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Capital Spending Report

Pressing Forward on CapEx

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MCN Editor Beth Gainer Pressing Forward on CapEx
The coronavirus has sent a shockwave through the metals industry, but even in the face of this crisis, equipment manufacturers try to remain optimistic.

The coronavirus has wreaked quite a bit of havoc in a fairly short amount of time. Equipment manufacturers and their customers have a challenge they never had before – capital spending activities during a pandemic.

The unprecedented coronavirus crisis has understandably increased uncertainty about capital expenditures. “We were expecting a 15 to 20 percent growth in capital earnings in our business. We were on track to a 20 percent growth rate for the first two months of the year,” says Steve Yulga, director of sales and marketing for DoALL Sawing Products in Savage, Minn. “As of March 11, all hell broke loose.”

“Most of our prospects and customers are not working,” he continues. “We are having a hard time connecting with them, so we’re trying to find innovative ways through social media, emails, phone calls and personal postcards, just to reconnect and make sure they’re doing okay and see if there’s anything we can do for them now.”

DoALL Sawing Products manufactures metal cutting and industrial material cutting band saws and cold saws, saw blades and circular blades, as well as coolants and lubricants. The company offers automated saws, semiautomated and manual saws.

Scott Kessler, vice president of sales and marketing at Messer Cutting Systems, Menomonee Falls, Wis., finds the coronavirus has taken its toll on business. “Last year was a very strong year for capital equipment,” he says, adding that when the coronavirus hit, it made for a slow start to the year. “And I think what we’re going to see is probably a substantial drop in the next two to three months.”

Messer Cutting Systems manufactures plasma oxyfuel and laser plate cutting machinery. Its customers – primarily steel service centers – process heavier-gauge metals, such as those found in agricultural equipment and in structural steel.

Like some customers, Kessler’s strategy is to avoid unnecessary capital spending. “We’re certainly keeping a close eye on cash flow. We’ve really toned down our continuous improvement efforts and hired several continuous improvement engineers who are guiding us through cost reduction,” he says.

Peter Swenson, sales manager of the metals division at Spain-based Fagor Arrasate saw the company’s optimism change to concern within the span of a few months. The business manufactures coil slitting and cut-to-length and tension-leveling type lines for its customers, which are primarily steel mills and service centers. “Across the board, I think everybody had been very optimistic about how the market was going to be for 2020,” he says. “We were certainly very excited about how the year was going to be for us.”

“After the FABTECH show in November, we ended up strong with some very real projects. However, whether we get them or not remains to be seen,” continues Swenson. “Indications are that projects that are under consideration will continue to move forward. The question is, when. At this moment in time no one has indicated that a project is going to be cancelled. Like everyone else, we’re trying to figure out how to do business in this environment.”

Conducting business in light of the pandemic is a challenge. “The rest of 2020 is difficult to predict regarding customers’ capital spending in light of the coronavirus,” says Michael Karr, sales engineer with Red Bud Industries in Red Bud, Ill. While the business works with mills and OEMs, 80 percent of its clients are service centers and toll processors.  

Uncertainty has always been an element of doing business, but the worldwide pandemic has ushered in even more unknowns. However, some businesses are still engaging in capital spending.

Business as Usual, in Unusual Times
Despite the coronavirus challenges, several companies have been willing to push forward on capital spending. “[The pandemic] has not affected our business,” says Lisa Kravec, manager of marketing and advertising at Butech Bliss, Salem, Ohio. “Fortunately for us, we started 2020 with a large backlog of orders, and we’re still receiving orders for capital equipment. We are deemed an essential business because we’re providing equipment for the steel industry.”

Butech Bliss produces equipment that includes slitting, stretch leveling, and push-pull pickling lines, plus hydraulic roller levelers and temper mils. The company’s customer base is diverse, ranging from service centers and steel producers to extrusion and forging producers.

“In the steel service industry, we are always looking to improve productivity and reduce downtime while offering our customers the most technologically advanced equipment for processing ultra high-strength steel. That’s our goal,” says Kravec.

“Probably the biggest challenge is letting customers know we’re still open,” she continues. “Our sales teams overcome that by making phone calls and checking in with our customers. We just keep moving forward.”

Paula Hill, general manager of Master Roll Manufacturing, La Porte, Ind., echoes these sentiments. “[The coronavirus] hasn’t affected our company; thus far, it has not changed the direction that we’re going. The company’s sales have doubled in the last four years, and we intend to double, again, over the next three,” she says. “We’ve been in growth mode for several years now, and we continue to press forward.” Master Roll manufactures and re-conditions rolls that go in the processing equipment for toll processors.  

As part of its growth, the company recently put a $180,000 purchase order for capital equipment to update its heat-treat capability. The induction hardening equipment will arrive in June and is expected to be up and running in July. “That was the biggest project we had for the year,” says Hill.

Swenson remains hopeful during this unprecedented time. “If this can get behind us in the next six to eight weeks, I think it will be a reasonably good year, but maybe not what we thought it would be. The coronavirus has not made things impossible, just more challenging.”

 One trend that isn’t slowing, and may be even more attractive in light of the pandemic, is the push for automation. Fagor Arrasate sells robust mill-grade, mill-duty equipment that’s highly automated to help reduce head count and increase customers’ accuracy in supply and orders. “Recently, we’ve commissioned a line here in the States that has a robotic setup of the slitter head – it’s the very first line in the States that does that. It’s more common in the European market, but the idea is to run the line with very high throughput and minimal operator input on the line,” he says.

DoALL Sawing Products has invested in automated saws that the end-user can program to cut at certain lengths. “These machines have more complicated control systems and setup so we actually provide free installation and training,” says Yulga.  

The industry remains competitively focused on spending capital dollars on automation, even during the pandemic. “We’re always implementing new equipment to be a little more competitive with some of the European markets,” says Karr. “A lot of our focus, as well, has been on efficiency monitoring, so automation is a big key to what we’re doing,” he says.

Those who work with steel believe that investing in the proper equipment will pay off. “The quality of the steel is ever-evolving,” Karr continues. “The trend in steelmaking is it’s a harder, stronger and lighter material, which is really important in the automotive industry. We’re responsible for making equipment that processes this type of material.”

“From the big mills, what I hear, they don’t have any plans to slow down their evolution of steel, so I think the marketplace for new equipment is going to continue to be strong,” he says.

Swenson agrees steel is changing. “We’re talking to the mills, particularly in Europe, about what kind of new steels are coming out, and they are tossing us some information on new high-strength metal and what kind of equipment they need to support that. So that’s exciting for us,” he says. “Primarily advanced high-strength steels or ultra high-strength metals are really the big push.”

Although Messer Cutting Systems is scaling back its capital spending now, it still has expanded its offerings. The company is promoting PlasmaFLEX, which is a solution for material handling. In addition, the company now offers a digital virtual service that helps troubleshoot customers’ equipment issues. “We have a built-in digital oscilloscope that we can monitor multiple points of inputs and outputs,” says Kessler.  

By expanding offerings, industry professionals aim to stay competitive by spending capital. But expansion for some manufacturers involves thinking outside the walls of their current facilities.

Build to Last

Expansion efforts aren’t just for their customers. In the fall, Fagor Arrasate is opening a new facility in Portage, Ind. that will best serve customers in the U.S. and Canada.  Engineers and technical-service personnel from Spain will work alongside U.S. colleagues to help customers.

“When you’ve got a six- to seven-hour time differential between Spain and the U.S., it makes service a challenge. When you can actually dispatch service in real time, that’s going to be important,” says Swenson. “The new building is a huge positive for us.”

Like Fagor Arrasate, Master Roll plans to extend its facility. “We currently operate out of four different buildings here in the building complex, and we’re looking to get under one roof within a 10-mile radius of where we are at. That’s a project that’s scheduled for late 2021,” says Hill. “We could definitely use the increased efficiency. It would enable us to have everything under one roof, and we would also have room for more machinery. Eventually, we’d like to increase our capacity for the size rolls that we do, and our ceiling height is one of the restrictions that we have right now.”

Overall, despite the pandemic, industry professionals remain optimistic. Yulga predicts recovery to possibly take place in the middle of the third quarter.
Kessler acknowledges, “Time’s moving slowly when we’re looking for answers, but if everybody does their part, we’ll all get through this. I think when the dust settles, there should be some decent pent-up demand and activity for projects.” ?

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