How Do Service Centers Add Value in Today’s Market? Steel Warehouse, Berlin and Chicago Tube and Iron Weigh In

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I had the pleasure of attending the S&P Global Platts Steel Markets North America conference held recently in Chicago.

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The general outlook at the conference for steel markets in the year ahead was notably optimistic, although each of the initial speakers differed in who and/or what the audience should pay attention to in the coming months and years.

Conference keynote speaker, Herb Black, CEO of American Iron & Metal Company had his eyes on Turkey and its burgeoning scrap market. Timna Tanners, Managing Director of U.S. Metals and Mining at Bank of America Merrill Lynch, encouraged the audience to focus on China, while Beth Ann Bovino, Chief U.S. Economist for S&P Global Ratings, spoke to present macroeconomic conditions with a watchful eye on the current administration and potential post-election policy changes.

With a cautiously hopeful tone set — and others hearkening back with similar sentiments throughout the day — the final presentations within “Steel Service Centers—Value-Added Products in Competitive Markets” from Roy Berlin, President of Berlin Metals; Donald McNeeley, President of Chicago Tube & Iron; and Michael Lerman, President of Steel Warehouse were seemingly more anticipated by the audience.

Embrace (and Look for) Change — but Find an Identity!

Berlin began discussing how his company came into being, and how it has evolved over the years, with the hope that there “might be a lesson or two” to glean in examining Berlin Metals’ 50-year history.

He stressed that a willingness to change, was key in running a successful, and lasting,  service center  business.

“We pivot! We pivot hard. We’ve really changed the nature of our company in a dramatic way, because if we hadn’t, we would not have been in business,” Berlin said and encouraged, “You have to look for change and be ready to change.”

Berlin noted that finding an identity in the industry is key[310] .

“Decide what it is you’re going to do and do it well… No, do it great, actually… I think you have to have a passion to have an identity. So if I say to you guys, ‘peanut butter and blank,’ is anyone in doubt that the next word is ‘jelly’?” he said. “When I say ‘slip coil, light -gauge, stainless steel strip or tin-milled products,’ I want everyone to say, ‘Berlin Metals.’”

Value Add… and Doing More With Less

McNeeley followed, agreeing with the sentiment that niche players have a place in today’s market.

“Niche players don’t have the bureaucracy. They have captive markets,” he said. “They are nimble. They are quick. They are absolutely branded in their particular geography.”

On where to add value, he explained, “value-add is a euphemism for fabrication. What we’re all doing is more fabrication. We don’t want to sell steel, we want to sell parts that are made out of steel. The reason we use the euphemism is any distributor in the U.S., over 25% of our sales are to fabricators. How brilliant is the model to compete against your largest single customer segment?

“So you’ve got to be very careful because you’re walking the razors edge,” he continued, “…there’s going to be a shrinkage in the channel and we’ve got to represent a cost-effective solution (i.e. cost reduction to our end users). We’ve got to do more fabrication.”

McNeeley also said service centers have to interject more automation. He said they need to do more with less and they cannot drive input costs down any more. On output costs, McNeely said companies cannot get customers to pay a premium for the market, so the only thing left in that channel is “operational excellence… we now need to do more with less,” he said.

Tackle Your Internal Costs

Lehrman concluded the session by sharing that Steel Warehouse remains competitive by attacking its main internal costs: logistics, scrap, safety and healthcare. Highlighting that a focus on the health of your employees is key.

“We’ve invested in our own clinic, not on our property, but it’s free for our employees…free medication, (healthcare) access, because what we found was the biggest costs were the ones that we didn’t anticipate: that guy who never got a check-up now has stage 4 colon cancer,” he explained.

Speaking to opportunity going forward, one of the points Lehrman advised on was learning how to use and apply financial hedges where appropriate.

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“I don’t think there is any question that the market is going to stay volatile and I think the only way to begin to address that is by looking at financial hedges,” he said. “I know we have been taking advantage of it and I think it is going to be more and more important as we move forward.”

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