FORMET has built a reputation for its high level of service through careful compliance with customer requirements and delivery schedules. Susana Baumann reports how this Mexican company has reached international recognition and a leading position in Latin America as a high value added steel fabricator and galvanizer.
A recent decision of Grupo IMSA’s board of directors will allow the Mexican conglomerate to concentrate its efforts in the steel, aluminum and plastic markets where the group has the strongest presence. According to Eugenio Clariond Garza, IMSA’s chairman of the board and CEO, and Marcelo Canales, CFO, the new structure will create better value for shareholders and allow expansion of the group’s successful products.
The new structure will further eliminate one of IMSA’s business segments, IMSALUM, which will have its subsidiaries allocated to IMSATEC. A number of present IMSATEC subsidiaries, which utilize predominantly light gauge steel in manufacturing their products, will be transferred to IMSA ACERO. These businesses include Multypanel, Metl-Span, VP Buildings, Varco Pruden México, IMSA Chile and Medabil VP.
The remaining IMSATEC subsidiaries, including FORMET and Valmont/FORMET, along with the previous subsidiaries of IMSALUM, will form a new business segment of high value-added products manufactured of steel, aluminum and plastics. This new business segment will do business as VERZATEC. “This new structure will give our company a better presence in the market, stronger purchasing power and a leaner structure,” said Alejandro del Río, general director of FORMET.
Forjas Metalicas, S.A. de C.V. (FORMET) manufactures lattice steel and aluminum towers and tubular steel poles for electricity transmission and telecommunications, corrugated steel products for the construction industry, steel products for highway construction, and also galvanizes materials for the general market.
FROM THE BEGINNING
At its inception, FORMET was focused in two areas: corrugated and cold formed steel products and hot-dip galvanized steel products, mainly for highway construction. In the1980s, a hot-dip galvanizing company was acquired in Mexico state, merging with FORMET in 1992. Those core products developed into two divisions of the company: the construction and galvanized products divisions. With the acquired skills in steel fabrication and hot-dip galvanizing, FORMET undertook its next product expansion, and in 1995 FORMET began producing galvanized lattice steel towers for the Mexican market at its Monterrey, N.L. headquarters facilities. This became FORMET’s third product division. The tower division was expanded in 1998 and is now the largest of FORMET’s product divisions. The tower division has prospered due to the technological and productive capacity to design, manufacture and galvanize any type of self-supporting or guided metallic structure such as electric transmission towers and substations, telecommunication towers, and special structures.
Building on the success of the tower division, and responding to a growing Mexican market for large steel pole structures for use in urban and other intensive land use locations, FORMET aggressively moved to add another fabricated steel product to its portfolio. Development of the facilities necessary to manufacture the polygonal, folded plate and welded pole structures required more physical space than was available at the Monterrey headquarters facilities, and construction of a new plant, dedicated to manufacture of polygonal poles, was undertaken by FORMET. The new state-of-the-art facility was completed in 2000, and the company successfully entered the Mexican market as a supplier of polygonal steel poles.
A much larger market for polygonal steel poles existed in the United States. As FORMET considered strategies of marketing these products in the U. S., discussions were initiated by Valmont Corp. to obtain an ownership interest in the new facility. “Soon after, Grupo IMSA and Valmont Corp. based in Omaha, Neb., a company specialized in the manufacture of polygonal galvanized poles, agreed upon a joint venture arrangement to produce, distribute and commercialize these products for transmission lines, telecommunications, traffic and lighting use. The new venture became Valmont-Formet SRL de C.V.,” explained del Río. Marketing and sales of these products in the United States and Canada would be integrated into Valmont’s existing network of sales representatives, while the marketing and sales in Mexico and Central America would be approached through Valmont-FORMET’s own sales efforts.
For minor and major drainage works and underpasses for vehicles, train tracks, or walking paths, the construction division offers clients the option of hiring FORMET for the complete civil engineering project or simply the manufactured product. A wide variety of steel culverts are used to solve different drainage problems in highway construction, such as shelter culverts, sectional culverts, screw culverts and laundries. Protection systems for transporting bands, air tunnels, drainage and ways through working areas are also offered for the mining industry. FORMET’s ability to provide a complete engineered solution for the diverse project requirements of these products has established the company as the preferred supplier in the Mexican and Central American markets.
The construction division supplies hot-dip galvanized guardrails and highway signage with special attention given the material specifications and engineering to maximize highway safety. The guardrails are manufactured from the highest-grade steel, and absorb more impact due to their guardrail, blockout and post systems. Similar considerations are applied to traffic signals, both low and high. Signage includes vertical banners and bridge.
FORMET’s distribution network for the construction division covers the entire country, with central offices in Monterrey, Mexico City and Guadalajara. “We work either directly with the Mexican Ministry of Communication and Transportation or with companies that subcontract us. Both entities are in charge of the construction and maintenance of federal roads and bridges, and have delegations throughout the country,” explained del Río.
According to the general director, the Mexican market is active and continuous, accounting for 75 percent of the company’s revenues while 25 percent of revenues come from exports and foreign contracts, (no revenues coming from the United States). American companies are allowed to compete in the Mexican market and several American companies have tried to enter the market, but have struggled with pricing, labor and freight issues. He explained: “We could actually do very well in the United States, because of our competitive prices and excellent quality. However, the Buy America Act restricts foreign sourced and manufactured steel products from competing in project opportunities where Federal Transportation funding is involved. This restriction covers nearly all highway projects and either prohibits foreign materials outright or imposes an evaluation penalty of 25 percent of the bid price. Although this issue was exposed and discussed after NAFTA, there has been no movement to open these markets.”
GALVANIZED PRODUCT DIVISION
FORMET with its two plants in Monterrey and Mexico City has the largest installed hot-dip galvanizing capacity in Latin America. The two plants support the hot-dip galvanizing requirements of FORMET products and also offer commercial hot-dip galvanizing services to a multitude of Mexican manufacturers. The galvanized product division utilizes state-of-the-art technology, high quality raw materials, careful surface preparation and diligent quality control to ensure the highest quality surface coating to resist the most aggressive environmental conditions. The galvanized product division can produce products to comply with an array of industry or client specifications, including extra-heavy galvanizing and “dulling” which reduces the reflectivity of the galvanized surfaces of electric transmission towers and poles.
FORMET, from the time of its entry into the steel lattice tower market, has provided the Mexican market with steel structures for transmission lines and electrical substations, from 115 KV to 400 KV, under the Comisión Federal de Electricidad (CFE) certification issued by LAPEM, its materials and equipment-testing laboratory. The tower division also has the capacity to design, produce and galvanize steel parts for special self-supporting structures, such as industrial bays and buildings, solar panel supporting structures and bridges.
By the late 1990s FORMET had established itself as one of two dominant lattice tower suppliers in Mexico, achieving and maintaining an unsurpassed market share in the marketplace. The electric transmission tower market in Mexico is controlled by CFE as the only supplier of electrical service in Mexico. CFE, through EPC contracts it issues via competitive bidding processes to local and foreign contractors for the “turn-key” installation of electric transmission line and substation projects, determines the magnitude and timing of all electrical system expansions.
The telecommunication tower market in Mexico is likewise controlled by a limited number of telecommunication service providers or their EPC contractors. The resulting subcontracts for supply of steel lattice towers and substation structures are quoted, negotiated and coordinated by the Tower Sales department located in the Monterrey headquarters. The Tower Sales department is also responsible for marketing and sales in Central America.
In 2003 FORMET began an assessment of the United States steel lattice tower market. Unlike Mexico, the United States electric delivery system is owned and operated by hundreds of investor owned, municipal and governmental utilities, most of which have specific and unique specifications and designs for the transmission structures in their systems. There exists limited steel lattice tower manufacturing capability in the United States with many companies exiting this business over the last 20 years, due to a lack of market need. Analysis of this market reduced the number of potential clients for steel lattice towers from hundreds to dozens, and identified a limited number of viable competitors, and with this knowledge a limited marketing and sales effort was initiated late in 2003. FORMET’s market penetration in the United States has been slow and deliberate, primarily due to a limited number of significant steel lattice tower transmission projects. Many projects have been delayed by the inability of the United States Congress to pass a comprehensive Energy Bill.
Although the market has been lower than expected, the company has compiled a successfully completed project list that includes many premier United States utilities, including: Southern California Edison, Los Angeles Department of Water and Power, Pacific Gas & Electric, Southern Company and Entergy. FORMET has also recently completed the first lattice aluminum tower project in nearly 25 years. This project was a design and supply contract for 50 miles of 230 kV guyed vee towers for the Puerto Rico Electric Power Authority. This project required the lightweight characteristics of aluminum to allow the towers to be erected by helicopter in the mountains of Puerto Rico. This project allowed FORMET to draw on the synergy of one of Grupo IMSA’s subsidiaries, CUPRUM, which supplied the aluminum extrusion material, which FORMET used to fabricate the aluminum towers.
With the passage of the comprehensive Energy Bill in 2005, the company is already seeing a significant increase in major transmission projects, and it appears that a sustained period of increased transmission line construction utilizing steel lattice towers is on the horizon, and FORMET is ready and able to actively participate in this expansion of the United States electric grid. To expand FORMET’s market presence and provide a comprehensive solution for a client’s transmission structure requirements, Valmont-Newmark and FORMET are expanding the parallel utilization of a common sales representative network. This provides a single contact for the utilities to obtain steel lattice towers, polygonal steel poles or spun concrete poles. The initial reception to this marketing approach has been encouraging and we look forward to further successes and increases in market share in a growing market.
The product-engineering department supports both the construction and tower divisions with a dedicated staff of professional engineers, engineering technicians and CAD/CAM technicians that work with state-of-art design and detailing computer software to maximize design efficiency and security. The product-engineering department is committed to meeting the customer’s requirements and maintaining compliance with national and international standards such as ASTM, ASCE, AISC, ADM, ASME, CFE, and the ISO: 9000 requirements. “We have also enrolled in the Six Sigma program of continuing improvement, which sets very high standards, and continuous improvements, for all our products and processes,” said del Río.
FORMET’s annual growth ranges 4 to 5 percent annually, and its installed capacity for towers is 24 to 28 million tons of steel, while culverts in all types reach 11 million tons and guardrails, 13 million tons per year. In galvanized products for the general industry, the yearly capacity is 50 million tons divided in both plants, Monterrey and Mexico City.
To support this activity, FORMET utilizes the most advanced IT systems with state-of-the-art equipment and a qualified professional team that ensures correct and accurate execution of any project, according to clients’ needs.
In addition, the company’s high productivity goal does not disregard the quality of the environment. “We have implemented strict anti-pollution controls, such as water treatment plants, and a fumes and particles collector system. As much as we guarantee our products, we guarantee our concern for the environment’s ecological balance,” del Río concluded.