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Fabricated Metals Site Selection Trends

14 Nov, 2011

By: Dennis J. Donovan

coiled steelThis article addresses site selection dynamics pertaining to the fabricated metals sector. Fabricated metals is among the industries emerging earliest from the great recession. Not all companies survived. Those that did have increased margins by cutting costs through downsizing and improving manufacturing efficiency. Lingering uncertainties continue to obscure the long term outlook for individual sub-sectors and specialties. As such, the industry will be characterized by conservative expansion/new facility investment decisions over the near term. Nonetheless, the industry will gradually add new capacity over the next 18-24 months. Beyond that timeframe physical expansion should be more robust. Importantly, growth will occur throughout the U.S.

Industry Definition
Fabricated metals, a component of durable goods manufacturing, involves transforming metal into intermediate or end products other than machinery, computers/electronics, and metal furniture or treating metals. Important processes in fabricated metals include forging, stamping, bending, forming, machining, welding and assembling. Manufacturing processes are specialized with most companies making a limited range of products. Product segments include:

 

  • Boiler, tank and shipping container

  • Spring and wire manufacturing

  • Coating, engraving and heat treating

  • Machine Shops; Turned product and screw, nut and bolt manufacturing

  • Cutlery and hand tools

  • Hardware

  • Architectural and structural

  • Containers

  • Valves/fittings

  • Forging and stamping

Within the industry, the largest subsectors in terms of revenue are ornamental/structural metals, machine shops, metal valves and fittings, forging and stamping, and metal containers. Dependence upon other industries is illustrated by the architectural and structural sub-sector, which produces 95 percent of its inventory for consumption by the commercial construction industry. In other words, most companies within the metal fabrication sector sell to other companies rather than directly to consumers. Technical expertise, manufacturing efficiency, capital intensity, and pricing are the prominent variables affecting competitiveness of metal fabrication enterprises.

Industry Size/Growth
The fabricated metals industry contributes roughly $340 billion to the U.S. economy. Currently at about 55,000, the number of domestic fabricated metals companies has decreased in the past decade. Only 20 percent of revenue is generated by the 50 largest companies. A majority of U.S. firms are smaller, privately held. Economies of scale in raw materials purchasing creates a clear advantage for major players, but the specialized nature of many products enables small companies to compete effectively in certain niches.

After stabilizing in 2010, revenue/profits in fabricated metals manufacturing is slowly advancing in 2011. Growth is partially attributable to inventory re-stocking, but diffusion of technology and increased demand from emerging markets is expected to continue to fuel expansion. U.S. exports have grown since mid-2009, though imports still outpace exports in the sector. The greatest export opportunity is for less labor-intensive products such as structural metals.
Among mega players in fabricated metals industry are:

Ball Corporation
Flowserve
Mueller Industries
Snap-on
The Timken Company
Illinois Tool Works
United States Steel
Smith International
Crown Holdings
General Cable Stanley Black & Decker
Silgan Holdings
Harsco
Crane
Griffon
Barnes Group
Kaiser Aluminum
NCI Building Systems
BWAY Holding
Century Aluminum

Employment
Industry subsectors that account for the greatest proportion of industry employment are:

  • Machine shops: 16 percent

  • Sheet metal manufacturing: 8 percent

  • Fabricated structural metal manufacturing: 7 percent; and

  • Precision tuned metal manufacturing: 6 percent

Skilled crafts and semi-skilled production account for the bulk of employment within the industry. Total industry employment approximates 1.3 million. The top three occupational categories are:

  • 120,000 machinists

  • 90,000 welder/cutters

  • 75,000 assemblers

Geographic Concentration
The industry has a notable presence in most states. However, the densest concentrations are found in the following geographies:

  • Rust Belt (Ohio, Illinois, Pennsylvania, Wisconsin, Michigan, Indiana, New York, Minnesota): large population base; density of consuming industries; and a skilled workforce;

  • Southeast (Texas, Alabama, Mississippi, North Carolina, Georgia): strong population growth; energy production in some states; lower operating costs including wages in Right-to-Work states; and,

  • West (California): aerospace industry, proximity to Pacific Rim markets, and technological innovation.

The ten states with the most fabricated metals workers are as follows:

 

Fabricated Metals Employment

% Fabricated Metals Employment

% State Workforce

U.S.

1,300,000

   

Texas

117,000

9.00%

1.41%

California

117,000

9.00%

0.97%

Ohio

95,000

7.31%

2.28%

Illinois

89,000

6.85%

1.89%

Pennsylvania

79,000

6.08%

1.67%

Wisconsin

64,000

4.92%

2.85%

Michigan

59,000

4.54%

1.88%

New York

49,000

3.77%

0.72%

Indiana

45,000

3.46%

2.00%

Minnesota

37,000

2.85%

1.71%

 

Locational Tendencies

Fabricated metals firms are most likely to locate near other manufacturers, particularly those up or down stream in their supply chain. Once proximity has been defined other prime locational determinants include availability of requisite skills (e.g., CNC machine operator), labor costs, available building, highway linkage, transportation resources, electric power cost/reliability, union risk, moderate taxes and meaningful incentives.

An illustration of a new plant in this industry involves Middle River Aircraft. The company required proximity to Boeing and needed 200 mostly skilled workers. Consequently, the company selected greater Baltimore for its new production facility.

Another typical new manufacturing plant is Dennen Steel. The company will soon begin production in Iuka, Mississippi, of fabricated steel parts primarily for the motor vehicle market. Some 100 employees will work in the 50,000-square-foot facility. Distance to southern auto plants, labor supply/cost, transportation resources and utility infrastructure were important locational determinants.

Bonnybrook Steel is about to open a 110-person facility in central Missouri. The operation will serve a predominantly Midwest market. Here again market proximity, a qualified labor pool and moderate operating costs were key siting factors.

 

EXHIBIT 1: Recent Fabricated Metal Facilities

Company

Location

Product

Employment

Sewon Precision

La Grange, GA

Automotive Stampings

700

The Hamlin Companies

Garner, NC

Custom Metal Components

250

Schuff Steel-Gulf Coast

Humble, TX

Steel Fabrication, Steel Pressure Vessels

200

Supermetal Holdings

Rock Hill, SC

Steel Structures

200

Quaprotek

Ripley, TN

Metal Parts

120

Bonnybrook Steel Forms

Glasgow, MO

Steel Forms for Precast & Prestressed Mat.

110

Dennen Steel

Iuka, MS

Fabricated Steel Parts

100

Scot Industries

Auburn, IN

Steel Tube & Bar

65

KMC Atlanta

Atlanta, GA

Ball Valves

60

AMECO USA

Cleveland, OH

Fabrication of Engineered Products

20

RJLK Holdings

Orangeburg, SC

Fabricated Metal Parts

Undisclosed

 

A sampling of recent new facilities started by fabricated metals companies is shown in Exhibit 1. New fabricated metals plants vary in scale, but a prototypical operational profile follows:

1. Product: Shipping containers

2. Markets:

  • Primary 500 miles

  • Secondary 1000 miles

3. Raw Materials:

  • Steel, corrugated steel, aluminumFasteners, locking bars and corner fittings

  • Protective finishes and paint

4. Real Estate

  • 10-20 acre sites

  • Building

    • 100,000 SF

    • Room to double in size

    • 6” reinforced concrete flooring

    • 24’ ceiling height

    • Open column spacing

    • 6+ truck docks

    • Rail siding a plus

5. Machinery and Equipment Investment: $10-20 million

6. Utility Consumption

  • Electric Power

    • 1,500 KW

    • 400,000 kWh

  • Natural Gas: 3500 MCF/month

  • Water: 0.2 MGD

  • Sewer: 0.1 MGD

7. Environmental

  • Minimal pollutants

  • Hazardous waste from

    • Heat treating

    • Painting

8. Employment

 

Category

Numbers

Machine Operator

60

General Laborer

20

Packaging

10

Shipping/Receiving

10

Machinist

15

Machine Maintenance

5

Welding

5

Quality Control Tech

5

Engineer

5

Supervisor

10

Management

7

Clerical

8

Total

160

 

9. Average Hourly Wage (production workers): $15.50

10. Fringe Benefits: 30 percent of payroll

11. Transportation services

  • Motor carrier

    • TL

    • LTL

  • Possibly rail for inbound

  • Within 75 minutes of a commercial airport

  • For some companies within 500 miles of a seaport (mainly for imported materials)

Looking Forward

Fabricated metals will be a growth industry for the U.S. While the industry will become more global, production will remain parochial due to supply chain dictates. These include proximity to customers and/or suppliers, delivery times, inventory costs and transportation costs. U.S. companies will continue expanding by serving a growing domestic market and exporting. Some corporations will establish new facilities offshore. But offshoring will be driven more by gaining market share than seeking a very low operating cost platform.

In the U.S., a shortage of semiskilled (e.g., CNC machine operator) and skilled (e.g., machinist) labor could constrict growth. Areas that can generate more throughput (i.e., students/graduates) in the machine trades will be winners in terms of attracting new fabricated metal plants.

Technology is rapidly advancing. Thus companies can benefit from industry/education partnerships that focus on the core needs of this industrial sector. This will be another trait of successful areas for fabricated metals.

The industry will be locationally active over the next several years. New facilities will be established throughout the U.S. Many new metals plants will avail themselves of advantages associated with smaller communities provided these locations have at least moderate talent pool depth, adequate infrastructure including available modern buildings, and industry specific training. Due to transportation costs, many new facilities will serve regional markets (e.g., 500 mile radius).

The following factors will continue to exert the greatest influence over siting new fabricated metals plants:

1. Customer/market access

2. Four-lane highway access

3. Transportation services including rail for some prospects

4. Modern available buildings

5. Fully served, pre-permitted sites

6. Reliable, moderately priced electric utility

7. Natural gas availability/cost

8. Depth/breadth of talent pool

  • Machine operators

  • Assemblers

  • Welders

  • Machine maintenance

  • Quality control inspectors

  • Engineers

    • Industrial

    • Materials

    • Mechanical

9. Labor costs

  • Immediate

  • Longer range

10. Nonunion

11. Moderate taxation

12. Meaningful incentives

  • Preferably cash-based

  • Earned over time based on:

    • Jobs

    • Payroll

    • Capital Investment

  • Deal closing funds

  • Property and sales tax abatement

  • Financing for smaller companies

  • Pre-employment training

 

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