Manufacturers Turn to Niche Players in the Metals Market

Even in the face of increasing demand and diminishing supply, today's specialty metal suppliers utilize numerous internal advantages and external resources to place small and large volumes of specialty metals into the hands of manufacturers in a timely manner at predictable price points. As a result, manufacturers can maintain production schedules and stay within budget in order to retain competitiveness within their particular market.

Demand Outstrips Supply

A number of factors account for the current challenge that manufacturers face in obtaining raw metals, not the least of which could be referred to as the "China Syndrome."

"China is in the midst of a construction and durable goods building boom – all of which uses steel, which accelerated since they were awarded the Olympic games," observes Tim Grady, chairman and CEO of consulting firm NetMark International, Inc.

Some mills and downstream distributors have quoted delivery times of 80 weeks, an eternity in today's manufacturing environment.

At the same time, China plays a unique role in cornering supply, snapping up defunct steel mills from the rust belt areas of the U.S., putting them on barges to China, and then reassembling the plants with modern updates. To feed these mills, China sucks up huge quantities of scrap metal from all over the world. To a lesser degree, India's booming demand for goods also contributes to the migration of scrap and specialty metals to the Far East, further upping demand.

With the resultant shortage of scrap metal, steel in the U.S. has to be made from newly mined ore, which is more expensive than charging the furnace with scrap. This process also requires coke, made from coal, and coke prices increased 36.2% in 2005. "These factors hit about the same time, so we saw some rapidly accelerating prices for steel, stainless, nickel and titanium, that have not abated much," Grady says.

By some accounts, metal commodity prices have risen by 180% in the 2002-2006 time frame. As an example, the spot price of nickel alloys on the LMA in 2005 hovered at approximately $25,000 per ton, whereas current prices run about $40,000 per ton. Over the same period, titanium jumped from $15 to $60 per pound at its peak. For manufacturers, price creep is bad enough. Even more insidious is the damage wreaked upon a production schedule because of delays in obtaining materials. Some mills and downstream distributors have quoted delivery times of up to 80 weeks.

"When you run short of key materials, you have to adjust production, which can idle workers, machinery, and output," Grady says. "This has a major ripple effect on price, efficiency and delivery. Clearly, the manufacturer has to make up for the lost productivity and increased cost, and the likely way is to amortize it across the product coming off the assembly line, which creates a price competitiveness risk."

Deadlines Met

Like an agile running back, a new breed of specialty metal suppliers is managing to out-flank some of the more traditional heavyweight distributors. Chalk up their success to an approach that emphasizes solutions-based deliveries.

The key to any niche supplier's speed is the relationships it maintains with mill sources and suppliers of raw materials. By some accounts, metal commodity prices have risen by 180% in the 2002-2006 time frame.

"When opening discussions with any potential client, the primary function of a metal supplier's staff should be to find what the customer's real needs are and the entire scope of the issues that drive those needs," advises Lew Weiss, president of All Metals and Forge. "I've been in the industry for 47 years, and I can tell you that the days of merely ‘filling orders' are numbered."

Counting itself as a niche supplier, Parsippany, NJ-based All Metals & Forge comprises a combination of steel service center, forge facility, custom melt operation, custom bar producer and information resource for OEMs. The company is ISO9001:2000/AS9100 and EN9100 registered and certified since 1994.

"One of the things that makes a supplier like All Metals unique is that they are global in scope. They draw materials from all over the world, process them as necessary, and then deliver them quickly to the manufacturer," Grady explains.

In this manner, niche suppliers take on a greater role in inventory management, stocking a wide variety of frequently requested metals such as stainless PH grades and tool steels, along with alloys of aluminum, carbon steel, cobalt, magnesium, molybdenum, nickel, tantalum, titanium, and tungsten. In some cases, delivery times can be reduced from one year down to eight to 10 weeks.

The key to any niche supplier's speed is the relationships it maintains with mill sources and suppliers of raw materials. Specialty metal suppliers also apply a global perspective to get the big picture on predicting the future availability of metals so that they can stock up in advance.

"What makes a niche supplier like All Metals & Forge singular is that they look to the future," Grady says. "They've mapped out the metals market all the way to the year 2010, and they are constantly lining up supply sources based on anticipated need, allowing them to lock in metal supplies and provide a more stable price for their customers, particularly on long-term agreements."

Besides getting a fix on expensive grades of material, some specialty suppliers provide additional value by custom melting materials to create extremely hard-to-locate alloys for exacting aerospace applications.

"The ability to create an alloy of metal, like Inconel 909, Udimet 720, Rene 41 or other oddball grade is pretty critical when you're dealing with an old blueprint from a U.S. government contract," Grady explains. "In one case, a defense company needed to manufacture a tank part, but the date on the print was 1954 and the material was no longer produced. They only needed a small quantity, so a mill wouldn't touch this requirement. But All Metals & Forge could do it because they melt as little as 250 lb up to full mill heats of an alloy."

In-house forging operations including rolled rings and custom hand-rolling of bars in shapes such as round, flat, square, hexagonal, plus custom shapes and in-between sizes not available from mills or large service centers, is another advantage of specialty suppliers. Offering forms close to spec' tolerances helps manufacturers reduce the time and expense of turning or cutting bar down from much larger pieces.

"Custom hand-rolling is a secondary process that raises cost, but provides enduser savings because they don't have to machine down an oversize that creates a lot of material waste," Weiss says. "The finished product also has the improved structure and qualities of bar instead of a shape made from cut plate, not to mention significantly quicker deliveries all around."

Other added-value services customarily provided by some specialty suppliers include: cold and hot forming, heat-treating, cutting, machining, extrusions, and rolling and welding operations – all of which helps OEMs shorten the duration between receiving materials and turning out finished products. With a longarm reach, speed and maneuverability of a wide receiver, global specialty metal suppliers are increasingly establishing themselves as a valuable team player for any OEM.