Acquisition of Standard Steel Increases Rail Supply Strength in North America

Purchase of Wheel and Axle Manufacturer IncreasesBusiness Group’s Reach In a Growing Industry

The steel industry in Pennsylvania has a long and storied history. Famous entrepreneur Andrew Carnegie, an immigrant from Scotland, was a salesman, promoter and financier whose great innovation was the cheap and efficient mass production of steel rails in his Pennsylvania factories for railroad lines. Carnegie’s operation helped establish the Keystone State as the center of the American steel industry until the late 20th century.

In that same tradition, SCOA and SCTokyo recently entered into an agreement with Sumitomo Metals to acquire Standard Steel, a Pennsylvania-based manufacturer of forged wheels and axles for railcars established in 1795. Standard Steel has 620 employees in its Burnham, PA operation, a company that experienced annual sales of $250 million, 99 percent of which were North American customers.The company remarkably supplies 25% of the wheel demand and 40% of the axle demand for the entire North American rail industry. As a leading manufacturer for all brands of freight railcar, locomotive and passenger railcar, Standard Steel is the only producer of forged steel wheels for railcars and locomotives on the continent.Customers include major Class I railroads in North America, freight railcar builders, railcar and locomotive maintenance shops,Amtrak’s nationwide service, locomotive builders and regional transit authorities. Tomohiro Shinzato of SCOA’s Steel and Non-Ferrous Metal Group said that the company was obviously attractive on many levels, and that SCOA had been looking at Standard Steel for several years.

“SCOA has had contact with Standard Steel since 2008 to explore the possibility of an acquisition, but it was last autumn that things started moving realistically,” Shinzato said.“The most attractive thing for us is that Standard Steel is a forging manufacturer, same as our partner, Sumitomo Metals.We believe we could be the industry leader if we implement Sumitomo Metals’ technology—which is thought of by the industry as number one in the world—at this facility. I believe we can create a new market for high grade wheels, and of course, contribute to the industry.” Shinzato said that SCOA’s established position as a trusted supplier in the railroad industry helped lay the groundwork (or the track-work, if you like) for an acquisition this savvy. “What we want is to be a more influential supplier in the industries, and seek more business possibilities.With the acquisition of Standard Steel, our market share increases overall, and we can be a real leader in the industry.” He also said that SCOA gains a significant position in the industry because SCOA’s Steel and Non-Ferrous Metals Group is planning to handle 100 percent of Standard Steel’s product line for North America. Shinzato predicts that Standard Steel’s revenue in 2015 will increase by 50% compared to what it was in 2010.  “Basically, the demand for the transportation of goods increases along with the U.S.GDP, which will climb steadily in the U.S.,” Shinzato explained. “In addition, rail is the most ecological method of transportation, so it will take the place of other methods of transportation in the future. Shinzato also explained that implementation of Sumitomo Metals technology within the already well-developed manufacturing process of Standard Steel will help decrease costs, shift manufacturing to more value-added products, and propose new products to the industry, all of which will help increase SCOA’s foundation as a railroad products supplier to North American customers.

“The industry consensus is that rail will continue to grow steadily,” Shinzato concluded, saying that the wheels and axles will make their way to new railcars as well as those needing maintenance. “In nearly all aspects, demand will continue to grow.”