Proven Metal

Features - Scrap Industry News

The Federal Metal Co. seeks to meet its customers' unique needs in a shifting market.

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March 23, 2006

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Peter Nagusky (l),
David Nagusky (c) and Rik Kohn (r).

Before Peter Nagusky became the fourth Nagusky to enter the family business in 1997, he told his father he was especially qualified to run a brass ingot maker someday.

"After all, I have experience in non-profit management," he jokes, having worked for several years at a social service agency before earning his MBA and joining the staff of The Federal Metal Co. in Bedford, Ohio.

But it didn’t take long for Peter to realize that, despite the challenges ingot makers face, the term "non-profit" didn’t apply to Federal Metal. The bronze and brass ingot maker has grown substantially under the management of four generations of the Nagusky family, recently snapping up market share in an industry seeing little overall growth.

Like many operations in the metals business, The Federal Metal Co. evolved from founder Joseph Nagusky’s scrap peddling trade in the early 1900s. Joseph bought a furnace and incorporated the business at its original site in Cleveland in 1913—a particularly opportune time. A few short years later, the manufacturing effort spurred by America’s entrance into World War I gave Joseph’s fledgling ingot making operation a massive push as the domestic market for copper-based castings soared.

In 1960, when the company outgrew the Cleveland site, Joseph’s son Mark moved the business to its current location in Bedford, a Cleveland suburb. There David Nagusky ushered in the third generation at Federal Metal when he joined the company in 1973. He took over as president in 1985. Today, The Federal Metal Co. employs 75 people who work in 50,000 square feet of manufacturing space, 10,000 square feet of offices and 20,000 square feet of warehouse space.

COPING WITH COPPER. The Federal Metal Co. manufactures brass, bronze and custom-made Federalloy—a group of bismuth copper lead-free alloys developed in 1993 by company metallurgist A.R. Singh. The ingots are sold to brass and bronze foundries.

To make its product, Federal Metal relies on the nonferrous scrap stream—buying a full range of copper-based scrap, such as radiators, red brass, No. 2 copper and yellow brass, as well as zinc scrap and tin scrap.

The company buys primarily from large scrap dealers and wholesalers, not over the scale or from the peddler trade, says Rik Kohn, Federal Metal’s vice president of sales, who spent roughly the first half of his career at Federal Metal handling the company’s purchasing. That job today is managed largely by Peter, with the help of his colleague Frank Savena, who has conducted a number of metals ID seminars for the Institute of Scrap Recycling Industries Inc. (ISRI).

As a nonferrous consumer, the company is no stranger to the wild ride of the recent commodity markets, which have seen unprecedented high prices for copper. "I’ve only been purchasing scrap for 18 months. Initially, I was paying $1 for No. 2 copper, 55 cents for radiators and 85 cents for red brass," says Peter. "Now I am paying nearly double or more than double on those same basic red metal items. Fortunately, I am at a family business—that would get most people fired."

Peter says he and his colleagues in the industry are trying to work in uncharted territory. "I am doing business with people who have been in this industry for 40 years and are as confused as I am," he says. "That is a little scary and comforting at the same time."

Rik, who still dabbles in purchasing along with his sales duties, agrees that the current market is unlike anything he’s seen. "We’ve never paid more for scrap," he says. "The demand keeps getting stronger and stronger, and the supply, tighter."

Rik says the real question facing Federal Metal and other nonferrous consumers is, "Is this a blip on the historical radar screen, or are we really reaching a new world order where China and India and the rest of Asia are going to drive us to new levels?"

Rik says the skyrocketing prices have changed certain aspects of how business is done. "Ingot makers in general used to be very comfortable selling forward," he says. "Now, we’re all hesitant to sell very far forward because you are really exposing yourself."

Before the prices took off, Rik says he could quote a customer a price for a whole year. Today, that’s impossible. "Somebody’s going to lose, and that’s not a way to do long-term business," Kohn says. "Federal Metal wants long-term relationships with all our customers and suppliers. I don’t want to sell to you today for delivery in six months at a price one of us is going to regret."

BUILDING RELATIONSHIPS. The commitment to developing close, long-term business relationships is a central principal of Federal Metal’s business philosophy.

"Throughout our history, we sought out small-to-medium-sized foundries that needed something besides the lowest price—we wanted to partner with them," says David. "We carried that to the purchasing side as well, where we wanted to be partners with the people we bought from and sold to."

David credits his father, Mark, with developing the company’s business philosophy. He credits Rik, who joined the company in 1981, with playing an important role in making Federal Metal’s business philosophy an everyday reality.

Rik says Federal Metal excels at meeting customers’ unique needs, which often means modifying an alloy to meet individual specifications. "One [customer] wants better strength, one might want better yield, some customers might just want a pricing formula," says Rik. "We’re willing to sit down and brainstorm with customers and try to come up with unique solutions for them rather than a one-solution-fits-all or one-ingot-fits-all [answer]."

While Rik admits that pretty much any ingot manufacturer will tweak the composition of its product, he adds that Federal Metal sets itself apart by taking the lead in actively seeking special cases. "We all respond to our customers’ needs and requests," he says. "I think we as a company probably take the lead in more of those situations than others."

To better fill this niche in the industry, David established the practice of having a metallurgist with foundry experience on staff at Federal Metal. "If we’re to maintain close relationships with small to medium-sized foundries, or even the larger ones, having this expertise in-house often gives us a dramatic edge over competitors," David says. "There are a couple of other ingot makers that have this—many don’t. I think it gives us an edge, and it’s the way we want to do business."

Part of building close customer relationships is being an advocate for your customers, David says. The role often falls to Rik, who David only half-jokingly refers to as the foundry’s "ombudsman."

"There are some who are not willing to take ownership and, when something goes badly, they blame the customer," Rik says. "My assumption is that the customer is right until we prove him otherwise. When we get a complaint, problem or request, my job is to fight for that, not to the detriment of Federal Metal, but I’m going to bring that perspective to the table. When there’s a problem, we’re going to run toward it."

A company’s staff, the people handling the day-to-day business, can make all the difference in putting a business model into action, says David. He says this is especially true at a company like Federal Metal, which seeks to cement long-term business relationships. Having the right people helps all the facets of Federal Metal’s business philosophy fall into place, from extraordinary service to quick responses to inquiries to identifying customers’ individual needs. "We never wanted to be so big that we couldn’t have people on the front lines that take the responsibility for quoting or promising deliveries," says David. "Your people are what differentiates you."

Peter agrees and says this rings especially true in an industry like ingot manufacturing, which is plagued with overcapacity. "Making sure you have the best team is critical when competing in an industry with overcapacity," Peter says.

Even with a solid team in place, challenges persist as Federal Metal seeks to grow and apply its business model in a changing industry.

FOCUSING ON THE FUTURE. The volatile markets and increasingly global economy have placed a growing emphasis on communication in the industry, which makes adhering to the company philosophy of building relationships with customers and suppliers alike all the more important for Federal Metal.

"Issues arise when you are dealing with scrap," says Peter. "Open and honest communication is critical. It is not rocket science, but this common sense approach is often what helps us forge and maintain relationships that span generations."

Like many companies in the scrap and metals industry, having a committed generation to continue to grow the business into the future is key to success. Peter has stepped up to assume that role for Federal Metal, says Rik. "It all depends on the next generation," says Rik. "Peter has made a commitment to this company and industry and that assures a future for Federal Metal. I don’t know that every company has that—it could be a real challenge."

With young and vibrant management in place, David says Federal Metal is ready to grow again. "The ingot business has been in general declining, but since 1980, we have continued to grow," he says, describing the company’s growth pattern as "plateau stages." He adds,"Basically, by adding a furnace or adding a shift, we’ll grow by 3, 4 or 5 million pounds and then we’ll level out for three or four years and then we’ll take another leap."

Peter says the company has recently added some new lab equipment, upgraded the furnaces and leased additional warehouse space to prepare for the next growth period.

High prices for copper scrap and more and more manufacturing operations going overseas are both large issues The Federal Metal Co. and other nonferrous consumers face. The management team at Federal Metal says sticking to its business philosophy and pursuing close relationships with customers and suppliers will be key to staying on a growth track in the future and standing out among competitors.

"We all service our customers," says Rik. "But I think Federal Metal goes out of the way to ask the question over and over again: ‘How can we be of service to you?’"

The author is associate editor of Recycling Today and can be reached at jgubeno@gie.net.