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An introduction to foreign steel producers plague and the us steel industry

The sense of anticipation that things might get easier felt by many each January quickly subsides as February arrives. Dare we suggest this year might be different? High steel prices continue to present problems for steel drum producers. Where costs can be passed on to buyers it merely encourages conversion to other packaging formats. And uncertainty over future steel price levels and drum sales volumes makes forward planning tricky.

Although steel producers and their customers continue to struggle with rising and volatile steel prices, steel output levels reached an all-time high last year, with billionth tonne of steel produced in December setting a new annual output record.

The Entire History of Steel

It is ironic then that, although customers are feeling the pinch of surcharges, output refuses to slow down. The ethic of driving forward is one that drum manufacturers are also adopting. In spite of great pressure otherwise, producers of steel drums are rising to the challenge of sustaining - and in some cases increasing - their output levels, as a sign of dogged resistance.

At present, this approach seems to be working and the signs are that this year may be somewhat easier for them in terms of pricing - but only time will tell what effect this has on sales. The immense demand that steel mills are experiencing can be attributed above all to enormous demand growth in China.

Growth rates are expected to continue in 2005, although not at the speed seen in 2004. It is unavoidable then that these conditions have been affecting manufacturers in the steel drum markets in more ways than one. There remains doubt amongst the experts as to whether the trend of growing demand from China can be sustained in the longer term but it is not to be disputed that, for the near future at least, the east will continue to dominate pricing.

It says, "Uncertainty is fuelled by the lack of a clear understanding as to whether the restrictive measures implemented by China's trade and industry ministry will lead to over-production or a medium-term capacity adjustment. Due to a great demand however, the general opinion is that raw material prices will remain at a high level. With this in mind, the company is keen to promote the benefits of IBCs. Reconditioning is a somewhat easier process with IBCs as the inner bottle can be replaced for every new trip, thus eliminating the risk of contamination.

It would seem then that a combination of the customer's inability to contend with steel prices, coupled with the clear benefits offered by IBCs, is tipping the scales out of favour for steel drums. Is this really the case? Other manufacturers are divided in their opinions regarding IBC and steel drum usage.

Blagden Packaging Group concedes that steadily increasing steel prices are forcing customers to re-evaluate their priorities and look at other options. It suggests that this could mean an increase in customers selecting reconditioned drums for the carriage of their hazardous materials. This is an option that is both user- and environment-friendly, as group commercial director Rudy Geens, who joined Blagden last year from Greif, explains.

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US manufacturing giant Greif says the steel pressures of the past year provided "unusual business challenges". However, its position as a major manufacturer allowed it to ride the storm by sourcing steel from various regions of the world. With regards to the question of switching packaging types, Greif is confident that it is not threatened by such possibilities, the most obvious reason being that it has the luxury of manufacturing all packaging types.

It supplies its customers with steel, plastics and fibre drums as well as IBCs, which allows its customers "to migrate to the most cost-effective packaging". It adds that its customers are concerned with the 'total-cost' package rather than the simple unit price. In its commitment to "grow alongside its customers as they expand globally", Greif is continuing its venture into eastern Europe.

This past July the company opened its fourth factory in Russia. East is east Fellow European manufacturer Blagden has been exploring new markets like many others, in order to remain one step ahead of the game. The joint venture it has created in eastern Europe, Bipol, combines "technological competencies, economies of scales advantages with profound knowledge of the eastern European and Russian markets".

By having a presence in this region, Blagden believes it has positioned itself well to provide efficient yet safe services for its customers further afield - as well as creating new opportunities for customers in local markets. In light of recent talks between the EU and Turkey regarding its membership, Turkish manufacturer Izvar Ambalaj is hopeful that the region as a whole will benefit from increased business.

The company believes that the commencement of talks will result in greater foreign direct investment as, like many other regions in the east, there are cost savings to be made from outsourcing production there. Izvar's commercial director Kagan Izmiroglu says, "Turkey has a large and dynamic market, an introduction to foreign steel producers plague and the us steel industry relatively high-quality labour force and economic location advantages with easy access to regional markets.

Another point of interest for industrial packaging manufacturers will be Izmiroglu's opinion that the nature of products being shipped in drums is shifting away from the agricultural sector.

Greater demand on the part of industrial users, he believes "has a positive impact on the number of drums produced in the country". Turkey was not left unscathed by the steel crises of recent years and, like so many others, Izvar struggled initially to cope with the increase in prices - as did its customers.

Despite this critical period for pricing, Izvar maintains that it managed to retain custom, with no notable transfers from steel drums over to IBCs. Over to our friends across the sea Across the Atlantic steel tariffs are causing headaches for manufacturers just as they are in Europe.

One such company feeling the frustration is Skolnik Industries. President Howard Skolnik nicknames 2004 'even-leaner manufacturing' year, commenting that the spike in global steel prices meant that it was necessary to continue reducing "wasteful manufacturing expenses in both labour and materials". The tariffs imposed on steel imports by the US government during 2003 were problematic, he says, but they were nothing in comparison to the 2004 price escalations, which he calls "unplanned and unbridled" and left Skolnik with no options.

Try telling that to a vendor! As he puts it, "Selling the increase story was made doubly difficult.

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  4. The world had never seen anything like it. Despite this critical period for pricing, Izvar maintains that it managed to retain custom, with no notable transfers from steel drums over to IBCs.
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Skolnik's main concern at present, however, is not the steel price, but regulatory compliance. He believes that Skolnik's customers are not as price-driven as traditional customers, owing to the fact that they concentrate their concerns on ensuring that their goods are safe during transit. It would seem as well that Skolnik's customers look at the situation from a logical point of view. Hefty fines can ensue in the case of non-compliance, and with this in mind it appears to be more cost-effective to make an initial - possibly expensive - outlay rather than returning to the issue later having lost even greater amounts of cash as a result of fines.

Skolnik's dangerous goods customers are committed to ensuring manufacturing integrity; hence the company has a reputation for providing high-quality bespoke drums meeting made-to-measure requirements that ease these ongoing challenges.

Making the time In fact, Skolnik prides itself on tackling the industries that conventional manufacturers find too time-consuming. Its customers cover a range from government agencies to chemical manufacturers, all of which provide consistent business. Skolnik denies the claim that the US is experiencing a period of growth, pointing out that he has not noticed increased unit sales, but concedes that revenue is increasing owing in part to the steel price fiasco - meaning that uncertainty in steel markets is not all bad.

Another US manufacturer experiencing difficulties in the steel market is Evans Industries, but ensuring it triumphed over adverse conditions was a top priority for the company last year, according to chief executive Janice Hamilton.

She says, "The steel crisis has impacted Evans and indeed all other steel drum manufacturers. However, Evans was very successful during difficult supply times in ensuring we had a continuing supply of steel. This in turn allowed for an uninterrupted supply of drums to all our customers. Increasing profitability was a key aim for Evans in 2004. As well as bringing in a new chief executive the company focused on the elimination of unnecessary costs and overheads and made a conscious effort to position itself ready for future growth.

It has achieved this by outsourcing its transport services and terminating its reconditioning services.

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  • Billions of years before humans walked the Earth—before the Earth even existed—blazing stars fused atoms into iron and carbon.

It closed its cleaning plant in Houston, Texas and now offers reconditioning and drum pick-up services only through partnerships with third-party reconditioners. What can we look forward to? In the coming year, Hamilton anticipates that volatility in steel prices and supplies will continue to plague manufacturers.

We are hoping that prices might come down later in the year, possibly in the fourth quarter. She notes that embargoes put in place by the US Government on imports of cold-rolled steel have had the biggest impact on its business.

However, since the steel tariffs have been lifted - and in light of increased prices - she concedes that some imports are trickling through. Evans denies that customers are switching over to other packaging formats in light of the price concerns. Hamilton says, "They have recognised that there have also been significant price increases in plastic drums and IBCs.

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In recent years the only business we have seen move away from steel drums has been the shift to bulk, or tank truck quantities, rather than another package. Evans Industries is confident that moving into 2005 this support will gain momentum and remain strong. Hamilton says, "The chemical industry was in an economic downturn during 2002 and most of 2003. We saw a recovery in the chemicals market in terms of volume in 2004, and it will continue into 2005.

This has led to an increase in volumes moving to the Gulf Coast region of the US, attributable to the expansion of chemical production capacity in the area. I object Blagden sees things differently, however.

Geens believes that demand for steel drums is "stagnant" - except for those countries where the chemical and petrochemical industry is exporting heavily, like Germany.

He contends that drum manufacturers in Europe are more exposed to swings in the performance of the chemical and petrochemical industry, since those sectors account for such a large proportion of drum sales and it is not possible to spread the risk. Geens also predicts that drum sales volumes will drop in the coming years, in light of the movement of many of the 'traditional' European players to China.

However, Blagden is pleased with its year-end results, but warns that in order for it to prosper in 2005 steel prices should not increase any further. Says Geens, "Our future is in some respects as our past: With security concerns increasingly at the forefront of many customers' minds, it is imperative that they are kept informed at all times about the location and status of their goods.

Skolnik explains, "With the introduction of Radio Frequency Identification RFID we have explored tagging systems that might assist our customers in logistics.

The European Steel Association (EUROFER AISBL)

However, the technology is new and untested. Also, since steel drums are preferably reconditioned, we have yet to find RFID tags that will withstand the reconditioning process.

She believes quality remains at the top of the priority list for consumers in the chemical industry, explaining, "Customers want to know their containers will perform well. I believe that most customers are concerned about packaging disposal options, although it has not been a driving force in recent years.

Howard Skolnik continues to be concerned with the persistence of some manufacturers in creating drums with dangerously thin steel walls. He says, "Many short-sighted drum manufacturers continue to insist that 0. In some performance tests, these light drums will marginally pass but in the field shippers are experiencing a huge spike in failures due to material handling. However, there is a bigger problem. Performance failures by drums with reduced walls such as these means users lose confidence in the steel drum as a packaging option, leading them to look to other containers.

Blagden's Rudy Geens echoes these concerns, adding "Mechanical properties are not the only determining factor for the minimum thickness, but the multi-trip re-use of steel drums also requires a minimum to be applied to steel thickness.

He adds, "At Skolnik we continue to up-sell our products and justify why thicker and heavier drums perform better than lighter gauges. Also cost justification is easily conveyed when one charts the cost of in-field failures - which are happening every day.

He tentatively says that in terms of unit production and margin, the company expects to have a good year, but adds nervously, "Of course…who knows!

  1. Geens also predicts that drum sales volumes will drop in the coming years, in light of the movement of many of the 'traditional' European players to China. Josephs first son was Junius Spencer Morgan, also destined for the life of a businessman.
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