Dave Hannah says "volatile changes in the metals marketplace" caused the dramatically lower sales revenues that sapped profitability from service centers in 2001. The chief executive of distribution giant Reliance Steel & Aluminum Co. says the manufacturing recession was deeper than expected and "severely reduced customer demand and caused severely depressed and historically low metals pricing."

The Top 100 service centers again provided 47% of all the metal shipped by distributors to end-use buyers. However, shipments of steel, aluminum, copper metals and superalloys to domestic buyers fell 10% to 32 million tons, a six-year low. According to industry data, the metals service center industry generated $64 billion in net sales. So, while manufacturing and construction companies bought $30.1 billion worth of metals from the Top 100 service centers in 2001, that was a 15% decline from the $34.6 billion purchased the year before. In fact, it was the lowest amount paid for metals supplied by leading distributors since $28.7 billion in 1997.

The manufacturing economy appears to be getting back on track this year, but most service center executives interviewed in the first quarter had yet to notice any sharp increases in physical demand. "We have seen some early indications of improvement in demand for our products and services," says Hannah. "However, we are not yet sure of the rate of improvement in this trend." This is a common theme among service center executives, who have been expressing guarded forecasts for demand, sales, and profits this year. "After experiencing what has been considered the worst metals market in the last 20 years, we are cautiously optimistic that by the second half of 2002 demand in service centers will be on the upswing," says Bud Siegel, chief executive of Russel Metals.

PURCHASING Magazine's sixth annual survey of metals processing and distributing service centers shows that 73% of the Top 100 reported reduced sales revenues between 2000 and 2001, and another 8% said sales were even with 2001. That means that only 19% had improved revenues-and the gains for these firms generally were small, averaging just 9.4%. The ten largest distributors reported sales of $1 billion or more in 2001, but that elite group saw business slide 16% to a total of $14.8 billion. And nine of them reported lower dollar sales decreases. "The battering these and other service centers took in 2001 has made them all more bearish in their business outlooks for 2002," admits Bob Weidner, president of the Metals Service Center Institute in Chicago. Neither he nor the majority of the service center executives polled for this report suggests that distribution industry customers will increase purchasing at the same rate they slowed it in 2001.

A majority of the distributor giants are private firms that don't report profits, but the public firms that do issue financial results showed dramatic reductions in gross profits for 2001 because of inventory reductions and the effect of including older, higher-cost materials in cost of goods sold at lower market prices. Several of the major public companies reported net losses for the year.

Ryerson Tull Inc. of Chicago maintained its long-running title as the largest metals processing distributor in North America although sales dropped by 22% to $2.2 billion. Thyssen Inc. (North America) of Detroit stayed in the No. 2 position with $2.1 billion in sales, a 9% decline. The new third biggest distributor is Integris Metals Inc. of Minneapolis, with sales of $1.7 billion, which is the result of a merger. BHP Billiton Group's North American metals distribution businesses of Vincent Metals Goods in the U.S. and Atlas Ideal Metals in Canada, collectively known as NAMD (and No. 8 in the year-earlier listing) married Alcoa Inc.'s Reynolds Aluminum Supply Co. (known as RASCO and ranked No. 10 in 2000). Sales fell 4% for Los Angeles-based Reliance Steel & Aluminum Co. but the company stayed in fourth place with sales of $1.67 billion.

Metals USA Inc. of Houston, a pioneer in service center consolidation last decade but now operating under bankruptcy court protection, slipped to fifth place in this year's listing from third a year ago with sales crashing 24% to $1.6 billion. On the other hand, the distribution operations of Carpenter Technology Corp. in Wyossiming, Pa., leapfrogged from twelfth place to sixth position by increasing sales 19% to $1.2 billion. Sliding a notch to seventh place at $1.15 billion is the steel distribution operation of Worthington Industries in Columbus, Ohio.

Moving up one place into the eighth slot is EMJ (Earle M. Jorgenson Co.) of Brea, Calif., at $1.05 billion in sales while Samuel, Son & Co. of Mississauga, Ontario, slipped from seventh to ninth because sales declined 14% to $1.02 billion. The biggest loser in the Top 10 was MacSteel Service Centers USA of Chicago, which fell to tenth place from fifth a year earlier because sales revenue declined 29% to $1 billion. Perennial Top 10 member Russel Metals Inc. of Mississauga, Ontario, saw sales slide 12% to $905 million, dropping to 11th.

For the full version of this story and detailed tables, visit Purchasing Extra at www.purchasing.com.