Insteel Industries Inc. said Tuesday it has spent $22.5 million in cash to buy a South Carolina competitor in the prestressed concrete strand sector of the steel industry.
The Insteel Wire Products Co. subsidiary of the Mount Airy company purchased Strand-Tech Manufacturing Inc. of Summerville, S.C.
The purchase includes accounts receivable, inventories, production equipment and its Summerville plant.
However, the Strand-Tech plant will be closed by late June, with production transferred to Insteel’s three prestressed concrete strand plants in Gallatin, Tenn., Houston and Sanderson, Fla. About 42 employees are expected to be affected, most of whom will be offered jobs at the Insteel facilities.
“The STM acquisition represents a significant milestone for our PC strand business,” said H.O. Woltz III, Insteel’s president and chief executive. He said that Strand Tech “did not seek out a buyer.”
“We believe the consolidation of facilities will strengthen our competitive position by leveraging our operating costs and optimizing our manufacturing footprint.”
Insteel projects to recover about $8 million of the purchase price from selling the Summerville plant, along with “the avoidance of future capital outlays resulting from the redeployment of the equipment.”
Insteel expects to record a restructuring charge of $1.8 million involving the closure of the facility.
Woltz cited “the harsh market conditions” created by Trump administration tariffs of steel imports in why Insteel is buying Strand-Tech only to close its plant.
In March 2018, the Trump administration placed 25% stainless-steel tariffs on Chinese and other imports.
Insteel makes steel-wire reinforcing products largely for infrastructure projects. Steel material represents 70% of the company’s total product costs.
Because Insteel is a large purchaser of steel for its product mix, it relies on sourcing lower-cost raw material from foreign countries for the 25% of its business not tied to a federal contract.
“Foreign competitors have responded by increasing production to downstream products, such as PC strand and standard welded wire reinforcement, in order to circumvent the tariffs and expand their share in the U.S. market” Insteel said.
Stephen Simpson, a contributing analyst with SeekingAlpha.com, said Insteel “remains stuck between having to overpay for wire rod and having to compete with imported downstream products that use cheaper inputs, leading to severe gross margin pressure.”