"From the MidApril print editionBy Dan O'BrienYOUNGSTOWN, Ohio -- Were it any other time, William J. Bresnahan says the stockpile of unused steel on the floor at Hynes Industries, Austintown, would be tagged "excess inventory."Today, the president of Hynes sees the situation in an entirely different light. "What was excess inventory in December is now a godsend in April," he says.In a complete reversal of fortune from the last four years, demand for domestic steel is on the rise. While that's good news for producers, those in the steel service industry feel the pinch of depleted inventories, higher prices and inadequate inventory to meet customer's needs. "This is really an unprecedented time in our industry," Bresnahan says. "We were fortunate to have extra material at the end of last year."As a result, Hynes could supply its long-term customers and even take on additional business from customers the company only occasionally serves.As such, the tight market has affected the way companies plan their business, Bresnahan says.Steel service centers must not only contend with limited supply and two-tier pricing -- a base price and a surcharge -- but longer lead times as well. "You've added a second degree of difficulty to the planning process," Bresnahan says.The scarcity of steel is largely the result of massive projects under way in China, the scope of which has eclipsed all other countries in its demand. "China is not going to go away," Bresnahan continues. "The question is whether the political, social and economic climate in China will permit it to continue. It's hard to say."Still, Bresnahan stresses that renewed activity in the manufacturing sector is a welcome change for the industry. "It's good to see," he comments. "During 2002 and 2003 it got really quiet. We've been busy."Hynes Steel, the service center division of Hynes Industries, provides slitting, edge conditioning and cut-to-length operations on low-carbon, commercial-grade steel. About half of that division's product is shipped directly to outside customers while the rest supplies the company's roll-form division. Hynes also operates a rolled-wire products division and a flex angle division.As the norm, service centers buy steel directly from producers and perform a variety of value-added processes, such as slitting, coating, plating and cutting to length. Service centers then sell to a broad range of customers in the domestic and international markets.And it's the international market -- China especially -- that is consuming most of the world's steel. Thus, most imports are now being shipped to Asia, alleviating pressure domestic producers have felt since 1998 when foreign countries began dumping low-cost steel on the U.S. market.Two years ago, the United States retaliated by enforcing Section 201 of its trade law, slapping tariffs as high as 30% on some forms of steel imported by several nations determined to be illegally dumping steel in the United States. Last summer, the Bush Administration lifted those sanctions, claiming the tariffs had served their purpose."We're in a really strong year and we're way ahead of our business plan," says Jim Bruhn, president of Canfield Metal Coating, Canfield. The company, once part of Wheeling-Pittsburgh Corp., was spun off during the steel maker's bankruptcy proceedings three years ago. "We're double the business from the first quarter of last year," he exults.Business took a hit during the second and third quarters of last year, Bruhn reports, but has since rebounded in full. "We're at 100% capacity this quarter and we'll have enough orders by the end of this month to be full for the next quarter," he says.Canfield Metal specializes in zinc-coating cold-rolled steel bought directly from mills, Bruhn says. Much of the steel processed is sold to manufacturers in the computer, furniture, residential and commercial construction, automotive and appliance industries. The center also operates an oscillating line that slits steel coil into narrow strips. Bruhn adds the combination of high demand from China and a weak dollar has helped overall business in steel-related businesses such as his. "The import level has dropped and the weak dollar protects us," he says. "Prices have gone up very high, but we've been fortunate and have been able to pass that along to our customers."Though the spike in demand has boosted prices for producers, it has also led to price increases in other sectors of the steel industry, especially scrap and coke. Several steel mills in the Mahoning Valley either melt scrap, or use semi-finished billets made from scrap to manufacture their products. Therefore, higher scrap prices cut into the bottom line of these operations.In March, the price of the grade of scrap used at V&M Star, Youngstown, skyrocketed to $300 a ton, compared to the $100 a ton a year earlier, reports Roger Lindgren, president and chief operating officer. "The price of scrap has been stratospheric," he says.V&M Star uses an electric-arc furnace to melt scrap steel. The molten steel is then formed into oil-country tubular goods for the natural gas industry, Lindgren says. Almost all the company's business hinges on the health of the natural gas market and drilling activity in the Gulf of Mexico region. The nation's rig count -- that is, the number of gas rigs actively drilling per week -- is strong, standing at 1,150, he says. The mill employs more than 500 people.The high price of scrap, however, forced V&M to pass a surcharge onto their customers. "While it's enabled us to pass costs, it really hasn't improved margins," he notes.V&M, formerly North Star Steel, is the only steel maker in Youngstown, and one of only two in the Mahoning and Shenango valleys, that still melts steel as part of its front-end business. Last year, the French company purchased the assets of North Star and assumed its operations in Youngstown and Houston. "We're in the midst of a $5 million capital improvement and shipments are up," Lindgren reports. "So business is good."Scrap is integral to operations at McDonald Steel Corp., reports spokesman Bill Farragher. The mill, once part of U.S. Steel's McDonald Works, purchases semifinished electric-melt steel billets produced largely from scrap. The billets are then re-heated and rolled into special, asymmetrical shapes. McDonald manufactures products such as off-road truck wheel rims and connectors for concrete pipes used in infrastructure projects. Passage of the transportation bill before Congress -- it's in a conference committee -- would not only pump up business at McDonald, but help all manufacturers. "It would make a world of difference," Farragher says. "Our order book would be way up."Farragher says McDonald Steel felt the squeeze last month when scrap prices spiked sharply. "Scrap went through the roof, and it's very difficult for us to raise our prices for our customers," he elaborates. This issue, combined with the rising costs of energy and health care, have a significant impact on the steel industry as a whole, he says."We're getting along. Financially, we're very stable," Farragher reports. Over the last three years, the steel company has gone through significant downsizing, shedding jobs mainly through attrition, he notes.Last year, McDonald Steel informed employees that it might close its 8-inch mill. Renewed orders, however, convinced company officials to keep the mill operating as needed. The company's 14-inch mill is running on a regular basis."We've been through a very difficult time over the last three years," Farragher says. There is, however, reason to be optimistic, since the latest market data show the price of scrap tumbling. "We think it's going to drop more," he states. "Hopefully, it will give us some breathing space well into the summer."While it's not clear what is driving the price down, most suspect that China is so saturated with scrap that its ports simply can't handle much more. In addition, those with large stockpiles of scrap last month moved quickly to reduce their inventories."I'm not positive why it's doing it," says David Nicopolis, scale manager at Youngstown Iron and Metal. "It skyrocketed last month and then it started to fall."Nicopolis advances the theory that once dealers sold off most of their inventories, they didn't want the risk of replenishing them in full in case prices started to slide. "If the bottom fell out, then you'd be in trouble," he says.Prices have since levelled, but are still high when compared to those of a year ago, Nicopolis says. "Sheet metal went up to $140 a ton and now it's about $70," he reports. Last year, scrap was selling on the market for a mere $45 a ton. The company operates a large shredder in Youngstown near V&M Star, which reduces scrap metal less than 1/4-inch thick to small pieces suitable for melting."It's a nice, steady pace right now. Before, it was getting ridiculous -- we were bumper to bumper here," Nicopolis says.Meantime, domestic producers on the whole are reaping the rewards from increased demand overseas and consolidation of the industry within this country. "The order books look very strong," acknowledges Tim Roberts, spokesman for WCI Steel, Warren. WCI is among the 40 or so domestic steel companies that have filed for Chapter 11 protection over the last five years. As an integrated mill, WCI melts its own raw material and produces a wide range of steel products.Another Warren steel maker, CSC Ltd., filed for Chapter 11 in late 2000. The operation was sold piecemeal at an auction the next year when a buyer failed to emerge that would keep the company as a going concern. As a result, 1,400 jobs were lost.In February, WCI posted its first monthly gain -- $1.7 million -- since October 2002. The company has lost money each year over the last two years, after more than a decade of posting concurrent annual profits. "There are no layoffs at the moment since demand is very strong," Roberts emphasizes.While increased demand from China has helped struggling companies such as WCI, it's also contributed to price hikes in raw materials, such as coke, lime and nickel, Roberts reports.The company, which employs 2,000, is working through a reorganization plan it intends to submit to the bankruptcy court by May 15. WCI's bondholders recently filed a motion requesting that the court prohibit the company from submitting such a plan and instead approve a reorganization plan the bondholders drafted. "We're making significant progress and we'll submit a plan of reorganization by May 15," Roberts says. Contact Dan O'Brien: [email protected]"