued flattening of manufacturing and an overall air of caution, at least until after the presidential election. “I think it will be a strong year next year, assuming that there is no further deterioration in Europe and progress on debt and tax reduction in the United States,” Jones says. While he would not term it a good market yet, Plummer feels the trends are generally favorable for structural tubing. But, because nonresidential construction is always a late cycle performer, the business in not likely to get truly good until 2014 or 2015, he says. Mon, 22 Oct 2012 17:32:00 GMT f1397696-738c-4295-afcd-943feb885714:8406