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Bar wars: SBQ majors locked in price battle

Aug 22, 2013 | 04:57 PM |

Tags  Special bar quality, service centers, competition, price war, A.M. Castle, Earle M. Jorgensen, EMJ, Reliance market share

CHICAGO — Buyers of special bar quality (SBQ) products say national bar distributors A.M. Castle & Co. and Earl M. Jorgensen Co. (EMJ) are locked in a furious fight for market share in several major urban centers east of the Mississippi.

"They have a battle going on in Cleveland that is unbelievable," a source at one bar processor said. "We’re 60 miles away and it spills back here. We quote, say, $100 and they quote $60, which is below their cost. When things slow, they panic."

"The two big boys are duking it out," a source at a cold finisher in the South told AMM. "With the market down, I understand what they’re doing but ... this is not good business practice."

"Castle and EMJ are going after each other, and they’re competitive in every city they share," said a source at a national competitor based in the Southeast.

A few sources said that two other major distributors also are in the price war, depending on the city. "They all are aggressive. They’re not low-cost service providers so you scratch your head and hope that demand will save the situation," an SBQ reseller said.

The fight is creating a ripple effect, the Southeast-based distributor source said. "Customers ask us, ‘Can you match this number?’ Sometimes you will and sometimes you won’t. You have to be within the pack on pricing, which means that pricing is weakening."

"We’re not seeing any price wars in distribution, per se, but EMJ and Castle are fighting for the cold-finished market," a source at a Great Lakes processor said.

"In the Cleveland area, I don’t know how the Castles and Jorgensens will survive," a source at a small regional competitor said. "Little guys like us can pick away at them. We have lower overhead. We take the gravy away."

Another bar supplier source agreed. "Smaller players can still make money because we’re more flexible. It takes a long time to process a large inventory out. Castle carries so much inventory and they have the carrying costs. We have a lot of steel for our size, but we can turn it quickly," he said.

A.M. Castle chief commercial officer Steve Letnich told AMM Aug. 22 that competition has been harsh "for anybody in the service center industry. The way the market is today, it’s not just the national distributors. There are so few orders that people are scrambling to take opportunities. In our business, this is compressing margins significantly."

The only improving end market is automotive, Letnich said. "Everybody else is just OK to barely getting by." This lack of growth feeds "the fervor to take and gain market share. We’re not taking new business; we’re taking share from each other. That results in lower prices."

Oak Brook, Ill.-based A.M. Castle has closed five locations this year, and Letnich said that additional sites are under review. "Historically, Castle never looked at pure geographic standardization. We have facilities close to one another. Arguably, they should have been consolidated long ago. We’re getting to it now."

It’s not purely market weakness dictating such decisions. "Even if business was booming, there is justification to consolidate facilities in one geography," he said.

Executives keep working to lower the high-cost platform under which Castle has been operating. "(The company) is a sleeping giant. We have a great footprint and value, great relationships in the market, and a lot of great people," Letnich said.

Executives of Los Angeles-based Reliance Steel & Aluminum, which owns EMJ, could not be reached for comment.

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