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Challenges abound even in a rising market: material's tight in the first quarter and flat-roll prices have climbed, which means thinning margins for toll processors. But demand forecasts are favorable.

Article Excerpt
While North American toll processors are optimistic that this year will be better than 2003, they warn it won't be without challenges--including tight margins and lengthening steel mill lead times.

For many toll processors, especially those with customers outside the automotive industry, 2003 was a hit of a roller coaster ride. While the first quarter started strong, demand dipped in March and April and didn't pick up again until well into the fourth quarter. By contrast, auto demand, the processors report, has been fairly flat.

"I am encouraged by the events since August, but it is too early to tell if this will be sustained or if it is just another blip," says John Amodeo, chief financial officer of Samuel Manu-Tech Inc., Toronto.

"I don't know why the market has been so much more active," says Eduardo Gonzalez, president of Ferrous Metal Processing, Cleveland. He attributes the rise to the general improvement of the North American economy over the past few months (GDP rose by 8.2 percent in the third quarter) as opposed to a pull from any particular end-use market.

One factor magnifying the pickup is that some customers, having worked down their inventories to very low levels, are now pulling ahead orders, especially those who fear steel shortages may last more than three months, according to Peter E. Adamski, general sales manager for Taylor Coil Processing, Lordstown, Ohio.

When steel prices rise, steel producers tend to get busier. That's just what's been happening, and mill lead times have already begun to stretch out, says David Detzel, sales manager for Voss Industries, Detroit. "There will definitely start to be some short-ages. Mill lead times have already extended to 12 weeks or more. That will make it difficult for smaller players to find steel in the market."

Another toll processor says it's already difficult sourcing raw materials, and that's being compounded by scheduling problems due to constrictions in freight options.

"Everybody is having trouble getting material," Gonzalez claims, and because of that, FMP's customers have been grabbing from their inventories. "The inventories I keep for our customers today are down 40 percent. They are turning...

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