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Red metals centers seen ripe for consolidation

Keywords: Tags  copper, brass, Thyssenkrupp Materials NA, Reliance Steel & Aluminum, William Sales, David Buhl, Metals Service Center Institute, MSCI copper demand

NEW YORK — The dynamics of supply and demand have made the copper and brass service center space ripe for consolidation, executives from Reliance Steel & Aluminum Co. and ThyssenKrupp Materials NA Inc. said.

"We have seen a fair amount of consolidation already on the mill side in this market, and if you look at the dynamics of where it’s happening in other metals—like carbon, aluminum and stainless—it makes sense for consolidation to happen in red metals, both on the service center side and the mill side," William K. Sales Jr., senior vice president of operations at Los Angeles-based Reliance, said June 20 during the Metals Service Center Institute’s Copper & Brass Conference in White Sulphur Springs, W.Va.

Midsize centers are most likely to benefit from consolidation, Sales said. "On one side, you have the big companies and then you have the small, niche companies. The ones in the middle are likely to feel the squeeze at times," he said, adding that mergers can also be a good option for family owned centers.

The demand side of the market also is likely to encourage consolidation, David S. Buhl, vice president at Southfield, Mich.-based ThyssenKrupp Materials NA’s copper and brass sales division, said.

"The size of the market is such that there just isn’t enough space for a lot of players," he said. "In some cases, the market is half of what it was and this will definitely force some consolidation. (For example) on the plumbing side of the business, some of the screw machine players feeding some of the bigger players just don’t exist anymore."

Increasing demands on service centers could also make it harder for smaller players to participate.

"The demands (on service centers) are changing every day. You have to raise your game a lot," Buhl said. "In the energy business, for example, some of the detail that is required of service centers is amazing, and we try to differentiate ourselves by providing these services."

The increasing demands could put centers in competition with their customers, which is something Reliance wants to prevent, Sales said.

But while North American demand in some areas has dropped, others have emerged to take their place.

For Reliance, specialty alloys for aerospace, as well as the energy market on the oil and gas and renewable energy side have been a leading source of demand.

However, while the growth in demand in oil and gas will continue, renewable energy without subsidies is unlikely to be sustainable, Sales said.

"One area that has been a disappointment is building infrastructure, but it’s on its way up," he said. "It’s still way below pre-recession levels, but we’re seeing improvement."

For ThyssenKrupp’s red metals segment, demand from automotive electronics has been a big part of its market. "In 2000, the copper content in automobiles averaged 25 to 30 pounds per car, but right now ... it’s about 50 pounds per car," Buhl said. "Automobiles are using more electronics, which use copper contacts."

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