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Toll processing in state of transition: although intermediate steel processors admit the industry is changing, they are confident that demand for their services has longevity. Most expect a stable and modestly profitable 2005.

Article Excerpt
The historic consolidation of Big Steel is shifting the prospects for toll processors--some predict positively, others fear negatively.

"The consolidation creates more stability, but we don't know if it means increased or decreased volume of processing tonnage," says Fred Weddington, director of toll products for Worthington Industries Inc., Columbus, Ohio. "Some processors may lose out if a merged company, in order to reduce internal costs, decides to streamline its list of service providers," he warns, "but demand remains the same."

Weddington predicts the dynamics of the toll processing industry will change over the next few years, but not until the producer consolidation settles down. Mergers and acquisitions may begin occurring among toll processors next.

Gary Corson, toll processing manager for Olympic Steel Inc., Cleveland, sees the market shifting already. "Whereas the mills did a lot of the outside processing, now the end-use customer will be doing it. So the customer base for the [toll] processing industry is changing. The steel is ending up in the same place, but the entity that's paying for it has changed to manufacturers as opposed to steelmakers."

Douglas R. Bernd, vice president of outside processing for Mi-Tech Steel Inc., Louisville, Ky., says the full effect of mill consolidation has yet to be seen. In general, the remaining large integrated mills are concentrating on sales to automotive and appliance makers. Minimill giant Nucor has stepped up to fill the gaps in what were formerly integrated markets, choosing them selectively to fit their business plan, Bernd says.

"Processing is not going away, but it is in a state of transition," he adds. "I hope we will see more tons. I don't think the changes among producers will bode poorly for processors. I think there are a lot of opportunities."

Toll processors live on the rise and...