Mill-owned service centers An idea whose time
has come, gone and come back again?
Wall Street hasn't jumped on the bandwagon
and most mills have found other ways to invest the profits
they've piled up in the past four years, when global metal
markets began their climb upward. But service center
executives, a number of whom aren't themselves crazy about the
prospect of mill ownership, aren't dismissing the idea out of
"Nothing's impossible," said David H. Hannah,
chief executive officer of Los Angeles-based Reliance Steel
& Aluminum Co. "We don't think it's necessary and we don't
think it needs to be done. At the same time, who knows whether
or not it will happen again?"
One reason distributors think mills could
eventually buy their way into the service center industry is
the mountain of money they've made since the global market for
steel and other metals turned around in 2004. Once they've
bought all the iron ore mines and fabrication plants they can,
the thinking goes, they'll want to increase their presence in
William Hickey, president of Lapham-Hickey
Steel Corp., Chicago, noted that producers have already
acknowledged the good value of service centers and they "don't
need to reinvent the mill" at the distribution level. It
probably makes more sense, he said, for mills to choose a route
along the supply chain that leads instead to large-volume
processing, as Charlotte, N.C.-based Nucor Corp. did when it
said earlier this year that it will spend between $115 million
and $125 million for a 500,000-ton-per-year sheet and coiled
plate processing center in Mexico.
Still, not everyone in the service center
industry is a doubter.
"I happen to be one of those who thinks that
it's going to happen," said John Campo, vice president of sales
and marketing at O'Neal Steel Inc., Birmingham, Ala., who
believes it's just a matter of time before "we see movement in
Campo noted that the historical pattern for
mill involvement in distribution had been for U.S. producers to
treat service centers not as profit centers but "as a dumping
ground for excess capacity." But the "rules have changed," he
believes, and the U.S. steel industry today has a lot more
foreign owners, some of them with "successful business models"
running distributors in their home markets.
Campo also thinks mill ownership would help
"shorten the supply chain, making it more efficient and
effective," as long as service centers continue to operate as
Reliance Steel's Hannah pointed out that it's
not easy to compare the performance of independent U.S. service
centers with mill-owned distribution operations in Europe. He
noted that detailed information normally isn't made public
overseas to the same degree that it's available in this
country. Given this lack of transparency, it nevertheless
appears to Hannah that, unlike in the United States, mill-owned
service centers in Europe are often used to move large volumes
of carbon steel to large buyers. A mill that's looking to pick
up distribution capacity in the United States would probably
also be interested in moving large amounts of its own product,
he said, and that might not be the best operating strategy for
running a service center with a diversified product line.
Eric Steinhauer, president and chief
executive officer of Industrial Metal Supply Co., a full-line
distributor in Sun Valley, Calif., said that successful
distributors have "an entirely different mindset" than mills.
"We're all about service, turnaround and making the delivery at
11 o'clock at night, if this is what's called for," he said.
This culture doesn't necessarily fit into the mill business
model, which thrives on orders scheduled "way in advance" and a
steady order flow.
Hickey said that he thinks producing
mills might find a better use for their money. "Maybe they
should put it away for a rainy day," he said.