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Saturday, 09 June 2012 00:12

Casting call: Rothbury Steel taps unlikely partner to scale up 'blank slate' foundry project

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Casting call: Rothbury Steel taps unlikely partner to scale up 'blank slate' foundry project PHOTO: Jeff Hage
ROTHBURY — Rising customer demand, an ideal location and available capital created an opportunity for a local company to reopen one of West Michigan's idled foundries.

Muskegon-based Michigan Steel Inc. worked with one of its key customers to convert the former Kurdziel Iron foundry in Rothbury, Mich. into a steel foundry to meet a growing demand for railroad castings. The newly formed Rothbury Steel Inc. launched production in late April with hopes of becoming a $50 million operation within two years.

Getting from concept to opening presented many challenges the long-time foundry operators didn't anticipate. They admittedly lacked the logistics expertise to build what was essentially a new foundry from scratch. The company turned to Triangle Associates Inc., a Grand Rapids-based construction firm, to manage the process. The resulting efficient operation provides the foundry an advantage that could keep it competitive for decades to come.

Building capacity

Michigan Steel started Rothbury Steel to meet demand from a key customer, global railroad equipment supplier and manufacturer Wabtec Corp., which had a need for railroad car undercarriages.

Chris Moein, president and CFO of Michigan Steel, said the Pennsylvania-based Wabtec is seeing strong demand from the rail industry, which over the last 10 to 15 years has been slow to upgrade and replace its equipment.

"That has resulted in a tremendous backlog of work that needs to be done to update rail cars, to build new rail cars and upgrade the overall fleet of rail cars," Moein said. "Wabtec is right in the center of that."

He said his company converted the former iron foundry into a steel foundry because it could get "higher up the value chain" with steel castings. Kurdziel had manufactured iron counterweights before it shut down in 2009.

"What we provide is a much more highly engineered (product)," Moein said.

Michigan Steel invested more than $6 million in new equipment, a move that was financed by a mix of funds from internal investors, customers, private investors and banks.

"As much of an opportunity as there is, it's still a challenging environment to raise capital," Moein said.

Rothbury Steel hopes to reach $50 million in sales in the first two years of operation. While the Wabtec business will be a significant portion of that, Moein said his team is looking to sell its excess capacity to other customers. The plant has an agreement to supply castings to Peoria, Ill.-based Komatsu, a heavy truck and equipment manufacturer, he said.

As of mid-May, the foundry had ramped up and began producing castings for the initial "key customers." The operation employs 50 people now with projections of 250 employees by the end of 2012 to produce about 10,000 tons of castings. The company hopes to get to 15,000 tons to 20,000 tons in the next two years and eventually employ about 350 people.

In the long term, Rothbury Steel plans to add additional furnaces and mold lines to increase capacity even further.

Call in the experts

Starting up what equates to a brand-new steel foundry proved to be more of a challenge than Michigan Steel bargained for, Moein said. The company thought that it would be able to get the plant up and running on its own, but realized it needed help after three or four months of "fumbling around."

While it had deep knowledge in the equipment, the design of the plant and the flow of the processes, it lacked the logistics expertise to pull off outfitting the plant in an orderly manner.

Rothbury Steel turned to construction firm Triangle Associates to become the project manager for the conversion of the plant from an iron foundry to a steel foundry.

"It went from not being clear on deadlines and not being clear on what we were trying to accomplish to having a very rigorous process in place," Moein said of hiring Triangle. "It made all the difference."

The project isn't a typical one for the construction company, said Jeffrey Scott, senior vice president at Triangle. There was little actual construction needed; instead, Triangle provided oversight on the preparation and installation of the equipment to ensure the scale-up process went as smoothly as possible.

"It really challenged us in our management techniques," Scott said.

The mix of used and new equipment, a lack of talent experienced in starting a new steel plant, and the massive size of the castings contributed to the complexity of the project, Moein said.

Rothbury Steel outfitted the plant with a combination of new and used machinery, which was readily available in the wake of the economic downturn as other foundries closed.

One challenge stemmed from designing a foundry with used equipment — pieces not built to the facility's specifications — and still allowing the manufacturing process to flow as efficiently as possible.

"The engineering and implementation challenges for something that isn't to spec — that you're bringing in as-is and having to fit into your process or into your system — is really difficult," Moein said.

Whereas Michigan Steel's existing Muskegon facility is a 100-year-old foundry pieced together over many decades of growth, the Rothbury facility offered the founders a "blank slate" in designing an efficient operation that makes the most use of its space, Moein said.

"It requires more intellectual attention," Triangle's Scott said. "We have to think outside the box and make those pieces that we have really mesh and come together."

Another obstacle stemmed from the fact that factories had been closing, not opening, which meant very few people in the market had experience starting up a foundry. While the Michigan Steel team had a many years of experience running foundries, they hadn't ever started their own operation from scratch.

"While we're good operators, ... opening a new foundry was a bit of a new experience," Moein said.

Additionally, Rothbury Steel planned to produce massive castings weighing from five tons to 10 tons. The size of the parts forced the partners to pay close attention to workflow and safety, minimizing handling of the massive castings as much as possible, Scott and Moein said.

"We're one of four or five foundries in the U.S. and about a dozen worldwide that can produce the size of castings we're talking about producing here," Moein said. "The simple physics of building a plant that can produce a 5- to 10-ton casting is very different than if you're opening a foundry that's going to build a more typically sized casting."

When dealing with such large castings, the design of the plant — and therefore its efficiency — can really help drive the company's cost-competitiveness, Moein said. Working with Triangle, Rothbury Steel paid attention to the design of the space and the placement of overhead cranes to reduce handling of the castings.

"What we discussed with Triangle is not only how do we get all this stuff in and make sure it works, but as a result of that design, we're going to be much more efficient in our operations," Moein said. "This plant is designed and customized to make what we're making in the most cost-effective way."

"We're going to be here for the next 50 years, as long as we have an efficient plant," he added.

Rising from the ashes

Not that long ago, the foundry industry was left for dead.

The same economic factors that slowed railroad reinvestment also took a toll on the foundry industry. According to the American Foundry Society, the U.S. metalcasting industry hit bottom in 2009 before rebounding in 2010 and 2011. Since 2009, shipments have grown more than 36 percent to $29.45 billion, and AFS forecasts that trend to continue through 2015 when sales are expected to reach $35.18 billion.

However, the number of metalcasting facilities shrunk by 14 percent over the last five years. There are about 2,010 plants nationwide, according to estimates.

Driven by the railroad, oil/gas, mining and other industries, steel castings is one of five metalcasting markets that have the greatest long-term growth potential, according to the AFS 2012 forecast. Total steel castings sales are expected to approach $3.4 billion in 2012, the report stated.

The society's forecast in the steel market for railroad vehicles and rail cars predicts an annual growth rate of 10.7 percent from 2011 to 2014 before leveling off later in the decade.

That market potential helped sway Wabtec to get involved and help finance the Rothbury Steel plant, Moein said.

"(Wabtec) looked at the global supply of steel castings and realized there is a tremendous shortage worldwide for castings, and they saw the need to invest in the capacity and have some direct access to that capacity," he said. "Twenty-five years ago, there were 35 foundries in the U.S. that made railroad castings. Today, (there are three)."

While Michigan Steel works with sister companies in Europe and Asia to fulfill orders for Wabtec, Moein said the economics aligned to make opening a new foundry in West Michigan a viable option.

With the close of Kurdziel Iron not that long ago, the region still offered an available skilled workforce at an affordable price, he said. On top of that, West Michigan's "low energy costs" contribute to the cost-competitiveness of starting an energy-intensive foundry here, he said.

Foundry operations perform the best in temperate climates like the one in West Michigan, he added.

"Michigan is the best place in the world to make steel castings, hands down," Moein said.

On-shoring

After an off-shoring wave a decade ago when companies pushed castings to overseas suppliers, many companies are finding it easier to pay a slight premium for domestic production.

"Our customers are finding that it's a heck of a lot better to drive two and a half hours from Detroit or Chicago than it is to get on a plane and go 14 hours to China. It simply is better for them to come here and meet with us and talk about their products than it is to go to China and deal with the cultural and logistical challenges of doing that," he said.

While acknowledging that labor costs are cheaper overseas, Moein said domestic productivity gains are helping to narrow the gap. In addition, he said customers want to have some certainty in their cost structure, and the U.S. currency is much more stable than what they can find in the traditional low-cost countries.

While he competes with those low-cost countries every day, Moein also acknowledges that the domestic industry will thrive as developing countries continue to mature and create more opportunity for Rothbury Steel. With developing nations consuming more of their own capacity, domestic companies have a greater chance to compete, he said.

Moein said one potential customer is short 250,000 tons of castings just this year — the equivalent of eight foundries the size of Rothbury Steel operating at capacity for 24 hours a day.

The new Rothbury Steel operation will also have a broad economic impact for Michigan. Moein said 90 percent of the foundry's costs get paid out to other in-state companies. The company's supply base — including scrap steel, binding for the sand molds and the additives for the steel — is all locally sourced, he said.

"Not only is this business in and of itself a significant boost to the county in terms of the number of jobs, but the multiplier effect is much more pronounced for businesses such as ours. We're not buying our supplies overseas. We're not even buying them from Ohio. We're buying them right here in Michigan," he said.

Read 7319 times Last modified on Thursday, 02 August 2012 15:09

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