NEW YORK Universal Stainless & Alloy Products Inc. has positioned itself to grow in "undersupplied" premium markets and will avoid the likely pricing "catfights" caused by capacity additions in the flat-rolled market, president and chief executive officer Dennis Oates said.
The Bridgeville, Pa.-based company is in the middle of ramping up the North Jackson, Ohio, plant it acquired in June 2011, conducting up to 144 heats on its vacuum induction melting (VIM) furnaces in 2012 while adding more vacuum arc remelt (VAR) furnaces in the second half of the year.
The ramp-up will give the company "an opportunity to get into markets we couldnt service before," with the VIM furnaces producing 10 different alloys over 2012 while the forging plant adds further capabilities, Oates said in an interview with AMM. "You can produce a piece in eight minutes on that forge, which gives us shorter lead times that we can take to market. It also cuts out outside forging work we were doing, so that profit we were sending to someone else now stays with us."
The object of the expansion is to position the company to capture a greater share of markets that "have really solid long-term growth fundamentals," such as aerospace and oil and gas, Oates said.
"With aerospace, youve already got seven to eight years of backlog," he said. "I also personally find it hard to believe that Americans will fly around in 40-year-old airplanes while the rest of the world flies around in brand-new airplanes, so I believe theres a second wave of demand out there in the next 20 years."
So, too, the oil and gas market should continue to yield solid demand, Oates said. "My view is fossil fuels will still provide the majority of our energy 30 years from now. I dont see renewables being more than 15 to 20 percent of global energy supply by then."
The upshot is an increasing demand for premium, specialty stainless alloys that supports a growth in capacity, Oates said.
"On the premium side, its an undersupplied market if you look at the needs out there; its not a case where youve got double the capacity needed and its going to get worse," he said. "When you look at the flat-rolled side, its hard to look at all that capacity and think there isnt a catfight about to emerge thats going to lead to lower pricing, and Im not in that business."
However, the company did endure a difficult 2012 that concluded with a 24.2-percent drop in sales and a 74.6-percent plunge in net income in the fourth quarter (amm.com, Jan. 29).
"This industry is very cyclical, and I think were seeing that now. It isnt that Boeing (Co.) stopped producing airplanes; its that there was too much in the supply chain, and you get a bit of indigestion where things slow down a bit," Oates said.
"As we moved through the second half of the year, we saw that hit all the mills50 percent of our business is in distribution, so it hit us first. As we got into the fourth quarter, all the uncertainty around the fiscal cliff just amplified the conservatism out there in the marketplace, to the point where in December some parts of the business just stopped," he said.
Oates said business had already picked up noticeably in January, citing an industrywide 60-percent sequential rise in monthly aerospace bookings, but he acknowledged that destocking will continue to cause headwinds in the first quarter of this year.
"Most of those folks are telling us they need until March 2013 to get comfortable," he said. "Well start to see some improvement, and then well have one of those weird years where the second half of the year is better than the first half."