I have always been a strong believer that the real truth of any situation can be found in the small nuance rather than the big picture. The big picture view of the service center market holds that it is only a matter of time before a handful of giant players command the entire market for metals distribution in North America. While it’s true the big are getting bigger, the small are also getting smarter, at least the ones in the North American Steel Alliance.
With NASA’s kind cooperation, MCN Senior Editor Dan Markham and I hosted an executive roundtable during the buying group’s board meeting last month in Scottsdale, where a dozen members shared their impressions of current market conditions and their expectations for 2013. NASA is the industry’s leading buying co-op with 115 members in the U.S. and Canada. In total, NASA members operate about 375 locations with more than $7.5 billion in annual revenues. By aggregating their orders with select suppliers, members earn valuable rebates. MCN will publish a full report on their comments in the March issue, but here are some of the nuances I saw in their observations.
Congress’ last minute New Year’s Day deal may have averted the fiscal cliff for the time being, but economic uncertainty continues to weigh heavily on the psyches of steel buyers. NASA panelists were reluctant to make forecasts for the service center sector in 2013 because so much depends on how quickly and how cooperatively the political parties can address the remaining economic issues.
The term “service center consolidation” is really a misnomer because it suggests the industry is getting smaller. In fact, the business is more competitive than ever, say NASA members. Large acquirers may have bought up many independent service centers in the past two decades, but they continue to operate most of the acquired facilities. In addition, very few competitors actually went out of business as expected during the recession, the panelists observed. Those survivors are right-sized and ready to fight for market share. In the meantime, the market continues to see startups as strong sectors such as automotive and energy attract new entrants.
Even after a couple years of gradual improvement, business has not yet returned to pre-recession levels for many service centers. Shipment volumes may have grown, but profit margins have not followed suit. Steel prices remain volatile and unpredictable. Distributors are reluctant to buy today when it might be cheaper tomorrow. But then they don’t really have to, say NASA members. With lead times from the mills as short as a few weeks, service centers don’t have to keep as much material in stock to meet customers’ current needs.
For the 115 NASA members, the co-op makes them part of a much larger marketing organization, while allowing them to retain their “advantage of independence,” which is the nuance they prize the most.