4/5/2008 by Richard Thomas

(Photo: Welder/fitter Tony Fish prepares a section at Dynamic Structural Steel.)

Last year Robert Bell, president of Dingwell’s North America, a machining and fabrication service in Thunder Bay, Ontario, looked to the Upper Midwest as a place to expand his business, and liked what he saw.

“There’s quite a bit of money to be spent in that region,” he said.

He saw the “for lease or sale” sign at Miller Hill Steel in Hermantown, an 18,000 square foot building “all craned and ready to go,” he said.

Bell contacted the Area Partnership for Economic Expansion (APEX) which helped to close the deal.

The new business opened in early January with James Miller, who has managed it since 1992 in charge. It has expanded to 20 workers. Orders to date have included heavy platework for the Mesabi Nugget plant under construction near Hoyt Lakes, frames for subway cars, and machinery for the southern U.S. forest products industry. The operation’s work force will double at full capacity, Bell said.

Other steel fabrication shops in the region also are positioning for a piece of the Iron Range mining boom and the hoped-for $6 billion expansion that Murphy Oil is weighing at its Superior Refinery. A.W. Kuettel & Sons in Duluth recently purchased a 400-ton hydraulic press brake, upgraded from its previous machine with 90 tons of power. “The guy who gets the job has the better pipe wrench,” said Tom Kuettel, vice president.

Another fabrication player is Dynamic Structural Steel, which moved in December into 65,000 square-feet of space at a former Canadian National Railway building in Proctor, a five-fold increase from its former site in Duluth. The company plans to add another drill line and seven employees later this year.

“Back in the 1980s there was a whole ton of fabrication around, but it went to the wayside as the industry went down,” said James Hecimovich, Dynamic’s controller. “There aren’t as many in the U.S., but steel has revived.”

The demand for steel from China and India is fueling the taconite mining renaissance on the Iron Range. That demand, along with high energy prices and limited supplies of some types of structural steel, also has driven up prices. A metric ton of medium steel section that sold for $716 in September 2006 was priced at $859 in December, according to steelonthenet.com.

In an intensely competitive industry, many small to mid-size U.S. steel fabricators can’t always pass along those increases to their customers, according to a March 18 story in the Wall Street Journal.

Those servicing the hard-pressed housing, auto and appliance industries are squeezed hardest, but fabricators making “mining equipment, farm equipment and oil and gas pipes, and aerospace parts, are in the economy’s sweet spot with commodity prices and demand strong for overseas markets.”

That puts many regional fabricators in that sweet spot. A.W. Kuettel has international contracts with customers in Europe, Japan, and Puerto Rico. “Being diversified really helps us when things slow down here,” Kuettel said.

His company cushions price increases by stockpiling steel and other metals when prices are low, typically in late winter. Steel prices usually rise in late spring as fuel prices and transportation costs increase, he said.

But normal market trends have fallen by the wayside.

Steel prices have soared 30 percent since last June, with about half of that increase since Jan. 1, said Dan Larson, vice president of sales and estimating for Northshore Steel in Two Harbors, which employs 26 people. “We’re trying to absorb it for existing contracts and pass it along in new contracts,” he said.

“We’re always confronted by rising steel and aluminum prices,” said Richard Lien, vice president of operations for Northstar Aerospace.

“Some we pass on to customers, some you can’t.”

LeJeune Steel, a unit of APi Group, is one of the Upper Midwest’s larger fabrication companies. It operates plants in St. Paul and tiny Barronett on U.S. 63 between Shell Lake and Cumberland, producing a combined 40,000 tons of fabricated steel annually for projects. It’s a supplier for the new Twins Stadium and Gopher Stadium.

Mike Histon, vice president, said cost increases typically are passed along to customers. He noted, however, that his company may place an order six months in advance, but “we pay the day they ship, not the day we order.” If prices go up in the interim, the customer absorbs the difference.

Kim Bailey, an estimator for Dynamic Structural Steel, said rising steel prices and other production costs are factored into bids and “aren’t a problem yet.”

Her company opened in May 2006 and has expanded rapidly. Jason Erickson, president, said 2007 output hit 3,500 tons and said he is “shooting for 8,000 tons.”

Erickson had worked for six years as project manager for Duluth Steel Fabricators. He launched his own company backed by investors including Wells McGiffert, former owner of Hallett Wire Co.

The company has just 23 employees and relies heavily upon computerized machinery. It’s three-dimensional modeling software plots out every piece of the structure, every cut and where every hole is to be drilled. “The info is loaded to a flash drive, goes to drill, it’s all automated,” said Patrick Contardo, purchasing manager.

While most of its business thus far is local, the company is not bound by location. “Distance is not a barrier at all,” Contardo said. “The CN mainline (between Winnipeg and Chicago) is 50 feet from our door.” The rising price of fuel is not an issue as transportation costs are rolled into the project bids, he said.

Getting a larger piece of the Iron Range boom is attractive, but Erickson said growth will be broad-based. “I don’t like to put all my eggs in one basket,” he said.

Added Contardo: “We’re fortunate to be in this place at this time, but not stupid enough to not realize this is part of a cycle.”

He expects the upwards cycle will continue for a few more years as India and China push demand.

Mark Youngren, president of Duluth Steel Fabricators, said Dynamic Structural Steel provides some competition but the greater threat is from Twin Cities fabricators. “We’re in a marketplace where the pie hasn’t grown. Still “we’re pretty busy,” he said. “We got a bit of a backlog. Hopefully these upcoming projects (with Iron Range mines and the potential Murphy Oil expansion) will keep everybody busy.”

Another local fabricator, Superior Steel, relies on the region for just 15 percent of its business, instead targeting jobs as far away as Denver and California, said owner Rusty Hoglund. Aided by an $80,000 grant from the city, his company expanded in 2004 to a larger site on Connor’s Point in Superior.

Hoglund said 2003 and 2004 were low points in the market, with steady growth since 2005. “Business couldn’t be better,” he said. “We’ve been working Saturdays, and we’re a bit behind. I see no sign of it decreasing through next fall.”

As with Dynamic Structural Steel, much of Superior Steel’s shop is computerized and automated. “You put in a computer disc, light a torch, there it goes,” Hoglund said.

Nevertheless, demand is growing in the region for skilled workers who can operate that equipment.

“Everybody’s trying to find employees,” said Dan Larson, president of the Arrowhead Manufacturers & Fabricators Association and president of HydroSolutions (no relation to Northshore Steel’s Dan Larson). “I don’t know of anyone reducing staff because of technology. It allows them to grab more of the market.”

For now, Duluth Steel Fabricators is having no difficulty finding workers, Youngren said. “Every time we have a job opening we get 40 people standing outside,” he said. “Once the big projects get going there won’t be enough trades people. But that situation isn’t here yet.”

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