In mid-November, headlines across the country trumpeted a forecast that would have seemed ridiculous just a few years ago: The United States could overtake Saudi Arabia as the worlds top oil producer by 2020.
That pronouncement from the International Energy Agency in Paris immediately stoked coast-to-coast discussions about U.S. energy independence, which analysts quickly corrected to net energy self-sufficiency. What seemed to be missing was any concrete idea of what that would mean for North American employment and economics.
Thats where Chicago-based Maruichi Leavitt Pipe & Tube LLC has seen opportunities open up. While the company says it always has been opportunity-driven, it also has been realistic as market cycles moved through both the steel sector upstream and the end-use markets downstream.
But the key development that let the company take advantage of the boom in pipe demandÑparticularly related to the news in the oil and gas sectorÑcame when Leavitt Tube Co. was acquired by Osaka, Japan-based Maruichi Steel Tube Ltd. in 2008.
Thanks to the acquisition, Leavitt was able to put into place an ambitious multi-million-dollar expansion plan to boost productivity and improve the quality of its finished goods. The new capabilities also will allow the company to pursue sales growth in fragmented markets while not becoming a direct competitor to the service centers and distributors that are currently its major sales channel.
Our target is not to become the largest in terms of tonnage but to become the highest-quality tubing supplier, said Takabumi Konishi, chairman and chief executive officer.
Maruichi Leavitt has a 740,000-square-foot manufacturing plant on a 46-acre campus in Chicago with a capacity of about 300,000 tons per year, and a 256,000-square-foot manufacturing facility in Jackson, Miss., which is currently idled.
In January 2012, we commissioned our new state-of-the-art midsized structural tube mill, director of sales Pat Knutson said. That mill replaced two others that were over 40 years old. It was the biggest investment we have made to date. He declined to specify exactly how much the new mill cost, but said it was greater than $15 million. It is far and away the biggest investment we have made since 1981, and it is long overdue, Knutson said. Maruichi came in as the new ownership just before the (global economic) crash, but their investment approach and their growth strategy have not changed despite the recession.
The new midsized mill makes rounds from 1.66 up to 5 inches and squares from 1.5 to 4 inches in gauges from 0.065 to 0.313 inch. Regional sales manager Mike Conces noted that making everything under the same roof is efficient, even if it requires a really big roof.
Leavitt decommissioned and removed one older structural tube mill in December 2011, just before the new midsized mill came into service, so there has been slow but steady turnover of space as the production slate has grown and changed. Another structural tube mill ran until August 2012 while the kinks were worked out of the new mill. That second old mill has since been idled but remains in place as spare capacity, although there are no plans to operate it at present.
The four tube mills at the Jackson plant, taken out of commission during the recession, remain idle, but Maruichi Leavitt has rented out the rest of the facility to the Fisher & Ludlow division of Charlotte, N.C.-based Nucor Corp. for bar grating. Previously, Leavitts biggest upgrade and expansion was at its largest tube mill, the W80, which makes sizes from 4 to 10 inches square with wall thicknesses of 0.125 to 0.5 inch. The biggest enhancement to that mill was the quick-change package that allows us to cycle sizes much more quickly and with much tighter tolerances, Knutson said. We put in a cassette system for forming and sizing that was in operation in January 2011. That was our largest piece of equipment and the first substantial investment in the current program.
Leavitt Tube & Metal was founded in 1956 by Dave Leavitt. The following year it began making tube with one slitter and two mechanical tube mills, selling into the furniture and housewares markets. The company added a structural tube mill to celebrate its first decade in operation, and a second structural mill was added in 1971. In its first international arrangement, Leavitt formed a joint venture with Dutch firm Estel in 1979 to build a large structural mill; that unit came into service two years later. The first geographic step was taken in 1985, when the plant at Jackson was built.
And so things stood for two decades, until New York-based Sumitomo Corp. of America took a 40-percent interest in Leavitt in 2005. A new milling saw was installed on the large structural mill the very next year, but that was just a taste. In 2008, Maruichi Steel Tube, one of the largest tubing manufacturers worldwide, acquired the 60 percent of Leavitt not already held by Sumitomo. In July 2012, in recognition of the investment and expansion, the company was renamed Maruichi Leavitt Pipe & Tube, and given a new logo and identity, distinct from Maruichis other global operations. The company also released plans to produce A53 Grade B tested pipe and API 5L specification pipe after upgrades to its largest structural tube mill, the W80, are complete in the first quarter of this year.
For its part, Maruichi Steel Tube predates Maruichi Leavitt by about a decade, having been founded in 1947. Maruichi developed a global business model by establishing manufacturing companies in China, India, Indonesia, Japan, the United States and Vietnam. With more than $1.5 billion in sales and total production exceeding 1.5 million tons annually, publicly traded Maruichi is one of the worlds largest manufacturers of welded steel tube.
In addition to Maruichi Leavitt, Maruichi has a subsidiary in Santa Fe Springs, Calif., which it has operated since 1974. Knutson said that the business by its nature tends to be regional, so the presence on the Pacific Rim and the Maruichi Leavitt operations in the Midwest and Southeast are independent each other. They tend to stay on their side of the Rocky Mountains, mostly due to the logistics of the marketsÑnot just downstream, but in terms of raw materials, he said. They buy coil and substrate from one set of suppliers, and we buy from a different set of suppliers.
Maruichi Leavitts customer base tends to be concentrated within 500 miles, Knutson said, but there is plenty of growth opportunity within that radius. Our competitive advantage is that we produce a full line and supply the complete range from small mechanical tubes up through 10-inch structural, he said. About 90 percent of what most service centers stock, we make, and at present about 90 percent of our sales go through service centers. That has been our main channel for the past 20 or 25 years.
If the present growth plans are realized, Maruichi Leavitt will see that service center ratio decrease slightly but without any reduction in sales or volumes. The plan calls for the overall pie to be grown through more direct sales to large customers who currently buy not from service centers but directly from competing manufacturers.
We are building our equipment and our capabilities, Knutson said, and then we will be able to build our business with sales direct to industry. I want to stress that we are not going to be competing with service centers. They have been our partners for many, many years, and we are going to continue to support them in every way. There is plenty of business out there that we have not even sniffed at, accounts we have never even quoted. Those are the ones we are going for.
That ambition can be seen in the enhancements to the equipment. Its not just capacity, Knutson said. We can make quicker turns, shorter cycles and better quality out of the new mills. Some of the new, direct markets that the new capabilities will enable Maruichi Leavitt to pursue include agricultural equipment and hitches for vehicles.
The companys No. 8 mill, which produces automotive-grade A-513 mechanical tube, began operating in the first quarter of 2012. Knutson noted that the mill is adapted for cold-rolled or hot-rolled pickled feeds. That will help our entry to the automotive market for door beams, seat frames and windshield wiper assemblies, he said.
The companys overall philosophy is that we will make investments for quality and reply to needs in the market, Knutson said. The new product lines put us into new industries. That statement might sound a bit like hubris, but Knutson pointed out that Maruichi Leavitt competes with the largest tube mills in the country. I would put us in the top five, he said.
Maruichi Steel Tubes ownership is helping Maruichi Leavitt expand, but not just because of deep pockets, Knutson said. They are the largest steel tube company in Japan, so they have a great deal of expertise. They have industry-leading knowledge of the automotive and oil and gas markets.
And for all the support from without, Conces noted that the parent company also has encouraged growth from within, especially fostering internal promotions. That is extremely important from an employee standpoint, he said.