Steel Products

SMU Interview: Olympic CEO Takes Shine to Stainless, Manufacturing with Shaw Buy

Written by Michael Cowden

Olympic Steel Inc.’s sale of its Detroit location to Venture Steel and its subsequent acquisition of Shaw Stainless & Alloys marked the latest step in a years’ long effort to pivot from roots in Midwestern carbon flat-rolled steel markets, the company’s top executive said.

The Cleveland-based service center – while by no means exiting the region – wants to expand in the Southeast while also diversifying into higher-margin downstream and specialty products, Olympic Steel CEO Richard Marabito told Steel Market Update in an exclusive interview.

olympic steel logoThink not only stainless but also aluminum and specialty metals. And think not just distribution and fabrication but also end-use manufacturing. “Whether its acquisitions, investments, or the block and tackling of regular business, it’s about getting more consistent earnings and increasing return,” Marabito said.

Olympic sold its Detroit operations to Canadian flat-rolled processor and distributor Venture Steel for $58.4 million in September. It used some of the proceeds to buy Marietta, Ga.-based Shaw Stainless & Alloys in a deal announced on Oct. 1.

The company has been active in M&A in recent years, and acquisitions will remain part of the playbook. “We have not been shy about our desire to continue to grow the stainless piece of the business,” Marabito noted.

Olympic’s business was almost 100% carbon steel in 2008-09. Its diversification strategy got under way in earnest with its 2011 acquisition of Chicago Tube and Iron, he said.

The contours of that bigger strategy could be seen in the recent deal with Venture. Approximately 90% of business at Olympic’s Detroit location was linked to the automotive industry, as was roughly 10% of the company’s overall volume. The sale of the Detroit facility drops the percentage of automotive’s contribution to Olympic’s overall book of business into the single digits. Heavy equipment – whether construction, agriculture or the array of fabricators serving them – remains the bulk of the company’s business, Marabito said.

Why stainless? For starters, it is more consolidated than carbon steel, so there are not only fewer producers but also fewer players in fabrication and distribution. And while stainless is a higher priced metal, which carries more risk, that higher risk has also come with higher returns, he said.

Another benefit of the Shaw deal is the company’s strong presence in the Southeast, where Olympic has also been expanding. Olympic, for example, is adding a second stamping press at its Winder, Ga., location, which serves the region’s automotive market. That second press is on order and expected to be in operation in the first quarter of 2022, Marabito said.

And Shaw has not only distribution but also fabrication and manufacturing operations in the region. The company, for example, makes big stainless steel tanks for the fluid separation industry, a sector where Olympic sees strong growth potential. It also makes stainless steel bollards – think the metal pillars that have become common on city streets and outside of stadiums in place of concrete Jersey barriers. Stainless bollards are a “huge market” because they are increasingly popular among architects, not just for new construction but for renovation projects as well, he said.

“If we want better returns, we need to do more things to the steel and metal we sell,” Marabito said.

As for the carbon steel market, it might be plateauing but is unlikely to careen downward. “It’s hard to imagine the price staying on the upward trajectory that it was on,” Marabito said. “We got to pricing that was higher than most people projected even 4-5 months ago.”

The hot-rolled coil price stands at $1,930 per ton ($96.50 per cwt), down $25 per ton versus a month ago but nearly triple $650 per ton a year ago, according to SMU’s interactive pricing tool.

Now is a “natural time” for pricing to take a pause given that domestic lead times are shortening and that a wide gap has opened between U.S. steel prices and those abroad. But it’s important not to assume that past downcycles, 2008-09 or 2014-15, for example, are a template for what’s in store for the current market.

“While you can learn from history and be wise about what history has told us, you have to keep in mind what is different this time,” Marabito said. Namely, Section 232, a higher degree of consolidation among domestic steelmakers, and supply disruptions stemming from the COVID pandemic that will continue to be felt in the months ahead.

“We are not looking at prices over the next 12 months doubling or tripling (again), they’re levelling off,” he said. “I think we have reached the peak here. But I don’t see a collapse in pricing.”

That outlook echoes responses to SMU’s recent survey. A clear majority of steel buyers said that prices were at or near a peak. But while the consensus is that prices already are or will move lower before the end of the year, SMU’s sentiment indices remain near record highs. Some people might interpret that contradiction as wishful thinking overriding logic. But Marabito doesn’t see a contradiction there.

“I think we’re going to have a really good market next year. Could we have lower prices? Yes. But the demand scenario is pretty good. I’d be hard pressed to find many customers who are saying they are selling less. And there is just a lot more discipline in the entire supply universe,” he said.

By Michael Cowden,

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Michael Cowden

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