The steel service-center industry is a valuable resource to the forging community. Those who supply steel to forgers suggest that the need for steel consumers to incorporate a steel service center into their supply management strategy has never been greater.

Spacious warehouses and large inventory help keep forgers supplied with steel.

We have seen a number of changes take place in the steel industry since Turret Steel Industries started doing business in 1970. The changes we observed since the 2000-2001 recession and most recently since the 2008 global financial crisis have changed the steel industry significantly – possibly for many years to come.

From the late ‘90s through to the 2000-2001 recession, we saw the continued consolidation in the steel industry on a global scale and a significant number of steel companies file for bankruptcy. Concurrently, we saw steel prices drop to record low levels in 2002, then rise to record high levels in 2008. We saw the advent and implementation of raw material, alloy and energy surcharges in 2004. At present, there are approximately eight surcharge mechanisms associated with steel base prices.

Globally, we were advised for years that China would be a major force in the steel industry, and we have seen China’s annual raw steel output increase from 150 million tons in 2001 to over 500 million tons in 2009. At the same time, we have seen China (as well as countries such as Turkey, South Korea and India) become major consumers of scrap exports from the U.S. As a result of these many changes, the business model that was used for many years in the steel industry has changed (volume-driven to now profit-driven), and we must all find ways to help us remain competitive and take more control over our sourcing strategies.

What is interesting about 2010 is that in a year in which recovery has been slow and gradual, we have seen continued volatility in steel input costs, multiple base-price increases and lead times that are extended beyond comprehension for the level of business that we see in the marketplace. Certainly, automotive has continued to recover, but who would have thought that an 11.5-12.0 million vehicle sales year would generate the level of activity that it has in the steel industry in spite of continued softness (with few exceptions) in so many other important market segments?

Sawing steel bar to specified lengths is one of the services offered.

Tough Questions, Complex Answers and Changing Times

In 2009, the steel industry suffered as capacity utilization rates fell to below 50%, and most companies lost money. Although utilization rates have improved significantly in 2010, they are still below optimum levels for sustained profitability. One might then wonder why present scrap prices and overall steel prices aren’t lower if business levels and real demand for steel bar products only continue to improve slowly and the industry has available capacity. If we are exporting less scrap year-to-date through June 2010 than in 2009 or in 2008, why hasn’t there been excess scrap supply in the marketplace that would drag the price of scrap downward?

The answers to these questions are obviously complicated in practice. However, the simple answers are that everyone is managing their business much tighter, there is clearly more pricing discipline in the market (more centralized decision making than divisional at the mill level) and everyone has been able to adjust to lower operating levels. They are learning how to be profitable producing less volume.

Gone are the days of the scrap industry continuing to buy scrap without understanding the potential demand for their products. Similarly, the days when steel producers just produce steel inventory without firm customer orders are also gone. Both industries will monitor demand requirements and adjust their output accordingly to ensure that they can remain profitable.

In the scrap industry, I suspect that everyone from the small dealer to the mega-supplier regularly takes a strategic market position. If consumer scrap selling prices are lower than what they feel represents a fair profit, they may not want to sell certain commodities. If the buying price is low, however, they may want to buy and hold in anticipation of rising prices in future months.

Turret Steel Industries’ warehouse and service center in Warren, Ohio.

Supply, Demand and Pricing

In the steel bar industry, it is probable that steel manufacturers will remain cautious about bringing on additional capacity only to have to ensure that their mill remains full in a market whose recovery is slow and uncertain. Problems associated with resulting extended lead times depend on which side of the fence one is on. Looking at the recent mill base-price increases that took effect in September 2010, most were surprised by the amount (not the timing) of the increase based on the relative level of real demand that seems to exist in the forging and other markets.

The $40 per-net-ton increase is the third one in 2010 and a very aggressive pricing move. Given this pricing environment, a steel service center that focuses on buying at the right price and works with all mills on a daily basis could be a valuable asset to a forger trying to lock in competitive raw material prices. There is a cost associated with the services that steel service centers provide. Due to the rapid changes in steel costs, however, there are times that a steel service center can protect a forger from these unforeseen price increases by having inventory purchased at a lower cost. For the steel industry in general, the temptation to raise base prices based on extended lead times will always exist. In all likelihood, the days that the steel consumer can drive the selling price of steel to unprofitably low levels for steel producers and keep them there for extended periods are gone.

The problem for the forging industry is that extended lead times and late deliveries can cause disruption in the supply chain, which can add unnecessary cost in an already difficult market. This, in addition to the continued volatility in the marketplace as it relates to scrap and alloy costs, makes it nearly impossible to understand what the delivered price will be. These are difficult business conditions for a forging industry that has been historically forced to commit to longer-term fixed-price agreements.

A flat-bed truck is being loaded with a customer order.

Supply-Chain Management

In this economic environment, certain compelling questions emerge. What are you doing in your supply-chain management to help mitigate the effects of a complicated and volatile marketplace? What supply strategies are you employing that can help offset or dilute some of the risk associated with volatile pricing and extended-delivery lead times?

Since 2009, one of the biggest challenges our company has had to meet is trying to understand what inventory to purchase for our customers in the absence of firm order commitments from them. Everyone recalls the pain the industry went through in late 2008 and early 2009 due to high inventories and high cost of goods in a market in which selling prices could not support these costs. It is a difficult challenge to estimate steel usage requirements 3-6 months out (based on current mill-delivery lead times) when neither we nor our customers have any idea what the price is going to be. Nonetheless, this is something I suggest we both try to understand. Furthermore, we should more openly discuss how we can better partner with each other in an effort to keep costs down.

Realizing that this would not be an acceptable strategy for every forger or for every application, if you have regular ongoing business it may be in your best interest to push off some of the risk associated with uncertain lead times and steel costs onto a competent third-party steel service center. The steel service industry has a number of different business models designed to suit specific customer needs that can be of assistance to any consumer of steel bar products.


It is easier to implement a sourcing strategy involving a steel service-center provider when costs are rising rather than falling. However, since the beginning of 2008 through 2010 (and in the coming years as well), having a reliable, competent and financially stable steel service center involved in your business will complement your own business model and provide a significant advantage to your operations.

Steel service centers offer many special services. These include bar turning, straightening and saw cutting/shearing for first operation-ready blanks. Heat-treating services are also provided, along with custom inventory stocking and just-in-time shipment programs designed to help the forging industry control its overall inventory costs. The more information a client is prepared to share with their steel supplier, the better equipped they are to assist them in their steel sourcing needs. We are a service industry that can help, especially in these complicated and difficult times!

For further information, please contact Wendell MacDonald, Turret Steel Industries, Inc., at 800-245-4800, or Wayne Gould, president, 800-951-4140,

SIDEBAR: A Closer Look

Turret Steel Industries is a stocking distributor of special bar quality carbon and alloy steel bars in a variety of shapes, including round bar, squares, flats, round-cornered squares, hexagons and billets. Special services such as bar turning, straightening, saw cutting/shearing and heat treating, along with custom inventory stocking and just-in-time shipment programs, represent the focus of some of the services Turret Steel provides to the forging industry.

Wayne Gould is the second-generation owner and president of Turret Steel Industries, Inc. and Sunbelt-Turret Steel, Inc.