Servosteel

Source: Manufacturing Digital

Date :27/06/2007 11:38:19

From administration to European success

Servosteel is the largest steel toll processor in the UK. The company’s Managing Director Jim Spencer spoke to James Hurley about Servosteel’s unprecedented processing range, a fledgling European trade and an economically and environmentally revolutionary approach to cleaning steel

Written by James Hurley & Produced by Nick Hargrave

Servosteel is a steel processing business with an established reputation for providing slitting, de-coiling and pickling services for steel consumers, manufacturers and service centres. The largest independent steel processor in the UK, Servosteel is unique in being able to offer a “one stop shop” service for pickling and oiling in coil form together with slitting, de-coiling. The company currently processes approximately 310,000 tonnes of steel every year. Based in Pensnett, Dudley in the West Midlands, Servosteel employs over 100 people.

An unprecedented range

Servosteel has been established for over 20 years, but experienced financial difficulties in 2003 and went into administration. Oakside Solutions Ltd acquired the business and assets of the former Servosteel Ltd and Stourbridge Stockholders Ltd from the Administrators of the David Fabb Holdings Group on 28th October 2003. The business now trades under the name Servosteel.

“The present owners are property people,” explains Jim Spencer, Servosteel’s MD. Spencer’s involvement with Oakside came about because of his friendship with one of the property partners. “I came on board three and a half years ago, together with Mark Anderson as the new Finance Director, having been in steel for quite a long time. We decided that we’d rationalise the business onto one site.”

During 2004, the company reorganised by rationalising most of its production facilities onto one site on Pensnett Road, Pensnett, Dudley. By late spring 2005, the rationalisation programme was completed when the company’s administration and office functions also moved to the Dudley site. “In the process we spent £750,000 on upgrading machines,” he says. “Our current productive capacity has risen by about 20 percent.”

In one sense, Servosteel is not in the business of competition, because generally speaking it doesn’t buy or sell steel. Most of its customers do buy and sell steel of course, even if they process it. “It’s one of our great strengths that we’re not in competition with them for the business of end users,” Spencer says. As toll processors, Servosteel handle other businesses’ materials. Its 150 clients include steel mills, steel merchants, agents and other steel stockholders.

“Quite a few people have the sort of kit that we have in terms of production slitting and de-coiling, but nobody has the range that we have,” he explains. “Even people with their own production facilities will come to us for things which are outside the capacity of their machines. We fill in gaps where existing processes and stockholders can’t quite make it.” A perfect illustration of this is the fact that Servosteel’s biggest single customer is Corus. “They have a huge amount of plant and equipment and yet we fill gaps that they can’t fill for themselves.”

A route into Europe

Approximately 50 percent of the steel processed by Servosteel comes from outside the UK, from regions including China, Brazil and Eastern Europe. However, Jim Spencer is far from a doom-monger when it comes to the present state of British manufacturing. “As long as we continue to use steel in this country, and we are a big user of steel as a country, don’t believe the people who spread the rumours about UK manufacturing going down the drain. The year before last, we made more motorcars in this country than we have ever made before.

“If you start measuring the success of manufacturing by the number of people it employs, then it will look like it is going downhill. But if people are investing in high class kit and are using fewer people to produce more units, then it’s a far healthier situation than appears at first glance.”

Spencer draws a parallel with the automotive industry. “If you look at car manufacturing in particular, I don’t think there’s a single UK owned company making cars here. Similarly, after the Corus joint venture with Tata, there isn’t a single significant steel strip mill manufacturing company in the UK that’s UK owned. That is the way it’s going. But the reverse of that from our point of view is in the last few months we’ve suddenly been getting a lot of business from Europe. This is quite unique. It points to, oddly enough, a lack of manufacturing capability on the continent and raises the question of freight prices.”

Thanks to the weight of the UK’s imports, moving freight from the UK to Europe is very cheap, and is approximately half the cost of freight travelling in the opposite direction. This is a fact that Servosteel has been able to turn to its advantage. “Thanks to the imports we’re having from Eastern Europe, lots of wagons are going back empty, so we can transport steel from the UK into Europe at the same price that we can get it from Birmingham to Glasgow. If you’ve got the right steel processing kit, you can take advantage of that. We’ve discovered this almost by accident, but we now have four or five major customers in Europe.”

Spencer says discovering this continental market has been very satisfying, and having spotted this development the company plans to run an advertising campaign in Europe through steel magazines.

“The UK is a great international trading nation,” he says. “We have a dozen major international steel traders in this country. We’re now getting interest from European users buying from UK traders, delivering into the UK for processing to go back into Europe. It’s very logical; you look at it and wonder why it didn’t happen before. Our European business is developing really well and we’re very pleased with it.”

The way forward

Servosteel has just spent £3.4 million on an American line that it hopes will revolutionise the way steel is cleaned, or ‘pickled’. The company currently has the only privately owned steel pickling line in the UK. This process takes steel through acid baths at around 80 degrees centigrade, which removes all of the scaling, impurities and rust. Afterwards, the steel is oiled to stop it rusting again. There are enormous economic and environmental costs involved in this, not least in getting the acid up to heat, keeping it there and disposing of it afterwards.

The new SCS line which Servosteel has acquired will initially run in conjunction with its pickling line. It cleans the steel purely with abrasive brushes (made by 3M) and large amounts of water which take away the rust and mill-scale particles. The water is then recycled, so there’s no heating or waste disposal involved. As Jim Spencer points out, “there’s no ecological negative”.

“The other advantage is that everybody wins. The cleaned steel will last over a year in normal storage without rusting. This means the customers who are buying it can keep stock for longer. There’s no oil so the workers have a much healthier environment. Welding and lasering on this new SCS process don’t suffer the health hazards that they previously did. It’s also a lot quicker so costs are lower. The worker, the company and the environment all win.”

The company has a three year UK exclusive on this patented product. “It will give us a bit of a lead, but we need that because £3.4 million is a large investment for us,” he says. “I do think it’s the way forward. Eventually I think pickling is likely to cease.”

Spencer is looking forward to a bright future not only for Servosteel, but for British manufacturing in general. “We recently had an open day to launch the new line. We asked Sir Digby Jones to come and address the open day audience. The point he made, was that two way trade depends upon a truly open market. That’s vital to the UK. You can’t have restrictions or put up barriers. Going back to the motor industry, 75 percent of the 1.82 million that the UK produced were exported. It’s not a story you read about very often. As long as we keep the two way trade and keep our trading hats one, I see no reason why the UK can’t continue to export all sorts of goods and services.”