Updated January 18, 2010

• Bouchards Take First Step Toward Rebuilding Esmark
• Denman & Davis Acquired by O’Neal
• Cargill Takes Ownership of RPS Sheet & Plate
• German Stainless Pipe Maker to Build Plant in Mississippi
• TC Finds for Domestic Producers in OCTG Case
• ISM: Manufacturing to Grow in 2010 
• MSCI: Shipments Declining, But at a Slower Clip

Bouchards Take First Step
Toward Rebuilding Esmark
Esmark Inc. and its founders, Jim and Craig Bouchard, enjoyed one of the wildest rides the metals distribution industry has seen in the past decade. Now, the steel industry veterans are back in line for another turn on the roller coaster.

The brothers, on the sidelines since Russian steelmaker Severstal purchased Wheeling Pittsburgh Steel Co. and related companies from them in 2008, have re-entered the service center market with the purchase of Amtex Steel Inc., a Chicago area service center. The acquisition is the first of many, the Bouchards say, as Esmark tries to rebuild its service center empire.

“It’s a nice facility with clean assets and a nice customer base,” says Craig Bouchard. “It’s not a big acquisition. It’s just a nice way for us to re-enter the market.”

The $10 million acquisition includes Amtex’s physical plant, assets and real estate, plus its rail line facilities. It will be renamed Chicago Steel & Iron, a division of Esmark.

Esmark plans to retain its 70-plus employees and expand its workforce with additions in the commercial sales and plant staff.

“Our acquisition of Amtex Steel is consistent with the successful business strategy we employed in building Esmark’s original service center network in the Midwest: acquire well-run, family-owned businesses with loyal customer bases and outstanding processing facilities and utilize those assets as a foundation for further expansion and growth,” says Tom Modrowski, Esmark Steel Group’s CEO. “We will be employing that same strategy as we explore additional service center acquisitions in the Midwest in the coming months.”

The first acquisition target is familiar to the Esmark leadership, the distribution network it sold to Severstal as part of the Wheeling-Pitt deal. Esmark was one of a handful of suitors for the network, renamed Northern Steel Group since its acquisition.

“We bid $110 million. We hope Severstal considers that over time,” says Craig Bouchard. “We like and respect the Severstal people and we hope we can arrange a deal working with them.”

Starting early in the 2000s, the Bouchards built Esmark from the ground up, acquiring numerous existing assets in the Midwest, eventually building one of the 25 largest service center companies in North America. But the company didn’t stop there, engineering a reverse hostile takeover of Wheeling Pittsburgh Steel Co. as part of its plan to develop an integrated steel distribution model. But the financial world was soon about to tumble.

“We’ve entered a new era. Debt financing, which used to be popular across the board and made a lot of people wealthy, is not coming back for a long time. Our first nine acquisitions were done with cash. Wheeling-Pitt was done with leverage. That leverage almost killed us. We were within a few months of it crushing us as the credit crisis descended on America,” Craig Bouchard says.

Consequently, the next chapter of the Esmark story won’t include further forays into the production end of the supply chain. “There aren’t many mills left, and we’re going to go at it a little smaller this time,” Bouchard says. “I think we’ll leave the mill business to the current producers.”

They will follow the rest of the Esmark blueprint, however. The company will continue to target Midwestern companies for acquisitions, with an emphasis on companies that process cold-rolled steel. And the Esmark companies will be designed to run with lower levels of inventory.

“All of the things we did before we’ll do again,” Bouchard says. “If you have good equipment, a strong customer base and you limit your risk, the service center business goes through the business cycle and performs extremely well for you.”

While the Bouchards, as part of a non-compete clause in the Severstal deal, have remained inactive in the metals sector over the past year and a half, they have been growing their holdings. Their company now has oil and gas, aviation and healthcare businesses that will remain under the Esmark umbrella.

And in January, Esmark Industrial Group, a subsidiary of Esmark Incorporated, acquired the assets of Meadville, Pa.-based Excalibur Machine Company Inc. for $3.5 million in cash. Excalibur Machine Company maintains manufacturing and machine shop facilities in Meadville, Conneaut Lake and Linesville, Pa.

David A. Luptak will become CEO and president of the newly formed Esmark Industrial Group with responsibility for Excalibur Machine Company. He says Esmark Industrial Group will maintain the current Excalibur employees and senior management team and will immediately institute a comprehensive healthcare and benefits program.

Additionally, the company has been spearheading an effort to lure the Chicago Cubs from their spring training facility in Arizona to a proposed location in Naples, Fla., where Craig Bouchard spends half the year.

“I think we’ve got a chance to do something magnificent, build the best facility in existence in a location just outside Naples,” he says. “For Cubs fans, it’s a home run. For the Cubs, it’s a home run. And for Esmark, it’s a pleasant addition to our business mix.”

Denman & Davis Acquired by O’Neal
O’Neal Steel Inc., Birmingham, Ala., has acquired the assets of Denman & Davis, one of the largest independent full-line steel service centers in the northeastern United States. Denman & Davis offers a complete selection of carbon, alloy and stainless steel in plate, sheet, bars, structurals and tubing.

The 121-year-old company, which began delivering steel by horse-drawn wagon through the streets of New York City in 1888, has operations in Clifton, N.J., where its headquarters are located, Albany, N.Y, and Slatersville, R.I. 

“Acquiring such a well-respected and successful company as Denman & Davis gives us an immediate presence and a strong position in a key geographic area,” says O’Neal Chairman Craft O’Neal. “The company is an outstanding addition to our Industrial Metals Group and enhances our overall strength in products such as carbon and stainless plate and bars.”

David Deinzer, president and chief executive officer of Denman & Davis, will continue to oversee operations at the three Denman & Davis facilities, which employ over 100 men and women and offer a wide range of metals processing services, as well as extensive inventory.

Cargill Takes Ownership of RPS Sheet & Plate
Minneapolis-based Cargill will increase its investment in RPS Sheet and Plate through the purchase of Robinson Steel’s cold-reduction lines in East Chicago, Ind., and Granite City, Ill. Cargill will take 100 percent ownership in Cargill Robinson LLC, a joint venture formed by the two companies in 2007.

Robinson Steel will continue as an independent owner and operator of its RPS Laser division, the precision-cut steel parts supplier, with Cargill as its exclusive supplier of RPS quality sheet and plate products.

"RPS solidifies our premier position in the processing of hot-rolled steel bands into the highest quality sheet and plate products to meet our customers' needs, and it complements our broader investment in steel as a leading global trader, processor and distributor," says Mike Taylor, president of Cargill's steel service center business.

The transaction is expected to be completed this month. Terms of the deal were not disclosed.

"Our expanded relationship with Cargill will allow Robinson's RPS Laser to continue to integrate our unique value proposition with Cargill's global supply chain and risk management capabilities, accelerating our growth and geographic reach. It will clearly provide increased cost-effective value to our customer base," says Paul Labriola, president and chief executive officer of Robinson Steel.

Cargill currently operates seven flat-rolled steel service centers with over 245 employees, focusing on hot-rolled band, pickled and oiled, cold-rolled, and tin mill products. Locations include East Chicago, Ind.; Houston, Texas; Tulsa, Okla.; Panama City, Fla.; and Loudon, Memphis and Nashville, Tenn.

Robinson Steel Co. Inc. currently operates steel and laser-cutting facilities in Indiana, Illinois, Iowa, Missouri, and Alabama.

German Stainless Pipe Maker
to Build Plant in Mississippi
Wilh. Schulz GMBH plans to build a stainless steel pipe manufacturing plant in Tunica, Miss. The $300 million facility, to be constructed over the next five years, will be the German company’s first manufacturing site in North America.

Schulz, headquartered in Krefeld, Germany, is a global supplier of piping components. Schulz's Mississippi division will be known as Schulz Xtruded Products or SXP. 

"The United States in general and Mississippi in particular is the perfect location for our 'crown investment' supplying the global markets," says Rainer Floeth, managing director and chief financial officer of Schulz. "We were pleased to have worked with state and local officials on this project, and we look forward to doing business in the state in the years to come."

Schulz produces and supplies stainless steel and alloy steel seamless pipe products, including seamless and welded pipes, fittings such as elbows, tees, reducers, caps, bends and flanges, and specialized pipe components. Established in 1945, the company specializes in serving the upstream and downstream oil and gas sectors and the nuclear and fossil fuel power plant industry. Schulz supplies pipe components to nuclear power plants in Germany, the United States, China, Taiwan, India, Finland, Brazil, South Korea and other countries. The company also serves the water treatment industry, with a focus on desalination, as well as facilities in diverse areas of the chemical industry.

Schulz's latest development, metallurgical bonded seamless clad pipes in material compositions such as X-65, Cr-Mo/625 or P9/904, provide solutions for deepwater fields on the upstream side of oil and gas production and for refineries processing sour oil and gas on the downstream side of production, among other applications. 

Schulz has successfully executed test production of clad pipes using a new process for producing seamless extruded metallurgical bonded pipe and has received its first orders. The company will produce these clad pipes exclusively in its new facility in Mississippi. 

ITC Finds for Domestic
Producers in OCTG Case
The Department of Commerce will soon issue a countervailing duty order on imports of oil country tubular goods from China now that the U.S. International Trade Commission has found material injury or threat of material injury to the U.S. industry.

All six ITC commissioners voted in the affirmative, with four determining the threat of material injury and two determining existing injury.

The American Iron and Steel Institute issued a statement supporting the determination: “AISI strongly commends the U.S. International Trade Commission’s unanimous ruling today in favor of U.S. steelmakers, who have been clearly injured by high levels of unfairly traded oil country tubular goods into the U.S. market, beginning in 2006 and continuing through the first half of 2009,” says Thomas Gibson, president of AISI.  “This affirmative ITC final injury decision in the subsidy part of the OCTG case is an important step toward allowing our competitive domestic OCTG producers to compete on a level playing field unhindered by unfair and injurious Chinese trade practices.”  

The case was filed by U.S. steel companies U.S. Steel Corp., Maverick Tube Corp., Evraz Rocky Mountain Steel, TMK IPSCO, V&M Star LLP, V&M TCA, Wheatland Tube Corp., plus the United Steelworkers. 

“At a time when the nation is struggling with double-digit unemployment, full and strict enforcement of our laws against dumped and subsidized imports of steel and other manufactured products from China is essential to maintaining a viable U.S. manufacturing sector in the United States,” Gibson says.

Additionally, U.S. drill pipe producers have followed the lead of the OCTG makers and have filed claims that China has been dumping that product on the domestic market.

Steel Business Briefing reported that TMK IPSCO, VAM Drilling, Texas Steel Conversion, Rotary Drilling Tools and the United Steelworkers filed the petition after imports doubled between 2006 and 2008, and continued to increase in the declining market of 2009. The petitioners claim dumping margins of 120 to 200 percent.

ISM: Manufacturing to Grow in 2010 
Economic growth in the United States will resume in 2010, say the nation’s purchasing and supply management executives in the December 2009 Semiannual Economic Forecast from the Institute for Supply Management, Tempe, Ariz. Most expect the positive conditions experienced in the second half of 2009 to continue for manufacturing in 2010, while the non-manufacturing sector foresees marginal growth.

The overall forecast projects optimism about the U.S. economy for 2010. The manufacturing sector is positive about prospects in 2010 with revenues expected to increase in 13 of 18 industries, while the non-manufacturing sector appears slightly less positive about the year ahead with 8 of 18 industries expecting higher revenues. Business investment, a major driver of the U.S. economy, will decline as both sectors expect a combined average of a 5.4 percent drop in capital spending.

Sixty percent of survey respondents expected revenues to be greater in 2010 than in 2009. The panel of purchasing and supply executives expected a 5.7 percent net increase in overall revenues for 2010, compared to a 10.7 percent decrease reported for 2009. The 13 manufacturing industries expecting improvement over 2009 include fabricated metal products and miscellaneous manufacturing.

"Manufacturing purchasing and supply executives reflect more of their typical optimism about their organizations' prospects as they consider the first half of 2010, and they are even more positive about the second half," says Norbert J. Ore, chairman of the ISM survey committee. "While 2009 has been a challenging year overall, we are in a growth trend as we approach the end of the year,” he adds.

Manufacturing growth accelerated in December as the PMI registered 55.9 percent, an increase of 2.3 percentage points over the previous month, according to the monthly Manufacturing ISM Report On Business. That was the highest reading since April 2006 when it registered 56 percent. A reading above 50 percent indicates the manufacturing economy is expanding.

In the manufacturing sector, respondents reported operating at 70.1 percent of their normal capacity, up from 67 percent in April 2009. Purchasing and supply executives predicted that capital expenditures will decrease by 4 percent in 2010, compared to a 7.8 percent decrease reported for 2009. Survey respondents also forecasted they will reduce inventories in an effort to improve their purchased inventory-to-sales ratio in 2010.

Manufacturers have an expectation that employment in the sector will increase by 1.5 percent, while labor and benefits costs are expected to increase an average of 1.4 percent in 2010. Manufacturing purchasers are predicting strength in exports and imports in 2010. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.

The panel also predicted the prices they pay will increase 0.2 percent during the first four months of 2010, and will increase an additional 2.4 percent during the balance of 2010, with an overall increase of 2.6 percent for the year.

The major concerns of the respondents are: weak economy; credit crisis; taxes; interest rates; and high energy costs. Survey respondents expect to realize supply chain improvements through supplier consolidation; new or improved enterprise technology and system utilization; improved inventory/asset management; lean manufacturing; and cost reduction.

MSCI: Shipments Declining,
But at a Slower Clip
Although November shipments of steel and aluminum from U.S. and Canadian service centers declined from October, there are signs the market may be stabilizing, according to the latest Metals Activity Report from the Metals Service Center Institute, Rolling Meadows, Ill.

U.S. steel shipments fell, but at only about half the rate when compared with shipments from November 2008. Canadian steel shipments were down just 4 percent from those of a year ago. Both rates of decline were substantially lower than in October. Aluminum shipments in the United States and Canada declined, but at only about two-thirds of the amount of last month’s decline. In other words, metals shipments are declining more slowly than previously, which suggests a bottoming that goes beyond the normal seasonal shipment slowdown.

Steel product activity
November shipments of steel products from U.S. service centers totaled nearly 2.3 million tons, 14.1 percent below shipments in the same month last year. Shipments for the first 11 months of the year of 27.3 million tons were down 38.5 percent from those of a year ago. Month-end steel product inventories at U.S. service centers totaled 5.9 million tons, 1.2 percent lower than at the end of October and 35.9 percent lower than at the same time in 2008. At November shipping rates, U.S. steel inventories represented a 2.5-month supply.

Steel shipments from Canadian service centers totaled 429,200 tons in November, just 4.4 percent lower than steel volume in November 2008. For the year-to-date, Canadian steel shipments total nearly 4.6 million tons, a decline of 27.8 percent from last year. Steel inventories finished November at 994,100 tons, a rise of 2.3 percent from October but 18.9 percent below year-ago inventories. At November shipping rates, Canadian steel inventories represented a 2.3-month supply.

Aluminum product activity
November aluminum shipments from U.S. service centers totaled 79,500 tons, off

19.1 percent from volume during November 2008. Year-to-date aluminum shipments of 958,400 tons were 39.8 percent below those of a year ago. Month-end aluminum inventories at U.S. service centers totaled 255,900 tons, 0.8 percent lower than at the end of October and 30.3 percent below year-ago stockpiles. At November shipping rates, that amount represented a 3.2-month supply.

Aluminum shipments from Canadian service centers totaled 10,600 tons, 16.3 percent lower than year-ago volume. For the year to date, shipments of 117,800 tons were 24.5 percent below shipments during the same period a year ago. Canadian aluminum inventories were unchanged at the end of November at 26,600 tons, 24 percent below year-ago stockpiles. At November shipping rates, that total represented a 2.5-month supply.