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Capital spending plans: prudence tempers prosperity: generally, service centers expect to spend more on capital projects this year. Thanks to last year's record-breaking revenues and income, most are able to finance from cash flow.

Article Excerpt
Many metals distributors and processors find themselves with an unusually large bank balance, as a result of the industry's record profitability in 2004. Most plan to reinvest some of those funds in new facilities and equipment, to position their companies for the inevitable competition ahead.

Two of the big spenders in 2005 will be Reliance Steel & Aluminum Co., Los Angeles, and Chicago Tube and Iron Company, Chicago.

LOS ANGELES

Dave Hannah, chief executive officer of Reliance, says the company was more fiscally conservative during 2001, 2002 and 2003 when business conditions were tough. "That doesn't mean we didn't spend money. We probably spent on average at least $20 million" on capital improvements.

Excluding acquisitions, Reliance spent about $18.7 million in 2002, $20.9 million in 2003 and $36.0 million in 2004.

"This year, our budget is about $57 million," Hannah says. "The bulk of it is machinery and equipment. It's scattered all over the country. We are buying saws, slitters, levelers, blanking lines, burning machines and material handling equipment."

The purpose is to both replace obsolete equipment and to increase productive capacity. "In some places, we need to add some capacity. In other places, we need to update technology. We want to be as efficient as we can," he explains.

The next largest piece of the spending pie is for facilities--either building a new warehouse or expanding an existing one. For example, Reliance might add a shipping bay to a warehouse, expanding from 80,000 to 100,000 square feet.

"We do have some money in the plan for buildings and plants that we lease, and are exercising our right to buy them. We like to own our properties," he continues.

In a couple instances, "we plan to build newer, more state-of-the-art facilities and move our existing operations into...