Preparing for construction and more business at Eagle Alloy

November 9, 2011
| By Pete Daly |
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John Workman and Mark Fazakerley are convinced that “reshoring” is real and that U.S. manufacturing is getting back on its feet — and they’ve got orders to back that up. Now they are investing in preparation for the return of some of the industrial production that had gone to China.

The two are the owners and managers of Eagle Alloy foundry in Egelston Township near Muskegon, where ground is being cleared for a 70,000-square-foot addition to the plant that already employs about 330. Workman said the company expects to add about 125 employees over the next two years because demand for that future production capacity “seems to be filling up rapidly.”

About 60,000 square feet of the addition will be dedicated to producing more castings for heavy equipment used in mining, construction and agriculture, but the other 10,000 square feet will be for reclamation of its own “foundry sand,” which in itself reflects increasing activity in U.S. oil and gas production.

Eagle Alloy buys foundry sand, which has been coated with plastic resin. It melts around hot iron patterns for making molds in which the steel castings are formed. However, the same basic sand, with some differences, is also used as “fracking sand,” which oil and gas drillers use in their wells for more efficient recovery of gas and oil — as much as 30 times more efficient, according to Workman.

Eventually, the sand-coating company in Illinois that supplied Eagle Alloy found it couldn’t keep up with demand from the oil and gas industry, and the profit margin on foundry sand may be less than fracking sand, Workman guessed. Taken together, those factors have reduced the supply available to Eagle Alloy.

The reclamation process Eagle Alloy will install will allow for the re-use of its foundry sand “nine to 10 times, we hope,” said Workman.

When asked if the foundry business in the U.S. is in full recovery, Fazakerley replied it would probably have to be taken “on a case-by-case basis.” He pointed out that commodity prices on metals are rising rapidly.

“Consequently, there is a lot of mining going on, after these metals. And we make a lot of heavy equipment that’s used in the mining process. That’s one of the main issues,” said Fazakerley.

Two of Eagle Alloy’s customers are Caterpillar and John Deere. Caterpillar, in particular, is known for its heavy equipment used in mining. John Deere, of course, is a huge supplier to the agricultural industry, which came through the recession in better shape than many other segments of the economy.

Deere has “not suffered so much,” said Workman, adding that its sales dropped about 10 percent in 2008 and 2009 while most other manufacturers saw sales fall by as much as 40 percent.

“They’ve got some new projects going forward,” which includes a new agricultural sprayer, said Workman. He and Fazakerley anticipate 2013 will bring “quite a bit of this new work.”

Eagle Alloy does mainly short to medium runs of steel castings of most types, with the exception of automobile parts. Automotive parts orders tend to be very large volumes.

In an interview with the Business Journal three years ago when Eagle Alloy was celebrating 30 years in business, Workman noted that he and Fazakerley had deliberately avoided the auto industry — and Fazakerley added, “From day one.”

“By design, we’ve never solicited or entertained quotes” from GM, Ford or Chrysler, said Workman in 2008.

Fazakerley said last week the other main factor driving Eagle Alloy sales is that “work actually is coming back from China. Not everything is going to come back, but a significant amount is coming back, and that’s part of our growth.” That work includes the type of steel castings Eagle Alloy specializes in.

“The Chinese workers have been averaging a 10 percent raise each year for several years now,” said Fazakerley.

“Chinese workers are only 20 percent as efficient as American workers, so five Chinese workers equals one American worker. When they are all getting raises, that’s starting to have a cumulative effect” on labor cost, he added.

Couple that with transportation costs and the increasing value of the Chinese yuan in relation to the U.S. dollar, and “costs (of manufacturing in China versus the U.S) are coming closer and closer together. They’ve gone from about a 50 percent differential to about 15 percent. In three years, they are forecasted to be the same,” said Fazakerley.

He said that prediction is from a presentation by Harry Moser of the Reshoring Initiative that Workman heard at a Steel Founders Society meeting recently. Moser, who was named in 2010 to the Industry Week magazine Manufacturing Hall of Fame, started the nonprofit Reshoring Initiative to help bring manufacturing jobs back to the U.S. by helping companies more accurately assess their total cost of off-shoring. Moser cites Archstone Consulting’s 2009 survey that showed that 60 percent of U.S. manufacturers use rudimentary models of total cost that ignore 20 percent of the cost of off-shoring.

Eagle Alloy now enjoys sales of about $65 million annually. A small part of that reflects revenue from a couple of other smaller, related businesses in Muskegon that Workman and Fazakerley own, according to Fazakerley.

Workman said the two-year construction project at the main Eagle Alloy site will represent an investment of about $14 million. Hughes Builders of Muskegon has been selected as general contractor. The addition will reportedly accommodate production of about $24 million worth of castings a year.

To encourage the expansion of Eagle Alloy and the resulting new jobs, Egelston Township applied for and got a federal Community Development Block Grant of $500,000 for Eagle Alloy to use in its purchase of the foundry sand re-processing equipment. The township also offered the company a PA198 tax exemption with an estimated value of slightly over $500,000.

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