Service centers keep a wary eye on stocks
By Staff -- Purchasing, 3/11/1999
Shipments from copper and brass service centers slowed by almost 6% last year. And, although executives are looking for steady business through the first half and are hopeful demand will begin to increase again in the second half, they are working to keep inventories down. For the year, copper and brass shipments reached 462.1 million tons, down from 490 million lb in 1997; copper shipments totaled 160.8 million in 1998, off 1.6% from 1997, while alloy shipments totaled 301.3 million lb, down 8.4%.Purchasing's latest survey of copper and brass service-center execs finds them resigned to continue low copper prices this year, and no one foresees any great surge in demand. Stocks at the distribution level rose about 4% last year; copper inventories ended at 30.1 million lb, while alloy inventories were at 65.4 million lb. So buyers should have no problem sourcing from coppermetals service centers--especially since traders are eyeing distributors as a key sales target this year for excess global metal. "The U.S. distribution market may be used as a dumping ground for wire mill and brass mill products if demand in the rest of the world continues to soften," says a New York-based merchant.
"To be competitive suppliers, the service centers must maintain adequate inventories," says R. Franklin Brown, executive VP of the Copper & Brass Servicenter Association. "But inventory levels will have to be watched closely, particularly because of the cost of stocking material if demand doesn't increase." Bill Sabol, president of the TMX-Copper & Brass Sales business unit of Thyssen Inc. (North America) agrees that the "number-one concern during l998, which is also projected to be a major concern in 1999, has been the precipitous decline in the price of copper."
That's because the ongoing price collapse for copper and its alloys has tightened margins for many distributors. "Our biggest concern is the pricing environment," agrees Bart Edge, president of the Specialty Metals Group in Charlotte for the Metals USA service center and processing chain. "Inventories that lose value put pressure on margins," he says, "and increase the need for state-of-the-art purchasing capabilities and a strong value-added processing program to improve profitability."
"The principal concerns among our service-center executives in early 1999 are the possibilities of further deteriorating metal values, shrinking customer demand, and lower profit margins," says Brown. "Potential Y2K problems, slower rates of collections from customers, and the uncertain future of the Asian markets also concern them."
Distribution execs project that shipments will be off "slightly" from last year's level. They forecast that sheet and plate shipments to stampers, building products manufacturers, appliance makers, and the automotive and electric/electronic industries will match last year's shipments, but project a 2.5% drop in shipments of free-cutting brass rod to screw-machine shops. Deliveries of bars and shapes also may slip, they project, because of the expected softening in the manufacturing economy growth rate. Purchasing suggests that service-center shipments will slide another 2.5% to 451 million lb.
Even with that slip, the service centers will continue to supply 13% of the projected 3.58-billion-lb brass mill products marketplace in 1999. "So our main supplier role still is to have inventory on hand in a just-in-time world for customers that do not want to inventory anything," says Al Riha, president of Southern Copper & Supply Co. in Pelham, Ala. Bruce Farmer, Sr., president of Farmer's Copper & Industrial Supply in Galveston, Texas, agrees that "we have to have the material on hand for our customers, so inventory levels will have to remain high for service centers to remain strong participants in the supply chain."
Still, they and many other coppermetals service centers have been expanding value-added capabilities and other technologies to increase productivity and, hopefully, profitability. "A lot of us have made significant investments in warehousing, material handling, and processing equipment in recent years," says Joe Matthews, president of Monarch Brass & Copper in New Rochelle, N.Y. "There are great opportunities in assisting small and medium-size customers in supplying value-added or pre-manufactured components rather than just traditional sheet, strip, plate, bar, and rod products."
Example: Even though the pounds shipped rose at Scioto Metals in Columbus, Ohio, last year, declining copper values cut revenues by more than 20%. However, Scott Imell, president, reports that a combination of internal productivity enhancements and expanded value-added processing resulted in improved profit margins.
Edge of Metals USA estimates that value-added processing can contribute an average 75% of the "real sales value" of coppermetals products. So, "increased investment in a good technology base and working with suppliers and customers are effective ways to increase inventory turns and productivity," he says. "The only way to manage one's way out of today's low-priced marketplace is to increase the amount of value-added processing and to be more aggressive in the commercial side of the market," agrees Stephen Buzash, Jr., president of Standard Metals, Hartford, Conn.
Brown of the cbsa points out that coppermetals service centers are being evaluated more closely by their customers, so "they must continue to expand and improve quality products, timely deliveries, metals processing, and overall customer service."
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