Steel industry woes rock Springfield manufacturers

Paul Mueller Company, one of Springfield's largest manufacturing companies and the town's largest steel manufacturer, lost both during the first five months of the year. In mid-May, Mueller officials let go 120 employees from a Springfield work force of more than 800. That after losing $2.4 million in the first quarter, according to the publicly traded company's U.S. Securities and Exchange Commission filing.

Add those cuts to three rounds of layoffs at Pure-Flo Precision, and approximately 200 steel fabrication workers are jobless.

Terry Pumphrey is among about 30 employees Pure-Flo officials most recently sent looking for work. Pumphrey and other shop workers were laid off May 14.

"I've been around to a lot of the other companies now," he said. "Nobody's hiring."

Pumphrey worked in Pure-Flo's pharmaceutical product division.

Custom Metalcraft is hiring, but not in Pumphrey's line of work. About eight former Mueller employees have found work at Custom Metalcraft, according to its president, Dwayne Holden.

"We're talking to some more. They will probably go back when Mueller starts back up, but that's just the game," Holden said, due to retirement and vacation packages those workers have built at Mueller. "Maybe they'll like us."

Both Mueller and Pure-Flo, formerly known as Precision Stainless, are heavy producers for pharmaceutical customers, an industry that has curbed major capital expenditures. And both companies say the layoffs are due to slowdowns in pharmaceutical orders.

"We've seen a slowdown in the heavy capital industries and plant construction," said Dan Manna, Mueller Co. president. "That's been broadly felt by most people in this industry."

Holden said Custom Metalcraft has not had layoffs its work force is steadily around 180 because the company targets smaller niche markets, such as food and dairy, dry/powder equipment and portable tanks. The company also serves the pharmaceutical industry, and orders have been down, but its diversity helps to absorb significant sector losses, Holden said.

Mueller's slide

At Mueller, company officials say a sluggish steel market started in late 2001 as fallout from 9-11, but it wasn't until later that they realized the true impact. At the time, the future looked good: The production backlog was full and employment was high.

"It's kind of a feast or famine situation," said Don Golick, Mueller CFO.

The company feasted on about five multimillion-dollar projects for pharmaceutical clients from 2001 to 2003. To handle the workload, Mueller officials beefed up employment by more than 100 and expected further large orders to keep those workers busy.

"There was a lot of activity at the time," Manna said. "The big orders were in pharmaceuticals."

Then, in 2003, famine set in. "The new, major orders just didn't come through the way we had hoped," Manna said.

The company's backlog at the beginning of 2003 was $54 million, compared to a backlog of $38.6 million at the beginning of 2004. The biopharmaceutical systems segment backlog was most severely impacted, down $13.7 million year-to-year.

Biopharmaceutical systems sales were 61 percent lower during first-quarter 2004 compared to first quarter 2003, due to a decline in large project sales, the SEC filing said. Total sales were down $9.27 million, or 34 percent, from first quarter 2004 and first quarter 2003.

"We use the analogy of carrying big rocks in a bag," said Manna. "One rock can make the difference between the bag being largely full and half empty. Without a couple of those major contracts, we found our bag about half empty."

Manna said the company fought to retain its employee base long after hard times hit. It trimmed some employee workweeks to four days and in January enrolled about 80 into Missouri's Shared Work Unemployment Compensation Program, which gives employees a portion of their unemployment benefits while working reduced hours.

But as the large-order drought continued, company officials had to cut jobs to save its bottom line, they said.

Direct impact

As a subcontractor for Paul Mueller and Pure-Flo, to a greater extent, Custom Manufacturing and Polishing has watched its workload soften.

"That really does affect us here, with their slowdown over there and lack of business," said Mike Sadler, company president.

The company also does polishing for firms in the northern portion of the Midwest and the Southeast.

"Generally, all of our polishing requirements for pharmaceutical are down," Sadler added. "But our customer base up in the Wisconsin and Minnesota area is food and dairy. Those people are still buying."

The food and dairy sector, among others, has led to four new hires this year. Custom Manufacturing and Polishing employs 28.

National epidemic

At the core of flat pharmaceutical capital spending is drug production, the local steel executives say. No new drugs, no new facilities.

"They're still making product, they're still selling things," Sadler said. "But tanks are generally considered capital equipment and those (purchases) typically happen when you come up with a new product."

Another factor is abnormally high steel prices, which alters customers' spending across the board.

"There's been a high amount of people that have backed off because of cost," Holden said. "Every month, the projection is that it's going to go up again."

The price of carbon steel has doubled since last fall and stainless steel is up 60 percent. "And it's hard to get," Golick added.

But Mueller is not giving up on the pharmaceutical industry; Manna expects a rebound.

"What I get from speaking to people in the industry is that we are really on the infancy of bio-engineered drugs. They say we've mapped the human genome now, but yet in the big picture I think we know so little about the human body and its immune system and its reaction mechanisms for prevention of disease," Manna said. "I think there is a lot to be learned and I think there is going to be a lot of new drugs discovered. There's going to be facilities required to produce them.

"When I look at all of our markets, I think it is the most promising on a long-term basis. We're going to see these waves in it."