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Processors pay a price for producers'' problems: in the face of erratic and unpredictable volume from struggling mill customers, some toll processors are adapting by dealing more directly with end-users. (Toll Processing Outlook 2003).

Article Excerpt
In a climate of extreme and opposing market pressures, toll processors are working to redefine their businesses--and even their customers.

Many outside processors--who work for steel producers by servicing coils bound for large mill-direct purchasers--have found themselves on the losing team as their mill customers close or file for bankruptcy.

"Historically, most of our business had been with Bethlehem. This past year has been anything but that. Our customer mix has shifted radically,' says John Van Proyen, chief financial officer at Chicago Cold Rolling LLC, Portage, Ind., which is owned by Bethlehem Steel Corp. "Some of our biggest customers did not exist for us a year ago. We actually had months that were virtually 100 percent third-party [orders]."

The company is obtaining more and more third-party or end-user business, Van Proyen says, and "we are counting on continuing an alliance with those newer customers."

Last year at Indiana Pickling & Processing, Portage, Ind., the volume in the strongest month was more than double that in the weakest month, notes President Chuck D'Alessio. "That's a difficult way to run a business. It's hard to service customers when the demand changes so quickly, drastically and without notice. The communication between the customers and the processors is paramount."

Although bankruptcies and liquidations among steelmakers produced "frightening financial ramifications" for others in the supply stream, material continues to flow from plants under different owners, D'Alessio says. "As long as somebody is using steel, and we can provide a function from the producer to the end user, we'll just be dealing with different people."

Another lesson learned by processors is that close attention must be paid to accounts receivable and the creditworthiness of customers.

"We are concerned about [the financial health of] Bethlehem and National. We have limited our exposure as far as accounts receivable from them, and have entered into some different credit terms, just to ensure that we won't get stung like we did when they filed Chapter 11," says Pete Adamski, general sales manager for Taylor Coil Processing, Lordstown, Ohio.

Although Taylor's 2002 volume exceeded...

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