“Demand from service centres has been pretty good for the last couple of years, but not exceptional,” says Gene Buer, executive director of the crane group of Columbus McKinnon Corp., Amherst, New York. Bernd Forwick, product manager for cranes at Demag Cranes & Components, Cleveland, agrees. “Crane demand (from service centres) is at a high level and has been for about three to four years and if you believe market predictions it should continue to be strong at least through the first half of next year,” he says.
The nature of the demand is as diverse as the service centre industry itself. Many service centres and their crane suppliers attribute it to new and/or expanded facilities, especially near where either their steel suppliers or fabricator customers are building new plants. Others say it is more because of a need to upgrade the cranes in existing facilities. Whichever it is, backlogs for cranes destined to the service centres remain strong, at least for the time being.
This strength coincides with a generally strong steel service centre market in North America. While steel service centre shipments in the United States and Canada did fall back a little in June (the last month for which data was available at the time of writing) they had been inching up most of this year, according to data from the Metal Service Centre Institute, Rolling Meadows, Illinois.
In the United States 4.4 million short tons of steel (209.6 US tons per day) was shipped in June by service centres to their customers, up from 3.5 million US tons (174.1 US tons a day) in December 2006. In Canada, 311,800 US tons (14.8 US tons a day) were shipped in June versus 235,800 US tons (12.4 US tons a day) in December.
“Demand is good, not great, but people are buying. As far as I can see it looks good. I don’t see anything I’m concerned about,” says Lourenco Goncalves, president and chief executive officer of Metals USA Inc., Houston. Drew Childers, a spokesman for Huntington Steel and Supply Co., Huntington, Virginia, agrees, stating, “our sales were up quite a bit from last year, even with much increased competition from three service centres that are larger than we are – one of which opened a facility in our area. The demand for steel in our area has been high the last three to four years. There’s been a lot of major construction and major repair at several of our customer’s facilities.”
Canadian service centres are also doing quite well, says Wayne Davis, general manager of O’Brien Installations Ltd., Stoney Creek, Ontario, with those in the Ontario area bolstered by a non-residential building boom that has resulted the need for a great deal of structural steel. “There is also a big boom in western Canada coming from the oil and gas industry,” he declares. “The large structural steel suppliers say that they will be busy at least through 2008.”
Also, there is a lot of demand, especially for stainless steel with the push for alternative fuels, says Brad Bayerlein, product manager for Kenrich Industrial Inc., Waukasha, Wisconsin. “A lot of ethanol plants are being built. In fact demand is up for many other types of energy as well, including wind, nuclear and coal fired plants,” he says, which has increased business of not just service centres, but also its steel fabrication customers. In fact many crane suppliers have described the steel fabrication market, another market for cranes, as very hot.
There is some downward pressure, however, on steel service centres due to the bust of the housing market, says Bill Jones, president of O’Neal Steel Inc., Birmingham, Alabama, who notes that it has caused sales related to construction equipment and construction trailers to slow. And the housing market is expected to remain soft for a while – at least through this year and probably into at least the first half of next year. A significant increase in prime mortgage interest rates, along with the tightening of mortgage standards in subprime and other components of housing finance has resulted in the housing market continuing to be in a correction processing following the historic and unsustainable highs of the 2003-05 period, says David Seiders, chief economist of the National Association of Home Builders.
He declares: “Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market and affordability problems persist despite efforts to attract buyers.” It is also unclear what effect the recent mortgage meltdown that had adverse effect on stock markets around the world early in August will have on the economy including steel service centres.
There is also some concern that while military spending currently is strong, what the impact will be on service centres if there are some defense spending cutbacks, says Richard Milligan, president of Overhead Handling Systems Inc., Pinehurst, North Carolina.
Right now it is a mixed picture for steel service centres depending on what markets they serve and what part of country they are located in or are looking to locate in. Scott Carter, corporate general manager of operations for Heidtman Steel Products, Toledo, Ohio, observes that while there has been some moves by service centres, as well as toll processors and steel fabricators, to open up new facilities and expand existing ones in certain regions, particularly the southern United States, there are other areas of the country where the manufacturing base is declined and where a number of service centres are either consolidating facilities or closing some down.
The net effect on service centre demand for cranes is hard to determine. Some service centres have indicated that they are not necessarily buying new cranes but rather moving cranes from one location to another. But that isn’t necessarily that easy to do, says Carter. “They will do that if they can exactly match the crane width rail to rails. But the cranes that are needed in the south are generally larger, heavier weight cranes while the ones that have been used up north are often smaller cranes with lighter capabilities. They are not necessarily a good fit for the new location.”
Definite increases, and planned increases of steel mill capacity has been impacting service centre investment decisions, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pennsylvania, who notes that in addition to SeverCorr LLC, which is currently ramping up its 1.5 million US tons a year steel sheet mill near Columbus, Missouri, and has been attracting several service centres, independent processors and steel fabricators to locate either right on its campus or nearby, while other mills are also adding capacity. For example, Charlotte-based Nucor Inc. has had a brownfield expansion at its Berkeley, South Carolina mill and plans to open a 850,000 US ton special bar quality (SBQ) mill in Memphis, Tennessee, early next year.
Steel Dynamics Inc., Fort Wayne, Indiana, has also been growing its capacity, most recently announcing that it was expanding its structural steel and rail facility in Columbia City, an expansion that is expected to be up and running by the end of 2008. Also there has been an expansion of the steelmaking capacity at California Steel Industries Inc.’s Fontana, California, facility as well as plans for two steel mills down the road – a 4.1 million tonne a year flat rolled steel and stainless steel mill by Germany’s ThyssenKrupp AG in Calvert, Alabama, which is slated for 2010 and a slab mill being built by Minnesota Steel Industries LLC, St. Paul, Minnesota, and is expected to come on-stream in 2009.
Heidtman is in the process of building a new facility – to be initially 240,000-250,000 square feet but could be expanded at a future date – on the SeverCorr campus, says Carter, adding that the steel service center/processor, plans to order six cranes for that facility, including four 38 US ton capacity cranes and two 50 US ton capacity cranes, probably in September. No decision on a vendor has been made yet, he says, adding that while Heidtman has a long-standing relationship with Zenar Corp., Oak Creek, Wisconsin, the company is also looking at some other crane suppliers, including Virginia Crane, Ashland.
Carter says the company is also considering building a second facility – either in Mississippi, also on the SeverCorr campus adjacent to the other building, or in Butler, Indiana, near Steel Dynamics’ flat rolled steel operations. That facility will likely have three 38 US ton cranes as there would be need for larger ones. “If we choose Mississippi it will be adjacent to the other facility which has large cranes. We will be able to handle the larger coils there and do the finishing work in the second building. If we build it in Indiana the coils aren’t as large so 38 US ton cranes will be sufficient,” Carter explains, adding, “both are growing companies so they would be good locations.”
As far as its motivation for building on the SeverCorr campus, he says, “Heidtman currently doesn’t have a major footprint in the south and that is a major growth area for steel consuming end markets, particularly on the hot roll side,” and it is consistent with the company’s past thrust of locating near high-quality, low-cost producers, if for no other reason than to save on freight. “Freight is a high cost item for us.”
Heidtman isn’t the only steel service centre building on the SeverCorr campus. Houston-based New Process Steel announced in mid-July that it would be building a 150,000 square foot facility there as well.
Other service centres are also expanding. Goncalves says that Metals USA has expanded its New Orleans; Langhorne, Pennsylvania; and Germantown, Wisconsin, service centre locations, although he would not go into details as to what that meant as far as increased crane purchases other than stating, “if business is doing well it could equate to expanding facilities and buying more cranes.”
Dennis Derringer, corporate manager of operations, says steel pipe and tube distributor Marmon/Keystone Corp., Butler, has recently opened up two new facilities – one of which resulted in the purchase of new cranes while the other did not – in an effort to move closer to its customers. At its new Little Chute, Wisconsin, service centre location, which it opened in April, Marmon/Keystone installed four Demag cranes, but when it opened up a facility in Rochester, New York, last July it did not buy new cranes, as it was an existing facility. It did, however, add three Konecranes units when it expanded its Bucyrus, Ohio, facility, Derringer says.
Demag dealer Facilities Engineering, Anaheim, California, has been growing along with Reliance Steel & Aluminum Co., Los Angeles, and other growing service centres in the southern California and Southwest, says Vincent Baroldi, sales manager for the company, which, while admittedly a regional player, has supplied cranes to Reliance facilities all across the country.
The cranes they supply Reliance and other service centers, he says, varies from 10-15 US ton cranes for bars and beams and other long products to 35-40 US ton cranes for coil handling. Also, he notes, the capacity of the crane varies by the service centre location’s transportation capabilities. “If they have rail access and can ship larger coils they might install higher capacity cranes. It is better for them to buy larger coils. It is a cost savings for them,” he explains.
As far as the number of cranes per new facility, it varies greatly, Baroldi says. “It could be anywhere from two to four to eight to 10. There is no typical number. It depends on the size of the facility and what they want to do there. But in general they aren’t buying just one crane at a time.”
But just because steel service centres are growing, it does not mean that they are also buying a lot of new cranes. For example, despite its explosive growth in the past four to five years Esmark Inc., Chicago Heights, Illinois, has not purchased any cranes, says David Brewer, vice president of operations at its Sun Steel unit. That, he explains, is because the service centre chain has grown by acquisitions, not greenfield or brownfield expansions.
Another source of crane demand is in upgrading cranes with steel service centre profits being fairly good during the last few years, giving them money in their pockets to invest in capital improvements. This is the case at Huntington Steel, Childers says, noting that the service centre has been replacing old, worn out cranes, and, as a result, has increased its crane purchases 200% this year. In addition to having the money to spend up upgrade, he says one reasoning could be that the service centre’s increased workload has resulted in increased crane usage. “Also over time, workers will misuse cranes and will cause need for repair and replacement,” he says.
In addition, Plummer observes, there is a clear trend in the steel industry toward heavier coils. “Several older service centre facilities have lower weight capacity cranes. They might need to adapt and replace them with new, higher capacity cranes,” he says. Gene Buer agrees, noting that in an effort to be more responsive to their customer needs, many service centres are indeed turning to higher capacity cranes. “It isn’t unusual for them to order 50-60 US ton cranes versus 40 US ton cranes a few years ago.”
The trend toward higher capacity cranes is not just occurring in flat-roll service centres. Childers says that Huntington Steel is currently adding a crane in one of its work bays to be able to hoist bigger, heavier beams due to a larger scale of commercial building project that it has under way.
In many cases service centres are not upgrading whole new cranes, but different crane components, such as new hoists, bridges or end trucks, observes Gary Cox, crane operations manager for CraneVeyor Corp., South El Monte, California. “They are looking for new capabilities, including, in many cases, adding radio controls,” says Robert Windsor, vice president of business development for Mazella Lifting Technologies, Cleveland, explaining, “as radio controls are remote, there is no swinging cord from the crane. Workers can stand away from the crane, which increases safety. They are also more ergonomic and easier to operate.”
“This has been as good of a period as I have seen it in a number of years for the industrial and overhead crane business, including for service centers,” declares Milligan, noting that sales to service centres have accounted for a substantial portion of the crane market for the last several years. In fact, Forwick estimates that about 20-25% of Demag’s cranes are sold to service centres.
“I’m very satisfied with the current level of business. I just hope that it keeps up,” Davis says. But there is some question if it will. Buer predicts at least a moderate softening. “A lot depends on what happens with the US presidential election and with interest rates,” says Bayerlein. “If interest rates stay steady for the next six to 12 months service centre business will remain strong,” he predicts.
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