SCS UPDATE - December 2005

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Readers of this newsletter know that SCS production lines are designed, built and serviced by Red Bud Industries (RBI) of Red Bud, Illinois. What many do not know is how RBI has come to benefit from use of SCS sheets in construction of its machines.

Since its founding in 1959, RBI has been an innovator in coil processing systems. Today, RBI ships Cut-To-Length, Blanking and Multi-Blanking Lines, Slitting Lines, Stretcher-Leveling Lines and SCS Sheet and Coil Lines. RBI ships 15 to 20 complete systems a year on average -- 70% domestic and 30% export.

Standing Behind The Product
How SCS Helps RBI Cut Costs

Where Does SCS 'Fit' Among
Flat Rolled Steels

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Self-sufficiency is a key aspect of the company's manufacturing philosophy. RBI employs a range of modern machining and fabricating cells to produce parts for its machines. It paints, assembles and tests all systems in-house before shipping to the customer for reassembly and commissioning.

"If we build our parts and components, rather than buy them, we can support our customers with replacement parts made to original specs," explains RBI President Kalin Liefer. "That also lets us offer five year warranties and ship 98% of our replacement parts within 24 hours of request."

RBI Plant Manager Dean Schoenbeck shows off a freshly painted SCS part. "We pride ourselves on the quality of our equipment and the workmanship that goes into it -- all the way to the paint finish," explains Dean. "SCS gives us a better finish at a lower cost. I'm looking at other areas to use SCS."	It also leads to the need to inventory several steel products: cold and hot rolled bar, I-beam, rectangular and round tube, castings, hot rolled plate and hot rolled sheet.

It wasn't long after the first SCS Sheet Line built by RBI was commissioned, that RBI replaced some of its hot rolled sheet with stretcher-leveled SCS sheets processed on that line. Dean Schoenbeck, RBI's plant manager explained, "It made perfect sense to switch to SCS, since we built the SCS process equipment and we stand firmly behind that equipment. But we'd use SCS even if we had nothing to do with the equipment because it solves so many problems for us."

Today, RBI drills, punches, forms, welds and paints SCS and no longer buys any hot-rolled sheet. "Since the SCS is so clean and doesn't rust, these fabrication areas in our shop are now easy to keep clean -- even employees' uniforms stay cleaner, which is something they appreciate," stated Schoenbeck. "And welding SCS is more productive since we no longer have to wipe off excess dirt and grime in the area we are preparing to weld."

The biggest benefit of the switch to SCS came in painting. Dean Schoenbeck commented. "We never used P&O sheets because we didn't want the 5 stage paint prep needed to completely remove the oil. But hot roll black takes a lot of labor to get clean enough to paint well, especially if some rust develops. With SCS, the paint prep time is down dramatically, and the surface is so smooth that we get a superb finish every time." Note that RBI uses liquid spray painting due to the 'small lot' nature of their painting work.

There are other areas where Schoenbeck is eager to try using SCS. "We weld and paint a lot of tubing -- both rectangular and round," explained Schoenbeck. "There's so much structural tubing in our equipment and in the operator platforms and railings -- you just can't believe it. When we can get structural tubing made from SCS, the painting process benefits will spread to a larger portion of our work." Schoenbeck is watching the early SCS tube production trials with interest, hoping he soon gets the chance to once again 'make the switch' to SCS.

How SCS Competes With
Conventional Sheet Steels

This diagram shows the relative market demand for P&O, cold rolled and hot rolled steel categories, with the relative size of each circle being proportional to its market demand.

The portion of each steel category that is golden colored represents the proportion of that steel category we believe can be successfully switched over to SCS. Taken together, these golden areas constitute the potential SCS market coverage.

With more service centers offering SCS to their customers (and more preparing to) we wanted to answer a commonly asked question: "How much of my conventional flat-rolled steel sales would I be able to replace with SCS?" It's an important question, since it gets to the heart of SCS market coverage.

There isn't an exact answer, but working with several SCS users in different industries, we developed estimates that we believe are useful. The above diagram shows how much of the three major flat-rolled steel categories can be served by SCS. The portion of each steel category's usage that can be served by SCS is the gold colored portion of the steel's circle. The non-gold colored portion is the usage that possibly may not be served by SCS.

SCS Replacing Pickle & Oil
We've often discussed how SCS is an excellent replacement for P&O. In fact, we believe SCS can supplant as much as 90% of P&O usage. The cost penalty fabricators pay for having oil on their steel has already been analyzed (read more), and SCS' lower capital and operating costs are well-documented (read more). Recent trials with plating, tube production and other value-added processes are showing SCS to be an excellent base material, so we are now confident enough to include these traditional P&O uses in our SCS market coverage.

What's the 10% of P&O demand that SCS may not serve adequately? We're 'reserving' this 10% for two areas where we do not yet have enough data to be conclusive -- aggressive stamping applications and prepainting. While SCS stamping trials have thus far been successful, we do not know SCS' stamping limitations. Likewise, prepaint trials have been successful, but there's not yet enough experience to 'check off' the prepaint box. More trials need to be completed in these areas to be able to confidently claim that SCS will perform as well as P&O.

SCS Replacing Hot Rolled
Keep in mind that SCS replaces flat rolled categories besides P&O. The lead article about RBI's use of SCS to replace hot rolled black (HRB) is representative of a large number of potential users. They feel that even if SCS costs a bit more than HRB, the benefits it brings to their manufacturing operations more than offsets the higher cost (read more). That's why we expect SCS can capture up to 75% of HRB usage. Also, keep in mind that if the SCS user becomes an SCS producer by acquiring their own SCS processing line, their material costs may actually decrease.

What comprises the 25% of the HRB users that may not switch to SCS? It consists of manufacturers whose processes get the steel so dirty that SCS' cleanliness is not a real advantage. These manufacturers have to do a lot of cleaning of their steel regardless of whether its HRB or SCS, so why pay a premium for SCS? Well, there may be several reasons why: like faster laser cutting and better weld strength. But until experience shows we can count on HRB users in this category to switch to SCS, we'll continue to exempt this 25% of the HRB market.

SCS Replacing Cold Rolled
Finally, we estimate that SCS can serve about 15% of the cold rolled demand. That may seem low, but users often specify cold rolled for very exacting dimensional, hardness and grain structure properties. The hot rolled steel that serves as the base material for SCS is typically not produced to such precise standards -- it's more of a commodity product (although the gauge control of new mini-mills now gets hot rolled very dimensionally accurate and consistent).

However, there's a 'wild card' steel that bears mentioning along with the cold rolled category: Castrip. This new steel making process can accurately produce consistent very thin sheet -- currently down to 0.036 inch and projected to reach 0.027inch. That means Castrip may start replacing cold rolled as a way to achieve good dimensional control at lower cost. The good news is our SCS trials with Castrip have been very successful -- SCS brings excellent smoothness to the surface of Castrip sheet. So while we haven't factored this 'wild card' into the foregoing analysis, SCS'ing Castrip may be a way to capture market share over and above the amounts already cited for P&O, hot rolled and cold rolled.

We hope this analysis helps current sellers and potential sellers of SCS determine how they might have the most success with their customer base. We also invite your comments and experience to help us refine this market model. Please contact Chris Liefer at (618) 282-4200 ext. 103 to share your thoughts.