For most folks, when the words “steel” or “steel industry” are mentioned, the images that come to mind are ones involving skyscrapers, suspension bridges, and white-bearded, Gilded Age tycoons named Andrew Carnegie.
These are all perfectly valid associations, but so too are associations of your car, your home appliances, your house itself, and the electricity running through it.
The truth is that steel is everywhere. And with good reason.
Steel is stronger, more flexible, and more economical than other materials. It has significantly higher compressive and tensile strength than any other metal, and it is more durable, heat resistant, and cost-effective to produce.
“Steel determines the look of modern civilization and enables its most fundamental functions,” writes professor, researcher, and author Vaclav Smil in his 2022 masterpiece How the World Really Works.
“This is the most widely used metal… moreover, nearly all other metallic and non-metallic products we use have been extracted, processed, shaped, finished, and distributed with tools and machines made of steel, and no mode of today’s mass transportation could function without steel.”[1]
On top of this, post-pandemic market research shows that the combined iron and steel industry is forecast to grow rapidly over the next decade: 6.9% compound annual growth is projected in the period 2022-2030.[2]
So steel is important to our society and it isn’t going away anytime soon. But just how exactly does it go from the ground to the inside of your refrigerator, apartment building, and automobile?
The answer is a long chain of industry professionals producing close to 100M tons of steel annually in the United States alone.[3]
Producing Steel
At the most basic level, there are three key players in the production of steel: mills, fabricators, and erectors.
Steel mills take iron ore, carbon, and traces of other elements and smelt the admixture into “raw” steel consisting of beams, tube, angle, channel and plate. This steel then gets purchased by fabricators who, develop the final material list by working with a detailing group. Having received these specifications, fabricators then use the detailed drawing set to process and fabricate the steel for onsite construction. Once the steel is ready, it is then sent to the job-site for the erector to put together.
Now, bear in mind that this is a gross over-simplification of the steel industry as a whole – there are armies of incredibly talented people that support and augment these processes every step of the way. Partners in detailing, estimation, automation, logistics, labor organizations (and many more) make the entire process possible.
Nowhere is this more evident than in the fabrication step of the steel production process. It is here that the lion’s share of the complexity takes place, and therefore we at Pack 6 were extremely interested in looking more closely at how steel fabrication operates as an “industry within an industry.”
Somewhat surprisingly, there are not that many steel fabricators in the United States relative to the sheer size of the market. Certainly, there are the ultra-large, national-sized groups like Schuff Steel, Anchor Fabrication, and Basden Steel, groups that have the size and capability to build massive infrastructure projects like oil & gas pipelines or NFL stadiums. But there is also a much larger host of small- to mid-size fabricators that service local and regional marketplaces.
Pack 6 believes that the steel industry – like many others – is driven by the center of the bell-curve rather than the tail. It is driven by the restaurants on the corners of 10,000 city blocks rather than the giant sports stadium downtown.
Accordingly, we believe that understanding mid-size operators delivering projects with less flash and size, but with more volume and accessibility, is the key to understanding how steel fabrication is changing – and where it might be headed.
Consulting the Experts
To aid us in this effort, we sat down for a conversation with expert fabricator Tom Tepavchevich of Nick’s Metal Fabricating and Sons, a mid-size steel fabricator that’s been operating in the Chicagoland area since 1949.
Tom regaled us with stories of the business back when his father and grandfather were running things, contrasting it with the state-of-the-art technology he employs in his facility today.
“It’s been really tremendous watching automation enter the fabrication space,” said Tom, waving at some of his facility’s ultra-high-end processing machines. “At the same time, innovation comes with its own new set of risks.”
We were interested in hearing more. Tom broke the conversation down into a few key headers that we thought represented an excellent perspective on the industry: how the business has changed over the last generation, how it’s stayed the same, and where it seems likely to be headed.
1. Changes in the Steel Fabrication Industry
By far the biggest change in steel fabrication has been adoption of increasingly advanced technology that is driving automation of both the services provided and the business model itself.
“Even as late as 20-30 years ago, you had 100% manual processing on projects,” Tom said. “On the one hand, when you’re running what is essentially a highly skilled tradesman shop, your quality is terrific. But on the other hand, you can only knock out so much volume. Automation has really changed the game for Nick’s.”
Tom showed us around their automated “Python” processing machine, an automated processing tool with an eye-watering price tag that cuts steel with an equally eye-watering level of precision and speed. The increase in processing potential dramatically expands their overall throughput; however, Tom explained that it’s not just the shiny machines that have contributed to growth. It’s technology like project management and CRM software, data-driven estimating software, and integrated logistics planning tools that prevent bottlenecks across the floor. It’s the kind of transformation that takes vision and time to implement.
Despite the clear benefits of automation, however, Tom is the first to point out that with dramatic increases in productivity comes a new set of risks.
“It’s not really something that most folks think about,” Tom said as we moved off the facility floor and back to the team offices.
“But when you’re using data to drive all your decisions, and, say, new applications can source 10-times as many bids as before, it changes the workflows. Suddenly you need more folks managing administrative tasks and signing off on things that just don’t need the same level of scrutiny. But you kind of have to be involved because the established groups are competing with non-established groups. So what you end up with sometimes is automation making the workflow slower than it used to be.”
It's a result that makes sense, albeit one that is still a bit shocking. Tom expects – and has seen – these “speed bumps” smooth themselves out over time like any other adoption curve. He is optimistic. But perhaps the change that he laments the most is the reduction of meaningful relationships in an industry that used to be so heavily predicated on them.
“No doubt automation and data-driven decisions make everyone better. We’re making smarter decisions every day across the board and I think that’s true for everyone. But at Nick’s, we really care about our clients on a personal level and with increased automation everywhere, we have to work harder to preserve those personal relationships with our subcontractors and end clients. It’s been an interesting result of the shift toward technology.”
2. Constants in the Steel Fabrication Industry
We went on to discuss some crucial constants in the industry.
“Our client base has grown significantly in the last 20-30 years,” he said, pointing at a number of framed photos on the wall of his office, smiles beaming through the glass. “But the composition of our work has stayed remarkably constant: retail shops, hospitality work, schools, restaurants, QSR. We’ve done some really cool larger projects, of course, but we stay homed in on the consistent work.”
Another key constant has been the maintenance of good working relationships with labor unions, skilled tradesmen, logistics partners, and general contractors themselves.
As Tom went into the detailed dynamics between all these groups, we got the sense of the steel fabricator playing the part of an orchestra conductor. The fabricator, like the conductor, carefully coordinates the activities of a large group of individually talented experts who come together to, quite literally, build something bigger than the sum of its parts.
“It comes down to people,” he said, rapping the rough wood of his desk. “We’re always going to have skilled experts overseeing the automation of our processing work. And, likewise, we will always have skilled union labor out on the job representing iron workers and Nicks Metals.”
3. Key Trends Facing Fabricators in the Future
When asked about what he sees for the future of steel fabrication, Tom answered without hesitation. There are three clear things that he sees as the most important trends for steel fabricators to manage.
Differentiation with Service
Automation and high-tech services / operations are rapidly becoming – if not already – the norm. Fabricators are used to competing with each other based on price, but as time goes on, the necessity for providing quality services and quality steel will become more important.
Balancing Skill with Automation
Determining the right mix of automation and expert supervision is essential to delivering the best quality materials possible, as well as for managing risk.
Maintaining Key Relationships
From labor unions to trucking partners, the strength of our relationships will continue to play an essential role in our ability to efficiently deliver work.
Pack 6 Group is a procurer of raw steel and an industry consultant and risk manager. Nick’s Metal Fabricating is an independent organization with no formal affiliation or steel procurement relationship with Pack 6 in any capacity whatsoever.
The Pack 6 “Steel Industry Insights Series” is a content series released by Pack 6 Group on a monthly basis. The information contained in this series (and the constituent “issues”) is purely a work of opinion and is intended solely as an informational document for public readership. The work in this series does not represent a declaration or formal acknowledgement of Pack 6’s business positions, plans, or intended course of action.
References:
[1] Smil, Vaclav. (2022). How the World Really Works. Viking. [2] “Global Iron And Steel Market Size & Share Report, 2022-2030.” Grandview Research. https://www.grandviewresearch.com/industry-analysis/iron-steel-market. [3] “AISI Releases Annual Statistical Report for 2022.” American Iron and Steel Institute, 1 June 2023, www.steel.org/2023/06/aisi-releases-annual-statistical-report-for-2022/#:~:text=The%20report%20highlights%20that%2C%20in,6.2%20percent%20decrease%20from%202021.
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