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Toll Processing Outlook

Regaining its Shine

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MCN Editor Beth Gainer Despite the pandemic, toll processors have not only been able to survive, but thrive.

During 2020, toll processors did their best to conduct business as usual – even in the most unusual of circumstances. COVID-19 left processors scrambling to protect people’s lives and livelihoods.

It started with their most important assets – employees. “You can always make money,” says Seth Young, president of Amerinox, Camden, N.J., “but if somebody gets deathly ill, you can never replace a person.” Amerinox had PPE on hand early on when the pandemic struck. “We’ve been very proactive in creating the kind of care and caution necessary to keep our staff safe while they are here at work.”

Will Thomas, president of Colonial Metal Products, West Middlesex, Pa., also believes his staff’s health and safety are paramount. “As an employer, we want to make sure we are doing our best job to keep our employees safe,” he says. Colonial Metal Products does metal sales and toll processing, while Thomas’ other company, Colonial Slitting Industries in Weirton, W.Va., does 100 percent toll processing.  

And, as is the case with many industries, toll processors have faced a crucible: keeping employees healthy and gainfully employed. “The biggest challenge is keeping everyone safe to prevent COVID from spreading through the facility,” says Jeff Kunkel, president and general manager of Fulton County Processing, Delta, Ohio. “We’ve seemed to be able to keep things at bay very well by constantly sanitizing and enforcing the use of masks and so on.” Kunkel echoes other toll processors’ sentiments about having to cope with a shortage of staff at times due to COVID testing and quarantining as necessary. 

Andes Coil Processors, based in Lewisville, Texas, with a location in Gary, Ind., did not furlough or lay off workers. “The nice thing is we were able to keep all of our employees throughout the pandemic,” says President Howard Pena.  “We had to cut back on overtime hours and some shift hours, but we did not lay off any people, and we’re very proud of that.” His business offers slitting, cut-to-length and embossing to its customers, many of which are service centers. 

Besides being concerned about others’ welfare, toll processors have also been concerned about their businesses. 

Setback, Then Progress
Tim Bilkey, president of Voss Steel, headquartered in Detroit, has felt the challenges of keeping track of staff and keeping the company running efficiently during the pandemic. Voss Steel’s base business is pickling flat-roll, carbon steel for the appliance, construction and automotive industries. The company also does slitting.  Blanking is performed at its Jeffersonville, Ind. location, Voss Clark.

“Between April to August, it was just awful. Our business levels were down significantly, running at half capacity at best,” he says. “You’re battling staffing issues, and you’re battling a reduced order book while trying to stay efficient.”

“I would guess most people in the industry were starting 2020 off, thinking very optimistically; it was going to be a good year, and March and April saw the huge falloff,” he continues, adding, “I think 2020 ended nicely. It ended fairly strong with demand picking back up, especially in automotive. We’re optimistic going into 2021.”

Young has found volume was drastically down. “Because of the pandemic, we saw volumes shrink to levels that we never experienced in over 20 years of business, and we’re certainly faced with the realities of finding ways to manage our business and the lack of revenue,” he says. “Lead times have gone from a few weeks to a few months because of the pandemic. Service centers, rightfully so, were very cautious in their inventory levels and were at the bare minimums necessary to maintain what they had to to supply their clientele.” 

Thomas concurs. His companies, Colonial Metal Products and Colonial Slitting Industries, serve most major industries, as  automotive, building products and packaging all require slit coil. The companies focus on light gauge slitting starting at 0.006 inch with a maximum thickness of 0.125 inch. “I think initially all markets took a hit during the March through May timeframe,” he says. “The uncertainty of the pandemic caused a lot of people to let their inventories get too low.  This creates additional lead time pressures for toll processors.”

“Availability and lead times are pushed out,” he adds. “Toll processors are the last step in the chain between the mill and somebody that actually makes [a product] with the material. So by the time it gets to us, it just puts a little pressure on us from a planning standpoint.”

Food service, energy, automotive and aerospace were just a few of the hard-hit sectors, affecting everyone in the supply chain – toll processors included. With restaurants temporarily and permanently shuttered, businesses that process materials for this industry have experienced reduced volumes.  Amerinox serves the food service industry, among others. The company’s customers manufacture restaurant, catering and commercial-kitchen equipment. During the COVID-19 crisis, demand for such equipment has dropped, causing processing needs to decline. “We have an awful lot of business in polishing and cutting that’s tied into food service, and certainly the food service industry was and remains one of the worst hit,” says Young, adding that volumes for his business reached as low as 45 to 50 percent of its typical levels. 

Young also notes a decline in materials needed for the energy sector. “We had a lot of customers who were very much energy-oriented firms, where our service center customers sold a lot of material that went into the energy industry, which got decimated and still remains quite under pre-pandemic volumes,” he says. “It probably won’t recover the same way.” Young predicts that an ecologically friendly source of energy will ultimately replace fossil fuels, creating other opportunities in the metals industry. 

Automotive initially saw a dramatic decline across the supply chain, yet made a comeback when this sector finally was able to ramp up production. Those who process materials that eventually make their way to the automotive sector experienced business slowdowns, as well. “I think most processors would say that automotive really put a halt to everything,” says Bilkey. “There was nothing being consumed, inventory was being made and needed somewhere to be stored, and so you saw a lot of inventory backing up in the supply chains.” 

When automotive fired up again, steel production wasn’t immediately ready to handle the startup of demand. “So now your supply side seems much tighter until additional capacity comes on board  – whether it’s new capacity from greenfield sites or increased capacity at current operating mills or the restart of a blast furnace,” Bilkey adds.

But automotive bounced back much quicker than anticipated. “All end-user markets improved in the fourth quarter. The most robust growth we saw was in the automotive sector,” says Sergei Kuznetsov, president of Ohio Pickling & Processing, Toledo, Ohio, whose company processes material for a broad range of market participants.  “Annual processing volumes were lower than in 2019, primarily due to pandemic restrictions in the second and third quarters of 2020. However, with the demand restoration in the fourth quarter, we are quite optimistic about 2021.” 

“There was a short lag when the automotive guys shut their facilities down, but it’s come right back,” says Eric Morgan, commercial manager of Paragon Steel, Butler, Ind. The company is a steel distributor and processor with four slitting lines at its Plant One and a shape-correcting cut-to-length line at Plant Two.

This kind of optimism prevails for many toll processors despite the rough past year. “We saw an impact on our volumes of business through several sectors. We’ve seen a slow and steady increase over the last quarter, and we’re seeing business levels pick up in the beginning of the first quarter,” says President Bob Wilson at Specialty Metals Processing Inc., Stow, Ohio.

The company processes nonferrous metals, such as stainless steel, aluminum, high-nickel alloys and titanium. “Titanium is driven by the aerospace industry, and we’ve seen some significant impact in that market segment,” says Wilson. “From a manufacturing aspect, that industry has been impacted as much as any industry, but it will come back.” Wilson is optimistic that, with the rollout of COVID-19 vaccines, people will resume traveling, causing the aerospace sector to thrive again.

Despite the initial hit from the pandemic, overall business for Andes Coil Processors has been strong, Pena says. “We had a good first quarter [in 2020], and we saw slowdowns in Q2 and Q3. It started to come back a little in Q3, and it was more of a normal Q4,” he says, adding the business saw almost normal activity in Q4, which is continuing into 2021. “We are thankful for the business we had in 2020; we know it could have been worse,” he says.

Seizing Opportunities
Necessity is the mother of invention, and in some cases, processors took advantage of opportunities. For example, Fulton County Processing rallied back from initial losses in producing tonnages occurring in April, May and June. The last three months of 2020 were strong, and Kunkel notes that the first quarter of 2021 will probably stay the same way. 

What accounted for this change was that “people aren’t bringing steel over to sit in inventory waiting for orders to be processed; they already have orders,” Kunkel explains. “As soon as it hits our property, it’s being processed. When there are steel shortages, it boosts processing because nobody’s waiting on orders at that point.” Kunkel’s business is even doing better in 2021 than it was back in pre-pandemic January and February 2020.

Ohio Pickling & Processing even increased its number of customers during the pandemic. “Due to demand uncertainties in the pandemic, many of our customers have adjusted to operate with low inventory levels,” says Kuznetsov. “By offering quick turnaround times, we earned additional business and grew our customer base. We were able to sustain steady processing flows even at the height of pandemic restrictions.”

Kunkel noticed the pandemic caused some of his customers to change their focus from automotive to medical applications. “We basically process the same material, just at different specifications now. There’s a little more urgency for it,” he says. 
Having a range of customers has also helped toll processors. When automotive was idled, Voss Steel relied on its diverse customer base to continue doing business.  “We were considered essential in a couple of the non-automotive marketplaces that we serve, so we did keep running, although at a much-reduced capacity,” he says. “We did have customer activity, but it was not on the automotive side.” 

Morgan agrees that customer diversity is key.  “Our customer base is diverse, and that’s a good thing. We’re not dependent on one end-use market,” he says. “We saw a slowdown period of probably six to eight weeks. We continued to operate throughout the pandemic. Due to the diverse industries we supply, we have been fortunate to stay busy. That being said, we did experience the March to May lag in business that I believe was common to most companies.”

Despite the pandemic, Amerinox is expanding. The company recently built a greenfield aluminum plant in Texarkana, Texas, set to be operational in February 2021. Now known as Texarkana Aluminum, the business processes aluminum flat products. “We’ll be commissioning state-of-the-art, cut-to-length equipment that we ordered about eight months ago to meet the demands of the Southwestern market,” says Young, adding that prior to this expansion, Amerinox was unable to do business in this area because of its distance from Camden N.J. “We are feeling exceptionally optimistic about the success of that facility and what it can bring to that market by way of quality and expedience and options of processing,” he says. 

He points out it’s too early to tell whether the current upswing is an outlier or a trajectory propelling the processing industry forward to pre-pandemic levels. “I think a lot of that’s going to be tied in directly to the health of the country and everyone’s physical health being able to get past COVID,” he says. “Once that occurs, there’s nothing that’s going to stop the forward momentum.” 

Some businesses would argue this forward momentum has already arrived. But Young emphasizes that, as is the case with any industry, the success of the processing industry is subject to many variables. “The processing industry is no different than any other segment of the metals business to the extent that we find ourselves in the same current of the market’s river,” he says, “and we’re either propelled or not, based on the health of the market and certainly as a result of the contraction of the economy.” 

“Because of the pandemic, we saw volumes shrink to levels that we never experienced in over 20 years of business, and we’re certainly faced with the realities of finding ways to manage our business and the lack of revenue.”  Seth Young, Amerinox

Photo Caption: Nonferrous processing companies experienced the same challenges in 2020 as steel processors. 
(Photo courtesy Specialty Metals Processing)

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