The US service center industry is ripe for consolidation, according to the panelists who spoke Tuesday at Platts’ Steel Markets North America conference in Chicago.
Flack Steel CEO Jeremy Flack said the current abundance of independent service centers will be self-correcting, as thin margins caused by a lack of upward pricing momentum weed out all but the lowest-cost centers.
Banks’ preference for large and well-funded centers will also contribute to consolidation, he said.
“As service centers, we are waiting for the next big price rally to come and save us,” Flack said. “We’re in overcapacity, we’re having difficulty with our banks, we’re facing a market that’s dead flat and it’s just sucking cash out of the service center industry.”
Metals consultant Sandy Simon concurred, adding that the US service center industry is going to have to get leaner and more uniform.
“It has to consolidate. It’s inefficient as it is,” he said. “Large distributors from economies of scale are going to benefit greatly from this.”
The service centers that survive the coming crunch will find themselves in a much healthier business position, said Michelle Applebaum, managing partner for Chicago-based Steel Market Intelligence. Larger, more diversified service centers will enjoy increased buying power and leverage with the mills, she said. They also will be able to reduce redundancies in staff and overhead, leading to better margins and overall better balance sheets.