Fastmarkets’ calculation of its steel hot-rolled coil index, fob mill US Midwest plunged from $55 per hundredweight ($1,100 per short ton) in January 2024 to about $32 per cwt in mid-July.
Kloeckner, one of the biggest service centers in North America with 55 branches, made the biggest of those four acquisitions in August 2023 with the purchase of Nuevo Leon-based National Material of Mexico for $340 million.
The company also acquired Sol Components and Industrial Manufacturing Services in October and November 2023 respectively, and announced the purchase of Amerinox’s assets in Camden, New Jersey in July 2024.
Entering automotive business
The Mexican investment included Kloeckner entering the automotive business and higher value-added electrical steel-related products and services. Mexican-made electrical steel-related products serve markets within Mexico, the US and Canada.
“The move into automotive is an example of expanding the core [business], giving us capabilities to get into markets that we haven’t been in,” Ganem said.
Speaking about Kloeckner’s other recent purchase, Ganem said the Industrial Manufacturing Services purchase allowed the company to reach “the highest level” of value creation possible for a service center.
“We are actually providing a finished part to an [original equipment manufacturer]… Those parts are formed, welded and even painted in many cases” he said.
“And those types of businesses, not everybody can do — they generate a much higher return. The value that we are creating in the process is not as susceptible to price volatility” because the price of steel makes a much smaller component, he said.
Ganem said that in recent years “we’ve seen record levels of volatility, and I think the strategy has allowed Kloeckner Metals, certainly in North America, to be able to navigate those cycles much better than we had in the past.”
With the purchase of Sol Components, a maker of solar energy equipment, ”it’s more of the same,” he said.
“That plays right into our higher-value-add strategy, because many of the parts and components that go into a solar structure are fabricated parts,” Ganem said.
The CEO also noted “much higher prices and margins” in relation to the purchase of Amerinox, due to processing stainless steel and aluminum.
“Any increase in the mix of stainless and aluminum that we can sell is also well aligned with our higher-value-added strategy,” Ganem said. Amerinox also brings advanced capabilities like polishing to Kloeckner, he added.
Possible acquisitions
Kloeckner, which generated $4.5 billion in revenue in 2023, will target assets for acquisition that could result in synergies and further expand the company’s added value strategy, Ganem said.
“We look at the opportunities that arise,” Ganem said. “They can be opportunistic. We don’t have to do anything. We are really in good position today, but we are here to grow, especially when it comes to the higher-value-added part of our business.”
Recent acquisitions by other service centers point to a trend of consolidation in the steel processing industry.
Companies like Reliance, Ryerson and Olympic Steel are among those that have made acquisitions within the past couple of years.
Based on the number of existing service centers, there appears to be more room for industry consolidation: The Metals Service Center Institute, which groups service centers, mills and affiliates, has over 2,300 members, many of them in the US Midwest and Northeast.
