Stainless-steel fabricators roll with weak economy

Many steel companies are still riding the high from strong sales in 2007, but business has slowed in some sectors during the first quarter of this year.

Executives with Paul Mueller Co., Tank Components Inc. and Custom Metalcraft say the demand for pharmaceutical equipment is down slightly, but that other markets – chemical, dairy and cryogenics among them – remain strong amid the economic downturn.

Orders for ethanol and biodiesel tanks, which emerged as an ancillary revenue source in late 2006 and early 2007, have declined as financing for biofuel production plants has dried up in recent months. But companies expect orders to resume due to legislation enacted by Congress late last year that set a renewable fuels standard of 36 billion gallons by 2022.

Mueller President and CEO Matt Detelich said the rush by some competitors to manufacture biofuel tanks opened the door to more business in the company’s traditional food, dairy and beverage markets.

Meanwhile, local stainless-steel outfits are researching the marketability of new product lines and branching out beyond U.S. borders to get more bang for the weakening American buck. In Europe, where a Euro is worth $1.50, business is beckoning.

“I think we’re going to look heavier for international sales,” said Dwayne Holden, co-owner of Custom Metalcraft. “I think there’s tremendous opportunity there.”

Earlier this month, Mueller purchased all outstanding shares of Netherlands-based Paltrok Beheer B.V., a wholly owned subsidiary of Rollbas, for $20.2 million. Paltrok has been Mueller’s European licensee for milk coolers, beverage equipment and heat exchangers since 1988.

Myriad markets

Custom Metalcraft continues to see a healthy demand for wine-related tanks and equipment as well as portable intermediate bulk containers, or IBCs, which are used to store flammable and combustible liquids, such as oil, Holden said.

The 31-year-old company, with headquarters at 2332 E. Division St., is preparing to stock tanks for companies in Asia, South America and Europe, Holden added. Custom dumpers and heat exchangers also remain revenue-generating stalwarts for Custom Metalcraft, which posted revenues of $37 million last year.

Holden said Custom Metalcraft is looking to add new product lines, such as collapsible portable containers and “poly products,” to keep revenues up.

“With the economy, we’re just going to have to work harder this year,” he said. “(There are) too many headlines of a recession.”

Mueller’s Detelich said that cracking into new markets or gaining share in existing ones has been tough in recent months. Consequently, the publicly traded company (OTC:MUEL) is taking a more conservative strategy in hopes the economy will rebound later this year, he said.

“Our big thing right now is making sure we make the commitments we already have, and we’re trying to fill our backlog,” Detelich said. “We’re guarding against the economy. Fuel prices aren’t helping. They’re killing trucking, and a big part of our business is trucking. So that’s certainly a challenge.”

Mueller began 2008 with a $69 million backlog, compared to $117 million in 2007, according to the company’s annual report. Mueller’s 2007 revenues were $241 million for a profit of more than $9 million. In 2006, the company turned a $7 million profit on annual revenues of $153 million, according to its annual report.

Detelich attributed much of last year’s success to sales of modular systems manufactured primarily for pharmaceutical companies.

System components are transported to a plant site and assembled inside a client’s shell building, he said, adding that Mueller has shifted more toward project-based orders and away from equipment-based ones.

Pedal to the metal

Tank Components Inc. is one stainless-steel manufacturer that’s counting on continued growth in 2008.

Tank Components doesn’t compete with fabricators that build tanks and related equipment, but instead manufactures an array of stainless-steel components, such as tank heads and hose fittings.

“Our strategy this year is to invest in additional product offerings,” said President and CEO Dale Sandy. “We’re trying to be a one-stop shop for everything tank-related.”

The company’s model has been a successful one, allowing Tank Components to grow its revenues by more than 300 percent between 2003 and 2007, according to company officials. Although he declined to provide specifics, Sandy said first-quarter results suggest the company will reach its goal of 20 percent revenue growth this year.

Ohio-based L.J. Star acquired Tank Components in 2004 and has increased the number of employees to 50 from 11 and purchasing millions of dollars worth of specialized equipment, Sandy said.

Much of the new equipment at Tank Components’ 40,000-square-foot manufacturing facility, 4520 W. Kearney St., will enable the company to manufacture tank cylinders, Sandy said.

Tank Components also added a one-of-a-kind water-jet cutting machine late last year that is capable of cutting nozzle holes into tank heads – a time-consuming process that was previously done by hand, Sandy said. The machine can do the work in fewer than 20 minutes, he added.

Last August, Tank Components hired two employees who were among 265 laid off by Northrop Grumman to operate the water-jet cutting machine.

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