Secondary Steel Has Done Well

September 22, 2003
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CASCADE TOWNSHIP — Trying to stay lean is tough to do when the cost of materials rises.

Manufacturers who produce with steel know that all too well.

Steel prices rose radically last year from the previous year. The average world price for a ton of hot rolled coil went from $247 in December 2001 to $342 in January 2003, a jump of 38 percent. Cold rolled coil, the choice of furniture makers, climbed from $315 a ton to $420 a ton over the same period, a 34 percent rise. Hot or cold, neither was a "steal."

Although worldwide prices dipped in August, they remained historically high.

Hot rolled was selling for $333 a ton and cold rolled was at $424, both down $3 from July. Prices like those have driven some manufacturers to the secondary steel market, and locally the Alto Steel Co. Inc. has served that sector since 1987.

Alto Steel brokers and distributes steel from its office at 2828 Kraft Ave. SE.

It's a two-person firm with Guy Crawford and Simon Vallance as partners. Alto primarily deals with domestic steel, which accounts for nearly all of its business.

"We're not selling directly to a Steelcase, or a Haworth, or someone that is going to make parts for cars, or stamping plants. We deal with the people that sell to those people," said Crawford.

"We handle all the financing," he added.

Crawford characterized steel prices over the past two years as "extremely fluctuating." He noted that prices were low two years ago. But a year later, prices began to rise for domestic and imported steel.

"It rose dramatically throughout 2002. I think for the most part everybody, regardless of what aspect of the steel business they were in, enjoyed a pretty good year for 2002," he said. "But toward the end of 2002, prices started going down."

Crawford said business remained good at Alto through the middle of March when demand on the secondary market slowed and prices fell.

Prices were soft through the second quarter, but have begun to rise again over the past few weeks. But business can be good for Alto whether steel prices go up or down, as the firm can easily move in either direction.

"I like to think of ourselves, when it comes to pricing, as a cork in water," he said.

"If the water rises we just kind of rise with the prices. We are not inventorying a lot of material. We try not to, so we're able to fluctuate with prices much better than other people because what inventory we're sitting on is fairly minimal."

Alto Steel operates in what Crawford said was a small niche.

Secondary steel is not a design-flawed product. Nor is there anything wrong with its strength or texture. It may have a surface defect such as a scratch or rust or may have been mistakenly cut to the wrong size, temper or hardness. But others can use the product. And those who can, can save on their steel costs compared to what the product would fetch on the primary market.

"The material comes out from a primary-producing mill ordered by a steel-service center or a manufacturer," he said.

"We buy that type of material from people who have mill field claim programs, where they have a contract with a mill to buy this material that has been rejected out in the field. We have customers that can live with these defects.

"A lot of times the material is downgraded to secondary, but it's still like prime because it's only a gauge problem. We just sell it to someone who can use that thickness. Other than that, there is nothing wrong with the steel."

Crawford said he has sold a lot of hot and cold rolled coil, while Vallance has been selling galvanized coil that is hot dipped.

For the coming months, Crawford thought prices would continue to rise and might do so into early next year. He said prices have a tendency to dip in the summer, when production usually slows, and he thought that scenario could play itself out again next summer.

Crawford said prices rose last year because mills shut down, or were consolidated, and the supply of prime material was diminished.

At the same time, demand increased, so the mills got higher prices.

The tariff enacted by the Bush administration was also partially responsible for steel price increases because it made imported steel more expensive, thus allowing domestic producers to hike their prices.

Before the tariff, the U.S. dollar was stronger here than overseas, and foreign producers could sell their steel here for a higher profit than they could at home.

"The dollar was so strong it was like a built-in price increase for them," said Crawford.

"Compared to what the domestic mills were charging, some fairly inexpensive steel got in and a lot of people took advantage of that. And that brought the bottom out of the domestic steel mill prices."

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