Toll Processing Outlook
Wild Ride Over, But is New One Better?
By Dan Markham
on Feb 14, 2023
Toll Processors are counting on a more stable market in 2023, though economic threats still exist.For much of the toll processing community, the year past was one of profits and pressure. They hope only the former carries over to 2023. The recent past has been healthy for tollers – supply chain members who provide a variety of processing functions without taking ownership of the metal – one with its share of difficulties. The supply chain challenges throughout all industry were acutely felt by the processors, whose ability to deliver their services quickly was severely tested when every customer needed material that was delivered today to be processed last week. Exacerbating those unrealistic demands was the ongoing shortage of another sort – human beings. The worker scarcity put a strain on the processing community that, in some parts of the market, has not yet abated. Ken McAvoy, owner of Maryland Metals Processing, summed the difficulties. “2022 had recovering tonnage from COVID and mills wanting to do little to no processing, which made increased volumes a challenge to produce. The increased volumes were a direct correlation to all the overtime we had to work to help our customers get product to their accounts. The uneven flow of coils made for longer deliveries,” said McAvoy, whose Baltimore-based company specializes in stainless and other bright products. Pete Adamski, general manager of Taylor Coil Processing, Lordstown, Ohio, offered a similar take from the ferrous side of processing. “Business levels were fairly strong throughout the year, but we are seeing more material given to us on time for deliveries rather than having to turn things around very quickly because of late mill deliveries.”He expects that to continue into 2023. “Material is getting to us on time, and it’s at levels that are manageable for us, from an operations standpoint.”A return to more traditional conditions would not be unwelcome. “It certainly won’t get back to the post-pandemic insanity, but we’ll see a more normal pattern that, back before the pre-pandemic economy, everybody would have been exceptionally happy with,” says Seth Young, president of Amerinox Processing, Camden, N.J. Encouragingly, most of the processing community remains rather encouraged about 2023’s prospects, despite the obvious concerns. “Right now, all indicators are that 2023 will be the same as 2022,” says Michael Messinger, director of outside processing for Gary, Ind.-based Metal Processing Corp. A few hundred miles east of Messinger, the expectation is a little higher. “We anticipate an uptick in 2023 volume, with pricing uncertainty easing up along with additional capacity coming online here regionally,” says Kevin Burnett, operations manager of Ohio Pickling & Processing. Toledo-based OPP is located near North Star BlueScope, which completed a capacity expansion project last year. There are some processors worried that the various issues hovering over the economy will dampen activity in the sector, but no one is anticipating a significant drop off. “You look at basic economics; don’t you see red flags waving?” asks Eddie Chase, president of Sunbelt Metal Processing, Lawrenceville, Ga. “The cost of capital is up. Inflation is nowhere near under control. Are we looking at a Federal Funds rate of 8 to 9 percent? What is that going to do to the housing market?”Still, he’s not anticipating a major falloff. “I don’t think it’s going to be doom and gloom,” he says, adding that the year actually got off to a more robust start than ever before.Darrell Sobeski, president of Precision Slitting Service Co., Romulus, Mich., has similar expectations. “It think it’s going to be a little softer than 2022, but I’m not expecting anything horrible,” says Sobeski, whose company enjoyed a robust 2022, setting a pretty tough act to follow. For some, the apprehension that exists heading into this year is not a lot different to how they felt last year, worries that ultimately went unneeded. “Last year was a successful year all the way around for us, but I kept waiting for the other shoe to drop,” says Mike Burnette, M&M Stainless Processing, Philadelphia. “I’m still waiting; however it doesn’t seem like it’s going to drop.”Obviously, one traditionally significant market for the toll processing community, automotive, is expected to be up this year, though those in the market say 2022 wasn’t as bad for them as widely believed. “A good portion of our business is tied to automotive. It was stronger than the SAR numbers would have you believe,” says Joe Gonzalez, vice president – corporate, Ferragon Corp., Cleveland.Sobeski echoes those thoughts. “It was a mixed bag in respect to auto. Some were up, some were down, depending on the EV situation.”Gonzalez believes the evolution of the electric vehicle market will be one of the crucial developments for the processing community in the years to come. “What can we do using our assets or investing in new technologies to offer a processing solution tied to the EV market? That’s something we think about all the time here, and I think others are putting their time and energy to it as well.”Though tollers don’t own the metal they process, that doesn’t leave them immune to the vagaries of the pricing environment. “As a toll processor we don’t take that commodity price risk, so we like to think we sleep better,” says Gonzalez. “But the reality is our customers are buyers and sellers of steel, and if they’re experiencing inventory pain, it inevitably trickles down to us at a much lesser degree.”One way it does is through more sporadic activity. “I think with some of the price uncertainty we’re seeing, some of the traditional toll business is a little slower than we’d like it to be,” says Will Thomas, president of Colonial Slitting Industries, Weirton, W.Va., which operates two facilities. Moreso than pricing, the biggest challenge the sector faced last year was remaining staffed, a problem that is carrying over into 2023 for some operators. “Everyone in every business in all sectors has people issues,” notes McAvoy. These people issues aren’t easy to solve. “There’s no school where five or six guys can go and they come back and know how to run slitting lines. So we work internally to grow our individuals to meet the needs we have from our customers,” Young says. Perhaps no one has suffered the employment drain as dramatically as Accurate Metals Slitting Corp., a Brooklyn, New York company. The struggle to find employees has Accurate looking to move some of its slitting equipment to its Florida location. “We’re hands on doing the narrow slits, but we can’t do the full volume because of the help,” says Michael Duffin Jr., president. “I wish things were different, but I don’t see things getting better, at least here in New York.”Things have gotten better in Michigan, Sobeski says. “The labor situation has worked itself out, at least for us it has. I know everybody fought that battle for a while.”The labor issues have myriad effects. “There is a bit of a balance to maintain the high level of productivity and keeping guys as fresh as possible,” Young says. “They all like to make money, but you have to be sensitive not to burn your guys out.”Continued shortages can and will lead companies to look to more automation, often against their preferences. “More robotics, less bodies. I don’t like that world. I like human beings. Sadly, we just don’t have enough of them who want to work,” says Burnette.While toll processing is a relatively stable industry, there is one major change occurring. Once dominated by Midwest and Northeast players, many processors have followed the steel production community down south, often locating on a mill site. This will only accelerate in the coming years as additional steel capacity comes online.“I think you’re going to see the South become the new Midwest. It’s fun to watch, seeing these guys coming up with new equipment, bigger and heavier,” says Messinger. “Congratulations to the guys putting their footprint down there.”Ferragon fits that bill in a number of ways. Its newest facility is located on the campus of Steel Dynamics’ facility in Sinton, Texas, which followed a previous operation in Iuka, Miss. Ferrous85” Co. operates what it calls “the largest slitting line in North America” there, an 85-inch wide line capable of handling coils up to 105,000 pounds. “We’re having a nice ramp up as the mill continues to work out kinks in their mill. We have a nice relationship with SDI down there.”
Co-locating with a mill is indeed a prominent trend, though Adamski is confident there will still be a place for processors who want to be closer to the end user than the supplier. “For some of us in the Midwest and Northeast, there is still going to be that requirement. There will be as much partnering with end users as there is with steel suppliers.”Overall, most processors believe the valuable part they play in the metals supply chain will be secure for years to come. “We expect toll processing needs will increase long term. With qualified labor shortages, extended repair lead times and consumable costs on the rise, we’ve already seen some customers and service centers elect to idle lines. Whether it is temporary or permanent, it has led to an increased need for toll processing. We are adept at dealing with those struggles and have worked hard to limit all the challenges that many in the manufacturing space are dealing with,” concludes Ohio Pickling’s Burnett.
Employees at Ferrous85” examine slit coil. (Photo courtesy Ferragon)