THOMASVILLE, Alabama — Lakeside Steel is almost ready to fill its pipe pipeline.
The Canadian company, anticipating continued robust oil and natural gas drilling, hopes to be turning out pipe for those wells before the end of the year.
Lakeside will make pipe at a site south of downtown Thomasville. It plans to harden pipe and shape and machine its ends at a former sawmill north of town. Between the two sites, Lakeside plans to hire 280 employees and is investing $57.5 million.
The new mill could elevate Lakeside’s position in a consolidating industry. The company was created in 2005 when investors bought a Welland, Ontario, mill from a bankrupt Canadian steel company. Lakeside has described the Welland plant as being of “advanced age” in stock filings. The Thomasville complex will give Lakeside more modern capabilities and its 192,000 tons of capacity will almost double the company’s ability to make pipe.
The complex will be closer to oil and gas drillers in Texas and Louisiana. It will also increase Lakeside’s ability to harden pipe and add connective couplings. Lakeside has said that such finishing capability is a big bottleneck in the pipe industry.
“There’s strong demand for heat-treated products, and our customers are looking forward to Lakeside being able to internally finish pipe,” said Chris Roik, vice president for Alabama operations.
Clarke County was burdened with 16 percent unemployment in September and hundreds of people have applied for Lakeside jobs, expected to pay $15 to $17 an hour. Lakeside executives have said that the Alabama labor force, non-union and paid less than Canadian workers, is a draw. As of mid-October, Lakeside had hired 14 employees, but will begin hiring production workers in earnest in November, Roik said.
Also a lure is the more than $4 million that state, Clarke County and Thomasville officials have committed to buy land, build rail spurs and provide other incentives. That doesn’t count the value of sales and non-school property tax abatements, or the state’s capital investment tax credit, which will likely shield Lakeside from Alabama’s corporate income tax for 20 years.
Paul Vivian, editor of the Preston Pipe Report, said the mill will put Lakeside into a second tier of North American pipe producers, behind the first rank of U.S. Steel Corp., Luxembourg’s Tenaris SA, France’s Vallourec and Russia’s TMK, which bought the pipe-making assets of the former IPSCO.
Lakeside and other domestic producers benefited from trade sanctions that made Chinese pipe more expensive. “They were in the right place at the right time,” Vivian said.
Others have rushed to expand as well. For example, Boomerang Tube completed a new facility near Houston last year after a Russian-American tycoon invested $200 million to take over Boomerang and pay for the Texas plant. Vivian said Lakeside is “clearly late to the party,” although he still expects expansion.
“The market is still growing, just not as fast as it was,” Vivian said. “We think we’re probably going to drill more gas well next year than we did this year, but at a very flat price.”
He said that Lakeside’s new pipe mill — 738 feet long — offers some capabilities that the Welland plant doesn’t have. For example, the Thomasville facility will have an accumulator, a buffer that builds up a reserve of pipe to allow some parts of the line to keep running when other parts stop. Part of the pipe-finishing operation will be next to the pipe-making line, unlike in Welland.
The Thomasville location also offers advantages because Lakeside will have the option of buying steel not only from ThyssenKrupp AG in Calvert, but also Severstal in Columbus, Miss., and Nucor Corp. mills in north Alabama.
“This was a fantastic location for us to have options for steel suppliers,” Roik said, saying there are four steel mills within 220 miles.
Metals USA, based in Fort Lauderdale, Fla., is also building an operation in Thomasville where it plans to receive steel and process it for Lakeside. That supporting contractor is unlikely to begin full operation by the time Lakeside starts production, Roik said, meaning the pipemaker will rely on other steel processors for a brief time.
Rolls of steel will enter the plant, be unrolled and formed into pipe by a welding machine, and tested. Roik said power to machinery was connected Oct. 10, and that the company is testing machinery right now. It hopes to produce its first pipe by Dec. 15.
Roik said that it should take about 60 days after Lakeside starts production to get certification from the American Petroleum Institute, a key requirement before selling to sell to oil and gas drillers.
At the finishing site, a former Linden Lumber sawmill, Lakeside has installed an upsetting machine, which heats and thickens the end of a pipe to allow the installation of a thread. The thread allows pipes to be screwed together, and Lakeside is now installing its tube-threading machine, Roik said.
The company will bake the pipes at high temperature to make them stronger, a property much in demand as companies drill into shale formations for natural gas.
The company will have the ability to heat-treat and thread 220,000 tons of pipe per year, more than it can make in Thomasville.
Aided by the early connection of temporary power by Alabama Power Co., Lakeside hopes to begin startup of the finishing site within the next month, with heat treating equipment installed by early 2012. Lakeside said in September that the finishing facility will be ready for production in February, ahead of the original June opening date.
Pushing ahead the opening date shows how Lakeside is in a hurry. “It’s a race,” Roik said. “We can’t get this up and running fast enough.”