AMU Summit: OEMs push more aluminum processing to service centers

“They pull us into processing that we never thought we would be doing,” Sennett said. Kloeckner now delivers finished parts to some production lines. In other cases, it supplies near-finished parts while the customer keeps a proprietary final step.

Customers move work upstream

McKinsey & Company’s June 2026 study, “The next wave of value in the materials supply chain,” identified a similar shift across North America and Europe. It said manufacturers increasingly outsource cutting and slitting, along with forming and logistics, instead of investing in the required equipment and labor.

The firm separates traditional service center processing from work farther downstream and places coating and machining in finishing, with light assembly sitting closer to final production.

The study said North American reshoring is creating more local finishing demand in several sectors, including appliances and automotive. It separately cited electronics. McKinsey said OEMs increasingly rely on partners for near-net-shape or subassembled components.

Sennett described a similar progression at Kloeckner. The company still handles conventional service center work, including slitting and blanking. Yet customers increasingly ask Kloeckner to take the material farther toward the production line, he said.

The equipment math shifts

Sennett tied part of the change to capital allocation. A service center can buy equipment and spread its use across a larger customer base.

“We might invest $10 million into a couple pieces of equipment, and we can use that equipment on 15 customers,” he said. An individual manufacturer may have a harder time justifying the same investment for its own production, he added.

The model gives service centers another way to support equipment utilization. It also gives OEMs an alternative to owning equipment for work that a supplier can perform.

Other large metals distributors and processors report high or rising processing shares, although their measures are not directly comparable.

Scottsdale, Ariz.-based service center Reliance Inc. said in its 2025 annual report that about 50% of sales orders included value-added processing. The company put that share closer to 40% about a decade earlier. Reliance also linked the increase to greater gross margin stability during periods of declining metal prices.

Chicago-based Ryerson has long relied heavily on value-added processing. Nonetheless, its second-quarter 2021 materials said “more than 75%” of the metals products it sold received processing. Five years later, its second-quarter 2026 presentation said nearly 80% of 2025 sales received some form of processing.

Worthington Steel’s June investor presentation said about 90% of shipments pass through at least two value-added processes. Worthington completed its voluntary public takeover offer for Kloecnker & Co. in June and had secured about 62% of its outstanding shares.

Russel Metals agreed in September 2025 to acquire seven US service centers from Kloeckner. Russel Metals president and chief executive officer John Reid said value-added sales exceeded 30% of total sales excluding Kloeckner operations on the company’s earnings call Q&A. He said Russel could reach 50% within five years when including the acquired former Kloeckner assets.

Kloeckner’s aluminum service center network

Kloeckner already operates aluminum sheet and coil facilities across the US and Mexico, along with separate plate operations. It also sells aluminum bar and tube, plus custom extrusions and other long products. Its listed sheet and coil products span the 1XXX, 3XXX, 5XXX, and 6XXX alloy series.

Sennett said aluminum requires more specialization than Kloeckner’s much larger carbon steel business. Aluminum represents a smaller part of the operation by tonnage, he said. Yet its contribution to the company’s bottom line is larger than that volume comparison alone would suggest.

Kloeckner has also moved further into aluminum blanking. Sennett highlighted a coil-fed laser blanking investment in Queretaro, Mexico, as one example. He said mechanical stamping can create fines in aluminum, while laser blanking avoids that issue.

The company has separately built a 225,000-square-foot aluminum service center on the Aluminum Dynamics rolling mill campus in Columbus, Miss. Sennett said the site will handle toll processing for the mill while also supporting Kloeckner’s direct business.

Aluminum service centers take on more inventory risk

More processing also changes what service centers hold in inventory. Sennett said Kloeckner has long carried metal, but some stock now sits much closer to a customer’s production line.

“We’ve always had inventory, but not it’s finished, ready to go right to the line kind of inventory,” he said.

McKinsey’s June study described the same broader shift. Manufacturers are pushing more processing and customization onto wholesalers and service centers. It also identified inventory risk as part of that transfer, McKinsey found.

Sennett said Kloeckner has started using AI to combine mill promises with customer forecasts. It then draws in internal inventory data. He said the system can identify shortages or excess stock faster and move the information into Kloeckner’s ERP system.

He connected that work to the service center’s direction. Asked what a successful aluminum service center could like five years from now, Sennett returned to processing.

“I think the successful aluminum service center is going to be doing a lot more processing than we’re doing today,” he said.