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Service centers poised to loosen the purse strings: wary of over committing to capital spending as they entered 2007, but encouraged by a strong first quarter, many service centers are planning to follow through with extensive equipment upgrades.

Article Excerpt
WHEN THE MARKET FOR METALS took a turn for the worse in the final quarter of 2006, service center executives weren't the only ones to take notice. Equipment vendors were painfully aware of the shifting landscape.

"I didn't need to have a financial adviser tell me there was a change," says John Gehring, vice president of sales and marketing for Herr-Voss Stamco, Callery, Pa. "You just saw things slow down."

As steel inventories increased, prices dropped and margins shrunk, makers of coil lines, bandsaws and other machinery saw inquiries from service centers shrink as well. But today, both buyers and sellers of metal processing and material handling equipment see a more active market going forward.

"We see light at the end of the tunnel. We see projects coming back to life," says Gehring. "I like to think we've gone through the bottom."

When polled by Metal Center News in the fall of 2006, service center executives forecast a slight increase in capital spending in 2007 (see sidebar). That was before the softening late in the year, however. Nonetheless, executives contacted last month support the earlier survey's conclusions, indicating that they expect their capital expenditures to match or slightly exceed the previous year's.

As usual, one of the biggest spenders will be Reliance Steel & Aluminum Co., which budgeted $128 million for capital improvements in 2007. That figure is $20 million more than the Los Angeles-based service center company spent in 2006, though President and Chief Operating Officer Gregg Mollins acknowledges that the bigger budget is a byproduct of Reliance's growing organization.

"We're not overspending, we're not underspending," says Mollins. "I would consider this an average year. We've just gotten bigger."

Reliance was the most active player on the acquisitions front in 2006, adding Earle M. Jorgensen Co. in the first quarter and making three other purchases late in the year--Canada's Encore Metals, Industrial Metals and Surplus of Atlanta and Crest Steel in Los Angeles. Similar activity this year could boost Reliance's proposed $128 million budget even higher.

"If we acquired a Jorgensen...

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