This Mexican steel company dedicated to steel manufacturing for the automotive and metal-mechanic industries underwent serious technological upgrading and management restructuring since acquisition in 2001. As an Industrias CH company, Grupo SIMEC shows outstanding results. Susana Baumann reports.
Grupo SIMEC S.A. de C.V. (SIMEC) started steel operations in 1969 under the management of a group of families from Guadalajara, state of Jalisco, under the original name Compa¤¡a Sider£rgica de Guadalajara S.A. de C.V. (CSG). SIMEC today is a leading steel manufacture of non-flat steel products with an ample gamut of structural and commercial steels, including cold and hot rolled products, rebar, and specialty steels for applications in the construction, automotive, metal-mechanic, and manufacturing industries. The company also indirectly operates its subsidiary Compa¤¡a Sider£rgica de California, S.A. de C.V. (CSC) the largest steel plant located in Mexicali, state of Baja California, purchased by Industrias CH in 1993.
In 2004, the company also acquired the special steel plants located in Apizaco, state of Tlaxcala and Cholula, state of Puebla, belonging to Industrias F‚rricas del Norte, which increased SIMEC’s installed capacity 56 percent to a total production of 1.9 million tons annually. Industrias F‚rricas del Norte in M‚xico was part of SIDENOR Industrial, a Spanish conglomerate of steel manufacturing companies specialized in special steels and heavy forge and melting of large pieces with over 2,250 employees around the European market.
SIMEC is one of 47 subsidiaries operated by Industrias CH S.A. de C.V., the Mexican holding company dedicated to the production of metal products targeting markets both in Mexico and abroad, predominantly the United States and Latin America. Operating through three primary divisions, specialty steel, pipes with seams and commercial steel sections, Industrias CH products include specialty steels, pipes with seams, laminated bars, forged bars, billets, angles and supports, and corrugated small rods. The company markets products to the automotive and construction industries, for petroleum equipment, and the docking sectors. Industrias CH is a publicly traded Mexican group that currently employs 5,600 workers and showed a net margin profit of 11.03 percent in 2005. It has grown rapidly through acquisitions. In 2005 it acquired Republic Engineered Products, located in Fairlawn, Ohio, from Perry Strategic Capital, a New York investment group, giving the Mexican group a presence in the United States for the first time.
Once North America’s largest producer of steel and still the largest producer of special bar quality steel, Republic Engineered Products became a subsidiary of Grupo SIMEC, although the American company will continue to do business independently with financial backup from the Mexican holding company. Republic Engineered Products operates out of numerous plants in the U.S. and Canada. With a steelmaking capacity of 2.3 million tons, Republic Engineered Products will increase Grupo SIMEC’s total installed capacity to 60 percent.
STEEL, A CYCLICAL MARKET
“The steel industry is affected by macroeconomic conditions, whether nationally or internationally, and although prices increased in the years 2003 and 2004, the industry was adversely affected by the global crisis prior to 2002,” said Javier L¢pez Vega, strategic planning director for SIMEC.
Metal scrap prices escalated substantially in the years 2003 and 2004, affecting SIMEC’s bottom line, as did the increment in energy cost. “All these factors affect our daily operation because we cannot transfer the impact of these increases to our clients and products. However, with the acquisition of the Tlaxcala and Puebla plants, we have seen an important and smooth transition in the company’s performance,” L¢pez Vega shared.
SIMEC’s main goal is to become the leading non-flat steel producer in Mexico and abroad, based on a healthy financial position and a strategy for growth, reduction of expenses, diversification of its product lines, and an increase in operational margins. Sixty percent of its production is destined to the metal-mechanic and automotive industries while 20 percent targets the tool, appliances, and manufacturing industries.
Main clients in the Mexican markets are in the auto parts industry, including companies such as Grupo Desk, Grupo Dana, Razzini Rheems, ZF Zachs and GKN.
“We pay special attention to the automotive market because it is an indicator of industrial progress within the national economy. We produce hot rolled, cold rolled and galvanized steels, serving clients in the automotive and auto-parts sectors,” L¢pez Vega said. In order to supply top-quality products, the company makes continuous efforts in terms of technological investment, training and constant upgrading of processes.
SIMEC’s steel production facilities are designed to allow a rapid change from one product to another. This flexibility facilitates small volume orders that comply with client specific needs. The production runs or “campaigns” take place in a four- to eight-week cycle, minimizing the waiting time for standardized and specialized products. SIMEC operates the steel plant of Guadalajara through CSC. In 2004, the annual installed capacity of CSG for steel billets was 350,000 tons, and its annual installed capacity for finished product was 480,000 tons. SIMEC operates the Guadalajara plant to 90 percent of its installed capacity for billet production and to 85 percent for finished product.
The Mexicali plant is operated indirectly through its own subsidiary CSC. Mexicali initiated operations in 1993. By 2004, it had developed an annual productive installed capacity of 430,000 tons of steel billet and 250,000 tons of finished product. SIMEC operates the plant of Mexicali to 90 percent of steel billet and to 75 percent of installed capacity.
SIMEC invested approximately $140 million in launching the Mexicali plant and in equipment improvement.
The Apizaco and the Cholula plants are also operated through CSC. The annual installed capacity for Aspizaco’s steel billet was 380,000 tons in 2004, and 300,000 tons for finished products. SIMEC operated Apizaco at 99 percent of its installed capacity for billet and 92 percent for finished product. For Cholula, the annual installed capacity was 180,000 tons, operating at 70 percent of its installed capacity.
According to L¢pez Vega, the main characteristics of steel are related to hardness, elasticity, and flexibility or malleability and tensile strength, according to different needs and applications. Carbon increases the strength and hardness but also makes it more brittle. Ideally, the alloy should be produced with no more than 1.7 percent of its weight in carbon heated at 1130 degrees Celsius.
Other materials such as nickel, lead, chromium and vanadium are often added to the iron-carbon mixture to modify the resulting properties. Nickel adds to its tensile strength and makes it more chemically stable, while chromium increases the hardness and melting temperature and vanadium also intensifies the hardness but reduces metal fatigue.
Specialty steels can be produced with different amounts of aluminum, nickel and ferroalloys, which give them special characteristics, or grades. “According to these characteristics, our specialty steel product line can produce high carbon steel, tool steel, machinery steel and stainless steel. Depending on the finished product shape, the main product lines are 0.5 inches to 12 inches billets and round, rectangular and square bars,” said L¢pez Vega.
Products manufactured in the specialty steel line are made to fulfill specific customer demands including chemical composition, machinability, hardness, malleability, and surface condition. Specialty steel products are used as raw materials for the production of transmissions, suspensions, tools, molds, machinery and petroleum equipment.
The company also manufactures a structural steel line consisting of beams, channels, flat bars and angles and a light structural steel line for joists Structural steels are mainly used for construction of commercial and office buildings, for electrical towers, and in the automotive sector for production of trucks and large vehicles.
“The progress of metallic construction reveals a promising market with high growth potential. Steel characteristics of homogeneity, toughness and resistance help achieve the best results at the lowest cost,” said L¢pez Vega.
KEEPING UP WITH MARKET COMPETITION
In 1990, the company invested in upgrading CSC, increasing capabilities in lamination and machining, and two additional mills for specialty steels. In 2000, it added a new Danieli lamination train and CEDI inspection equipment for EDU currents. “Most of our equipment and technology is of German or Italian origin, although we have also included American equipment, and we have spent over $1 million in the last five years to improve competitiveness and reliability,” he added.
SIMEC competes with international companies in North America and Latin America, which represents 70 percent of the local market. However, L¢pez Vega considers that SIMEC is a leading company in the national arena, with 40 to 55 percent of market participation among national producers.
According to L¢pez Vega, the company is going through a difficult stage of investment consolidation. The group growth has been so accelerated it is hard to catch up with that pace. “It is hard to consolidate four or five productive units,” he said, “but we need to share experiences and technology, optimize resources, and increase and improve training and development of personnel.” In 2006, a major investment was made to transport supplies and finished products by expanding a train terminal into one of the plants.
To ensure international credibility, SIMEC obtained ISO: 9002 certification in 2002. It obtained re-certification in 2005.
“Service, quality and competitiveness in the international markets are the company’s absolute priorities. In addition to a total upgrading of our plants, with major automated processes and obsolete equipments replacement, we are working at creating new grades of steel according to our clients’ demands. We have work ahead, and we will outperform our competition,” he concluded.