Steel Mill Roundtable
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STEEL MILL ROUNDTABLE (Steel Mill Roundtable is a new time frame that reflects “nor- gram on June 6, 1997 to occasional feature in Modern mal” purchases and use that assure equitable product Steel Construction. The as a basis for the tonnage availability for our base of Roundtable focuses on a single available to any individual regular customers (this pro- issue of importance to designers customer. That customer is gram is sometimes called and contractors and asks the limited to a monthly ton- “allocation” by the trade). major steel suppliers in the U.S. nage. At Nucor-Yamato, we Our reserved tonnage system for their opinions.IIf you have a question related to mill practices, have to experience demand protects the best interests of please send it to Scott Melnick at that exceeds capacity for an our regular customers during MSC, One East Wacker Dr., Suite extended period prior to occasional, brief periods of 3100, Chicago, IL 60601-2001; fax: putting any limitation on changing industry supply. 312/670-5403; email: melnick@aisc- customers. We usually reach We are in such a period now mail.com) a point at which one of two for a limited range of struc- things is about to occur if we tural sections due to the Background: Construction in don’t institute controls. The recent closures of two promi- the U.S. is continuing at a strong first thing of concern is that nent domestic production rate. At the same time, several one group of customers or facilities. This approach will steel mills have stopped produc- one part of the industry continue as long as most of ing structural shapes. This has gains an unfair advantage our customers agree that the raised some concerns about the over customers in another program protects our mutual possibility of longer lead times or part of the distribution best interests. In the a shortage of product—some- chain. The other factor is reserved tonnage program, thing which has not occured. In when general lead times customers’ reserved tons are response, however, some of the extend beyond the point of based upon historical busi- mills have increased production reason for fabricators. At ness with our company. For and in some instances have insti- Nucor-Yamato, the most example, if a customer repre- tuted “allocation” programs. recent allocation period sented 1% of our past busi- occurred in late 1995. On our ness, this same customer is Question: There has been smaller section mill, controls usually given the opportuni- some discussion among fabri- lasted from about October ty to purchase at least 1% of cators, engineers and mill 1995 to June 1996. On our our future scheduled produc- personnel about “alloca- larger section mill, controls tion and/or stock availability. tions.” What are allocations lasted from October 1995 to This, of course, is optional and how do they work? (This April 1996. The large section for our customers. Some question was submitted via controlled entry time frame companies make business email by Phillip K. Leffert) was shorter due to our abili- decisions to take full advan- ty to add significant capacity tage of the program in order Robert W. Johns, Sales in a very short time frame in to maintain, or even grow, Manager, Nucor-Yamato spite of the closure of a com- their business with Steel Co.: peting mill. Chaparral; other companies An allocation is simply a elect to pass on the opportu- method to make sure all cus- James L. Wroble, General nity for various reasons. As tomers receive equitable Manager, Structural of this date (Sept. 19, 1997), treatment based on past Products, Chaparral Steel all Chaparral structural ordering practices when Co.: product customers have had mills are operating at capaci- Chaparral Steel re-instituted the opportunity to grow their ty and lead times extend. A a “reserved tonnage” pro- business with our company mill will generally choose a during 1997. Modern Steel Construction / November 1997 Greg DePhillis, General nels to the project are con- Question: Has this period of Manager, Plate and trolled, they become pre- tighter steel supply affected Structures, TradeARBED, dictable and that usually will prices? Inc.: lead to easing of controls in a Customer allocations, reasonable time frame. If Johns: imposed by domestic mills handled reasonably, alloca- We have demonstrated that from time to time, are, as we tions actually benefit the strong markets are not used see it, an attempt to fairly construction industry as a by Nucor-Yamato as oppor- distribute the sale of steel whole. They minimize specu- tunities for excessive, unrea- during periods of high lation and behavior that sonable or opportunistic demand or panic buying. would be detrimental to the price increases. In our histo- use of steel in construction. ry, we have been through We do not put our customers two very strong markets that on allocation, though we are Wroble: had considerable duration limited in sales by a quarter- There are administrative attached to them. The price ly mill allocation for the U.S. “hassles” and extra planning of wide flange sections today market. As our mill alloca- for all concerned during is roughly what it was in tion runs low, we try to warn reserved tonnage periods. 1988 and, in fact, is lower on our regular customers of the We believe, however, that larger sections. We do not situation so they can book the extra work involved is a feel it serves the industry to any requirements they have. small price to pay for create roller coaster pricing assured steel availability. just because the market is Question: What effect do allo- After all, the alternative to good. Our job is to make sure cations have on the fabricat- reserved tonnage is “specula- steel is the competitive mate- ed structural steel industry? tor buying” which only drives rial of choice for the future up the cost of the product. and the future begins today. Johns: Steel continues to be avail- The concept of allocation con- able, however, and ditions suggests steel short- September was the seventh ages, extended lead times record shipment month in a and opportunities for signifi- row for Chaparral. cant price increases. All of that tells owners and devel- DePhillis: opers that they will have The effect of allocations on some kind of problem with the U.S. market is mixed, their project. It may even depending on the customer. make them consider other Larger fabricators and ser- materials for the building vice centers generally favor frame. For that reason, we it in that the allocations are don’t like them and, through normally based on historical the use of increased produc- buying patterns and so they tion, try our utmost to avoid would receive a larger por- the use of allocations. When tion of the pie. However, they become inevitable, how- smaller customers can often ever, they are beneficial in be shut out of rollings and containing lead times some- the smaller fabricators are what and insuring individual then often forced to buy via customers are treated fairly. service centers at higher They also insure one cus- price levels to meet delivery tomer group will not end up schedules. We estimate that with a significant buying a tight market for steel will advantage over another. We likely continue until Nucor- have seldom seen true short- Yamato’s new mill comes on ages—or even real ones that line at the end of next year. last more than a few months. When the distribution chan-.