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Capital Spending Outlook

Appetite for CapEx Resumes in 2021

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Equipment makers see a robust market for their wares this year, driven by pent-up demand and supported by healthy service center profits. 

COVID caution was the rule governing capital expenditures in 2020. In 2021, it’s time to catch up. 
Equipment manufacturers for the service center sector have seen a dramatic uptick in quoting and activity in the first half of 2021, a sentiment they expect to have some legs.

“Capital spending basically stopped from April through August,” says Steven Baker, area sales manager for Athader, a member of the Bradbury Group, Moundridge, Kan. “Then things started to open up and people wanted to get a jump on the coming year. All that pent-up capital flooded into the market.”

Doug Matsunaga of Braner USA, Schiller Park, Ill., sees a similar progression. “After a year of sluggishness, there are positive signs that capital equipment projects that were suspended and delayed are reawakening and will likely move forward. Service centers are all relatively busy and favorable metal pricing has certainly helped confidence, so we are encouraged that 2021 will be much improved from 2020.”

To Stefan Dolipski vice president of KASTO, Export, Pa., the current market is a blend, depending on the size of the customer. Larger companies have come back strong, while the smaller operations have been more cautious. “The theory is the big guys have some money, and realize they have to get going before the train starts picking up speed again,” he says. 

Even with the coronavirus-related shutdowns that stalled business activity in the second and third quarters, many equipment makers think 2020 ended up better than anticipated. Jake Brown, vice president of Americas for Hypertherm, Hanover, N.H., says the pandemic merely put a pause on economic conditions, rather than drive the market entirely into a prolonged slowdown. “Before all this started, Q1 was running very nicely. That economy didn’t die. We all hunkered down for a little bit, but the economic conditions are still there.”

“It seemed for our extrusion forge and other groups, there may have been fewer proposals, but the ones we had were more serious,” says Paul Kadilak, vice president of sales and marketing for Butech Bliss, Salem, Ohio. “There was less kicking of the tires, but a higher percentage of people who were looking were ready to pull the trigger.”

“It was not as terrible as it could have been,” says Jason Clark, president of Canrack Storage Systems, Toronto. “There weren’t a lot of new customers, but there were certainly repeat, existing customers.”

Tapping new customers was one of the major challenges for equipment makers during the pandemic. Throughout the supply chain, sales people and engineers quickly adapted to the new methods of doing business. But Zoom calls and other measures that replaced face-to-face communication were much more effective with customers where an existing connection existed. 

“All of these practices work pretty well with established relationships, where we know the folks. But when we’re trying to build new relationships, meet a new company, that’s where people are desperate to get back on the road,” Brown says. 

Even when business travel has fully returned to previous levels, things will be different. The pandemic has likely made some changes to doing business that will outlive any restrictions. 

“Some parts of our business, I’d say it’s even better to do it virtually,” Brown suggests, citing the opportunity to convene with customers, share thoughts and problem solve, then huddle again a day later after ideas have been tested. “They don’t have to have an onsite event where everything has to get done in one day.”

Red Bud Industries’ Dean Linders echoes that thought. When a machine has been sold, the company can now include electricians and mechanical engineers and foundation people all on a call with the customer. “It’s become a lot more efficient because we can get three or four people on a conference call who ordinarily wouldn’t go on a site visit,” says Linders, vice president of sales and marketing for the Red Bud, Ill.-based company.

Still, some aspects of the sales and installation process demand an in-person visit. “Parts of our business on the proposal end require our sales engineers to visit the plant in person. There’s no getting around that. They have to put their eyes on what they have and how they can improve on it,” says Butech Marketing Manager Lisa Kravec.

But the changing nature of doing business isn’t the only way the pandemic will be felt by the processing side of the service center industry. The aftershocks of COVID-19 will include an even stronger acknowledgement of safety protocols, including those associated with viral transmission of pathogens, as well as a greater emphasis on automation. 

On the safety side, the omnipresent threat the coronavirus put on business operations, most of which kept running for the entirety of the pandemic, will remain with business leaders for a long time to come. “There’s an increased emphasis on safety,” says Pete Swenson, sales manager North America for Fagor Arrasate, Willowbrook, Ill. “People are embracing guarding and automation to keep workers safe and healthy and make sure they’re able to work.”

Braner’s Matsunaga agrees, while noting some upside that came with the mid-year slowdowns in activity in 2020. “A coincidental benefit was the conditions gave us the opportunity to complete several R&D projects we just couldn’t find the time for before the pandemic,” he said, including the development of  “enhanced, non-invasive safety features.”

Running concurrently with safety is the desire for enhanced automation, both to keep workers safe and to deal  with the chronic problem of finding suitable employees to run the machinery.

“We definitely have the feeling that a lot more stuff is moving into automation, moving into lights-out operation of machinery,” says Dolipski. “People are not looking for manual set-ups, the cheapest of the cheap. They want equipment they can operate without people there.”

That approach has been quite common in Europe for years, but is now taking hold in the States. “U.S. companies didn’t want to pay for it if they didn’t have to,” says Linders. “Today, they seem to be much more willing to pay for at least some level of automation in order to supplement the lack of personnel. They take the more mundane operations, automate that, and reduce personnel requirements and take the operator and put him in a position to make better use of his capabilities.”

Of course, it isn’t just service centers dealing with an absence of personnel. “I’m having a real problem finding general labor, and I’ve never had that problem before,” says Tony Allor, CEO of Allor Manufacturing and Plesh Industries, Brighton, Mich.

Shortages in general are the rule throughout the metals supply chain. The ever-climbing steel price has been driven by an absence of material, one that hampers the equipment makers’ ability to deliver as quickly as in the past. “Availability is a bit of a headache, but I think we have enough suppliers we’ve been able to overcome that,” Allor says.

It’s made more difficult when customers have demands that may not be completely realistic. “Everybody wants it now,” says Kadilak. “We’ve had some inquiries that are 100 percent for real, but if you give them a long lead time, it almost knocks you out of the running. Not only are they looking to buy something, they’re looking to buy something now. They don’t want long delivery times.”

But that may be unavoidable given the constraints plaguing so many business segments. “As anyone who’s opened a newspaper lately knows, supply chains around the world are shaky. If wafer boards shut down Ford, you’ve got to think a little company like ours is going to have problems,” says Brown. “We’ve made some good bets, but it highlights the vulnerabilities.”

However, those vulnerabilities present some opportunities. “I’m getting the feeling that my customers want to strengthen and/or relook at how they’re doing business, because they don’t want to have something from China or Europe that’s now stuck because the ports are closed,” says Allor. “That’s a good thing for the American manufacturing industry.”

A few other trends the industry is following include the ongoing push downstream by service center operators. “They’re looking for ways to reinvent themselves with stamping, laser cutting and so on,” says Swenson. “The traditional ways of making money by processing and doing a buy-resell, they’re changing. Service centers are probably making less money in processing per ton than they did 40 years ago.”

Buoying the market for traditional coil processing equipment is the continued push toward higher-strength steels, which come with their own set of challenges. 

“People may use old pieces of equipment and survive, but long-term there is going to be a lot of replacement equipment. As newer pieces of equipment hit the market, people are going to see the advantages of building a dedicated high-strength slitting or cut-to-length lines and that will change people’s minds,” says Baker. 

Hovering over everything is the price of steel, which is both a boon and a concern for most equipment makers. That service center profits are growing in this market makes this a nice time to sell equipment, though steel is also a major material in the construction of this equipment, pushing their costs higher. 

“It’s a double-edged sword. We’re consuming the products they sell, so they understand our price point is changing. But it does make the gap between quote and purchase a little harder to jump sometimes,” says Clark.

Caption:
Empty service centers are pushing companies to develop more automated equipment. 
(Photo courtesy Butech Bliss)