Monday, September 17 2018
By Michael D. White, author and freelance writer
It really isn’t too much of a stretch to say that metal fabrication is a lot like the musical score to a great film—you don’t realize how important it is until it isn’t there.
Close your eyes and imagine Lawrence of Arabia, Dr. Zhivago, Cast Away, Jurassic Park, Saving Private Ryan or The Magnificent Seven without the music that lifts them to the level of masterpiece. Imagine, then, going about your business every day, or at least trying to, without refrigerators, washing machines, thumbtacks, air conditioners, automobiles, wire, bridge spans, locomotives, lap tops, knives and forks, airplanes, nuts and bolts, agricultural machinery, watches, window frames, hand tools, nails, and the humble ‘tin’ cans that contain everything from brake fluid to creme soda. Good luck.
Ubiquitous metal fabricators across the country cut, bend, roll, punch, forge, turn, stamp, cut, shape and form metal–primarily steel and aluminum rods, bars and sheets-for virtually every ancillary industry one can conceive, from manufacturing, construction, aerospace, automotive, architecture, and electronics, to food processing, telecommunications, medical, energy and power generation, just to name a few.
The market for their services is huge. According to New York-based industry analyst IBISWorld, the global metal fabrication market was valued at almost $17 billion in 2015, and it is expected to reach over $21 billion by 2024. The U.S. metal fabrication industry alone generated $6.2 billion in business in 2016 with a growth rate of 1.5 percent annually forecasted through 2023, the analyst has said.
The third largest U.S. manufacturing industry in the U.S. with 1.4 million workers, or 12 percent of all the manufacturing employees in the country, metal fabrication operations come in all sizes.
Machine shops formed the largest sub-sector within the U.S. fabricated metals industry with $40.0 billion (12 percent) of total shipments, followed by fabricated structural metals with $27.5 billion, or eight percent; sheet metal works with $20.3 billion, six percent; and precision turned products with $18.3 billion, five percent, according to IBISWorld.
In total, those four industries accounted for $106.1 billion of shipments, or 31 percent of fabricated metal product manufacturing in 2013, based on the latest figures assembled by the U.S. Department of Commerce. That year, American businesses purchased 43 percent of all fabricated metal products sold in the U.S., while consumers purchased 51 percent, and the government bought five percent.
Most companies in the metal fabrication business work primarily to fortify their organization’s strategy in a manner that can best help them survive cyclical fluctuations in the global economy.
According to a July report compiled by Albany, New York-based analyst Transparency Market Research (TMR), “the global sheet metal fabrication services market will remain steady despite exhibiting a sluggish compound annual growth rate (CAGR)...growth in commercial airlines and expansion of the military aircraft market will give impetus to the market in the coming years.”
The demand for sophisticating existing technologies in the military sector, it continued, “will also create an environment conducive for the market’s growth in the coming years. These factors will play a crucial role in enabling the global sheet metal fabrication services market to maintain its growth trajectory in the near future.”
The automotive industry, says TMR, “is also expected to offer attractive opportunities for growth in the [metal fabrication] market. Therefore, booming automotive sectors in developed countries as well as a few emerging nations will enable the market to stay afloat during the forecast period. This is driven by the rising disposable income of people, which in turn has fuelled the demand for cheap entry-level vehicles. This scenario is true especially in the case of developing nations, which will enable growth in the sheet metal fabrication services market.”
TMR also expects the demand for steel sheet metals to increase in the coming years. “Their use will be further bolstered due to their increasing use in the construction sector,” the report said. “Additionally, the demand for aluminum sheet metal fabrication is expected to rise, especially in the automotive and aerospace industries. Spurred by this, the global sheet metal fabrication market will be able to maintain growth rate in the coming years. Besides this, the market is also expected to witness increasing demand for tungsten, copper, and other sheet metal fabrications.”
Robotics and Automation
The unique strength of metal fabrication shops rests on their ability to centralize many of the processes that are often required to be performed in parallel via a collection of vendors. A one-stop metal fabrication shop helps contractors limit their need to work with multiple vendors to complete complicated projects.
Robotics and automation tools are being increasingly applied to metal fabrication operations to complete those demanding projects on-time and on-target with automation systems being increasingly utilized to increase efficiency and lower labor costs. Their deployment helps significantly in making manufacturing facilities safe as many critical jobs such as welding and cutting are done by robots.
Apart from this, automation tools such as laser saws make it easier for fabricators to manufacture precisely cut metal parts for diversified end-use industries.
Moreover, various ‘Enterprise Resource Planning’ technologies and software are used to develop so-called ‘smart factories’ controlled by a virtual production lines that run systems, as well as monitor and complete their physical processes. Overall, this makes data easily accessible, accelerates the decision-making process and helps metal fabricators improve operational efficiencies and enhance production.
The Impact of Steel, Aluminum Tariffs
The tariffs originally put into effect by the Trump Administration in March imposed a 25 percent tax on imported steel and 10 percent tax on imported aluminum.
After several extensions, as of June 1, 2018, though, shipments of steel from all countries of origin except Argentina, Australia, Brazil, and South Korea, and shipments of aluminum from Argentina and Australia were exempted from the increased tariffs. The Washington Post had reported the exemptions granted represented about half of all foreign steel shipments to the U.S.
According to a recent report by the U.S. Department of Commerce, the U.S. is the world’s largest importer of steel, importing 34.6 million metric tons of it in 2017. Canada was the top exporter, at 17 percent, with Brazil and South Korea following. About half the steel imported to the U.S. is used for construction of buildings and infrastructure.
Aluminum is also likely to contribute significantly to the global sheet metal fabrication services market in the coming years due to its rising demand in the aerospace and automotive sectors. Aluminum is likely to account for close to 40 percent of the global sheet metal fabrication services market by the end of the 2017-2025 forecast period.
The light weight of aluminum in comparison to steel has made it a material of choice in the automotive sector, where lightweight design has become vital due to the increasing stringency of environmental regulations. Aluminum is also a regular in the aerospace industry, as it provides an excellent strength-to-weight ratio and is thus ideal for use in modern lightweight aircraft.
Increased Investment, Mergers, Acquisitions and Expansion
Despite the projected impact of the tariffs levied on imported steel and aluminum that went into effect in March, increasing investment in infrastructural development is expected to continue to fuel demand thus boosting both the U.S. and global sheet metal fabrication services market.
Because demand is driven by the economy, the profitability of the metal fabrication industry relies on economic growth to thrive. Since the economic rebound after the last recession, metal fabrication has become a strong and intense business that continues to recalibrate itself and flourish. Current adjustments include a shift from leaning on a few large projects to maintain a yearly profit to attempting to maintain steady sales volumes by diversifying and continuing to follow the successful template of previous years.
Most companies in the metal fabrication business work primarily to fortify their organization’s strategy in a manner that can best help them make it through changes in the global economy. When local economies thrive, these upturns tend to cause consumers to loosen their purse strings and purchase bigger-ticket items such as cars, boats, and houses. And as the population continues to grow, new construction picks up, requiring additional agricultural and commercial machinery.
The metal fabrication industry is highly cyclical and depends on industries such as auto, aerospace, construction, and energy. Earnings for each sector vary based on market and economic factors affecting those markets. Investors must look at their particular customer base and the economic influences affecting them in any given year.
Metal fabricators that can quickly shift product lines can protect profits and focus on areas where demand is most prevalent. This type of diversification can create a sustainable revenue base, regardless of revolving economic conditions.
Over the past several years, players of all sizes in the metal fabrication market have adopted expansion, merger, acquisition—and variations thereof— as key components of their strategies to expand their network and share their investments.
For instance, the industry press reported in January that Amzak Capital Management LLC of Florida acquired the majority ownership of Connecticut-based StampTech Inc. and merged its operations with AOC MetalWorks of Lawrenceburg, Tennessee, a then-current Amzak portfolio company.
The acquisition and merger formed a metal stamping and fabrication operating platform with five manufacturing facilities across the Southeast U.S. and revenues in excess of $80 million. StampTech is reportedly Amzak's second investment in the metal stamping and fabrication industry.
Key Examples by State
In January 2017, O’Neal Manufacturing Services merged four Ohio- and Connecticut-based affiliates, Aerodyne Alloys, United Performance Metals, Plus Ten Stainless, and Vulcanium Metal International, to form a high-performance metal fabricating company, United Performance Metals, headquartered in La Mirada, California.
The acquisition helped the company achieve operational efficiency by merging their sales, inventory and operations into one worldwide company.
Earlier this year, Los Angeles-based Reliance Steel & Aluminum Co. announced it had acquired all of the issued and outstanding equity ownership interests of KMS Fab, LLC and KMS South, Inc.
The KMS Companies specialize in precision sheet metal fabrication ranging from prototypes to large production runs utilizing a wide variety of metals and fabrication methods including laser cutting, stamping, turret punching, machining, powder coating and welding. KMS Fab, LLC was founded in 1954 in Luzerne, Pennsylvania, and KMS South, Inc. began operations in 1987 in West Columbia, South Carolina.
In June, the merger of two custom metal fabrication companies—Fort Smith-based Custom Fabrication & Engineering and Midwest Automation of Arkoma, Oklahoma—resulted in the creation of a new company, Midwest Automation Custom Fabrication Inc., with headquarters in Fort Smith. Announcement of the merger followed a $1.6 million expansion of an existing facility in Fort Smith with the new company serving as a fully integrated fabricator that designs, engineers and installs structural steel for commercial and industrial companies in both Canada and the U.S.
Earlier this year, North Vernon-based Layman Fabrication Inc. said it would add 4,000 square feet to its 8,400-square-foot facility. The company bends, punches, shears, and welds sheet metal plate and tube for custom projects. The expansion, expected for completion this fall, will provide space for six additional fabrication machines, the company said.
Patrick Industries, an Indiana-based metal fabricator, has acquired the Metal Moulding Corp. of Madison, Tennessee for an estimated $20 million. Metal Moulding produces hinges, arm rests, brackets and other parts for the marine market and generated $19 million in revenue in 2017.
Patrick Industries operates facilities in 20 states and China and last year posted a net profit of $85.7 million on sales of $1.64 billion.
Central Virginia Manufacturing (CVM), a sheet metal and light structural metal fabricator, stated publicly in April that it would invest $300,000 to expand its operation in Bedford County.
The expansion was made possible through the Virginia Economic Development Partnership (VEDP) will support Central Virginia Manufacturing’s new job creation through its Virginia Jobs Investment Program, which assisted the company “under a defined performance agreement tied to jobs and investment over three years. In addition, the Region 2000 Workforce Development Board will provide financial assistance for apprenticeship-related instruction,” according to a statement released by the company.
IMS Gear, a German-based fabricator of after-market automotive equipment, has said it will invest $1.05 million to upgrade the CNC plasma cutting machine at its facility in Virginia Beach.
The company’s 115 existing employees will be retrained to operate the new machinery with support from the Virginia Jobs Investment Program.
The economy of Wilson County, North Carolina, received a major boost in January when Pennsylvania-headquartered MKT Metal Manufacturing Inc., a fabricator of industrial sheet metal duct and HVAC accessories, officially opened its second production facility in Wilson, North Carolina.
The move to “better satisfy the needs of our southern customers was made as part of an agreement between MKT and an unnamed local Wilson contractor to purchase their production assets and hire their existing 15-man workforce their existing fabrication workforce.
June saw Japanese-owned Amada America, Inc., a manufacturer of precision sheet metal fabrication equipment, break ground on a new facility in High Point, North Carolina.
The multi-phase project will result in two factories, with each phase consisting of a $25 million investment in property and $16 million in personal property, and, once complete, there will be more than 250,000 square feet of manufacturing space.
The expansion is forecasted to create 201 new jobs over the next five years that carry an average annual wage of just over $37,000. According to California-based Amada, when completed, the High Point operation will manufacture and assemble a new line of high-precision press break bending equipment for the U.S. market.
In November 2017, Bibey Machine and Fabrication unveiled its plans to expand its Rockingham County operation with the purchase of a 78,000-square-foot building adjacent to its existing facility there. The Greensboro-based company machines and fabricates metal and plastic parts for large consumer products companies, construction companies and other small businesses.
The company said that the new building “will provide more space for growth and will house its welding and finishing operations,” according to General Manager, Laura Bailey. “The Rockingham County area has provided us with an extremely talented workforce demographic. Our expansion is the direct result of said talent. We look forward to what lies ahead.”
Late March saw DLC Manufacturing and Fabrication Inc. receive a permit approval from the New Ulm Planning Commission to expand its metal fabrication business at the city’s relatively new Airport Industrial Park. Plans call for the expansion of the company’s existing 9,800-square-foot facility to cover between 20,000 and 25,000 square feet in size on the property.
“We need to expand our business and we would really like to stay in New Ulm,” said DLC President Brent Donner. “We have a few families working with us and we want to grow.”
Boker's, Inc., is a manufacturer of precision metal stampings, washers, spacers and shims. In March, the Minneapolis-based company announced it would add 66,500 square feet of manufacturing space to its existing 100,000-square-foot facility. The project is scheduled for completion in December 2018.
Lavonia-headquartered Fanello Industries, which supplies laser cutting, blanking, stamping, bending, and metal fabrication services to a number of industries in the Southeastern U.S., was acquired in April by industrial metal processor and distributor Ryerson Holding Corporation of Chicago.
Fanello reportedly generated $20 million in revenue last year. Founded in 1842, Ryerson currently employs around 3,600 workers at approximately 100 locations in the U.S., Canada, Mexico and China.
Central Machinery Company LLC, specializes in automated machine tools, welding, stamping and plasma cutting. In January, the company said it had drawn plans to add 30,000 square feet to its headquarters in Marion at a cost of $8.6 million.
The company does business under the name CenMac Metalworks. The family-owned company had reported seeing 25 percent year-over-year growth, prompting a need for 55 new workers to support its expansion of services.
“The strong workforce in Marion and in the Columbus region as a whole has helped fuel our company’s ongoing growth,” said Rod Galbreath, president of CenMac Metalworks, in a statement. “This investment will enable us to upgrade our capabilities and provide the much needed expansion for this phase of our growth.”
Gundlach Sheet Metal—a company specializing in heating, air conditioning, commercial refrigeration, custom sheet metal, fabrication and more — had considered leaving Sandusky, the company’s home since 1889, because of a lack of space and “dangerous traffic patterns” until the City Commission voted in May to authorize a 10-year, 75 percent tax abatement package, forgiving a portion of taxes on all new construction, additions and expansion on the company’s property. The package includes the construction of a 6,200-plus-square-foot warehouse.
“For over 125 years, the company has been serving the needs and employing the residents of Erie County and, more specifically, Sandusky,” said Matt Lasko, the city’s chief development officer. “They have proven to be not just a great company with a respected reputation but valued civic partner. We are thrilled to play a small part in the company’s growth and expansion, which signifies their long-term commitment to this community.”
In June, Merchant Iron Works in Sumter said that it would invest $2.5 million over the next five years to expand its existing operations and increase the size of its workforce. The company, founded in 2001, fabricates steel stairs, handrails, and miscellaneous components for bulk material handling systems.
With the expansion, the company will have a little more than 60 employees at its local facility and is bringing some product manufacturing that it previously outsourced to a supplier out of state into the local facility, according to company president and founder, David Merchant.
"We have great relationships with our suppliers, and that's the way we've been operating for years, but as we've grown we find a need for faster turnaround at times," Merchant said. "Sometimes, it's easier for us to manage all the different pieces and parts when they are in-house as opposed to otherwise."
Most of the new hires will be production employees - such as welders and machine operators with Computer Numerical Control experience - Merchant said, but a few will also be in management and office staff positions as the company gets bigger.
The capital investment covers an 8,000-square-foot plant expansion, which is already underway, that will bring the facility up to about 40,000 square feet and the acquisition of some new CNC machinery equipment. More construction and new equipment will follow during the five-year time frame, Merchant said.
A $100,000 grant from the Coordinating Council for Economic Development will help with the completion of a 150,000-square-foot outdoor steel processing and shipping area on site, he said.
Last fall, Japan’s Denyo Manufacturing Corporation (DMC) said it would pump $8.7 million into the purchase of new state-of-the-art equipment and the construction of a new 63,000 square-foot building at its facility in Danville. The company specializes in the fabrication of metal parts for electric motors and generators. The expansion is planned to be fully operational by October 2018 and is expected to generate 90 new jobs.
“Adding sheet metal fabrication on-site is the next step in growing the capability of Denyo’s Danville facility,” said Toru Hiroi, DMC Chief Executive Officer. “It is a significant step in enhancing the productivity and cost-effectiveness of our facility. This investment is an indication of our confidence in and appreciation for our employees and the Danville community.”
Established in 1995, DMC is the only Denyo manufacturing facility located in North America, with sister facilities in Fukui and Shiga, Japan, as well as Indonesia and Vietnam.
In July, Metal fabricator Advanced Laser Machining unveiled plans for a 25,000-square-foot production facility in Chippewa Falls. The company’s capabilities include metal punching, stamping, forming, machining, welding and assembly. Construction is expected to begin in the summer of 2019 with operations beginning by the end of next year.
In a general sense, the metal fabrication industry is ahead of the curve in learning to balance capacity with economic unpredictability and find new ways to build support for the inherent variability of customer demands that are driven by an ever-changing economy.
As machinery becomes more sophisticated and as the ‘smart factory’ concept takes greater hold, the ability to maintain a constant level of capital and profit is improving despite serious challenges.
To quote the latest Department of Commerce report on the industry: “Although forecasting can be difficult in a business dependent on the economic fortune of its customers, the general consensus remains that those who can keep up with rapidly changing demands while still maintaining a high output capacity will elbow into a position of maximized profits.”
Bio: Michael D. White is a published author with four non-fiction books and well more than 1,700 by-lined articles on international transportation and trade to his credit.
During his 35 year career as a journalist, White has served in positions from contributor and reporter to managing editor for a number of publications including Global Trade Magazine, the Los Angeles Daily Commercial News, Pacific Shipper, the Los Angeles Business Journal, International Business Magazine, the Long Beach Press-Telegram, Los Angeles Daily News, Pacific Traffic Magazine, and World Trade Magazine.
He has also served as editor of the CalTrade Report and Pacific Coast Trade websites, North America Public and Media Relations Manager for Mitsui O.S.K. Lines, and as a consultant to Pace University’s World Trade Institute and the Austrian Trade Commission.
A veteran of the United States Coast Guard, White has traveled in both Japan and China, and earned a degree in journalism from California State University and a Certificate in International Business from the Japanese Ministry of Trade & Industry’s International Institute for Studies & Training in Tokyo.