Steel Buyers Basics: Painted Steel – Service Centers, Mills, Toll Processors & Paint Companies

Note that mills often have large minimum run quantities for a particular color and type of paint, tend to have long lead-times and are generally not very flexible when it comes to making changes in the schedules.
 
The most complex type of deal is when a buyer uses a toll-processor to paint coils owned by the buyer’s company.  Here the buyer must first negotiate a deal with a Steel Mill for the price of the steel substrate to be painted, then a separate deal with the toll-processor regarding painting costs and scrap factors and then a final rebate deal with the paint supplier.  Now the delivered price becomes the cost of the steel, plus the cost of the painting the steel, plus the cost of the scrap generated by the toll-processor during the painting process, plus the freight involved less any rebates the buyer can negotiate from the Steel Mill, the toll-processor and the paint supplier.
 
The Toll-processor deal has a lot of moving parts the buyer must keep track of but there are some important advantages to this type of deal.  Toll-processors are generally more flexible when changes in demand occur and for a buyer needing many different colors this flexibility can be very important.  Also Toll-processors act as the buyer’s quality control arm, ensuring the steel and paint meet specifications.  Finally the larger Toll-processors have plants around the country and since freight on steel is a big consideration this can be a significant cost advantage.
 
Another use for a Toll-processor is to paint foreign steel.  Buying foreign painted steel is problematic for high-end paint that carries a long-term warranty.  A buyer can still source foreign steel, have it delivered to a Toll-processor who will store it and then paint it as required.  Finally Toll-processors are agnostic when it comes to paint and steel suppliers and that means they (if asked to) will help the buyer figure out whose product is best for their particular application.
 
One last thing with Toll-processors though, the steel they hold is not theirs and the scrap they generate will be paid for by the buyer and may be a hidden cost.  Buyers should make sure they negotiate limits on this scrap level and that it is tracked and that they receive scrap credit for it.  Finally for certain large customers some mills, who do not paint steel themselves, will create a single-payer price (for a fee) that includes the Toll-processor scrap and coating costs.
 
Next time further details on rebates for painted steel.

SMU Note: Mario Briccetti is the Principal of Briccetti & Associates a consulting firm dealing with supply chain. Previously he held vice president level or lead steel purchasing positions at Nordyne, Gibraltar Strip Steel and Metal Sales Manufacturing Corp. Mario can be reached at: Mario@MBriccetti.com