The Future of Knife Steel with Bob Shabala of Niagara Specialty Metals

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Video Interview

Transcript

I made some tiny edits for clarity and removed a lot of “um”s and “you know”s and repeated words but otherwise I left the interview alone.

Larrin Thomas:

I’m Larrin. This is Knife Steel Nerds. I have with me Bob Shabala of Niagara Specialty Metals. And we have a lot to talk about in the wake of the Crucible bankruptcy, and a lot of things that are happening right now. So, Bob, could you start out by telling us your position at Niagara and some of the history of Niagara Specialty Metals?

Bob Shabala:

Sure. Yeah, thanks for having me on. I’m the president and CEO of Niagara Specialty Metals. I’ve been here for 31 years. Niagara Specialty Metals started in 1982 by two gentlemen, Barry Hemphill and Lou Valery, primarily as a mill to service the tool steel industry. They bought slabs of steel and hot rolled it into sheet or plate. Quickly, it grew into more of a service company where people would send them material to roll and ship back to them. Then over time, we expanded capabilities to be able to process stainless steels, aerospace alloys, titanium, maraging, and the cutlery grades that are of interest here today.

In 2009, Crucible was our biggest customer. They went bankrupt the first time, and we came to an agreement where they would supply us with all the CPM alloys, and we could market them and sell them to whoever we want.

So from 2009 until present day, they were our sole supplier of PM alloys. They were great to work with, they were very responsive. But we could see the writing on the wall starting last year that things weren’t going well and that they were in trouble. So that’s when we started reaching out to other suppliers to, uh, to get us the steel we need for, for this market.

In addition to that, we have 40 employees. In 2004, Barry Hemphill was the remaining sole owner of the company. He essentially gave it to the employees. He turned it into a 100% ESOP (Employee Stock Ownership Plan). So everybody working here is an owner of the company. So when they retire, we buy the shares back from them, and it’s worked out very well for all the employees that are here. So when it comes time to fill positions, it’s not easy, but it’s easier than most places. And typically, once we get somebody in here working and they understand the value of the ESOP and working for a small employee-owned company, they tend to stay for a long time, which is great. We have very minimal turnover, so we can take our time training somebody because it takes three to five years to train somebody on all the jobs we have here. So the model has worked out very well for us.

Larrin:

So you mentioned PM alloys. That refers to powder metallurgy alloys, or specifically (in this case) steels for the knife industry. And Crucible invented that technology back in the late 60s, early 70s. And so they had a great legacy of making those steels. You know you had other suppliers for regular conventional steels, which are ingot cast, right? And so, powder metallurgy, a lot of the best knife steels are made with powder metallurgy. So anything with a CPM in front of it was powder metallurgy. So many of the best steels like S30V, S35VN, MagnaCut, you know, those are all powder metallurgy. So, Crucible going away is kind of a blow.

Another thing I want to hear about a little bit is the unique capabilities of Niagara. There’s really not any competitors in the USA for what you’re doing, right? What makes it so challenging to hot roll steel for knives?

Bob:

So for our initial rolling operation, we would just call it the plate mill. It’s in a fairly small area compared to most big mills. So we have the unique ability to reheat. So, take a grade like Rex 121 or Rex 76, we might have to reheat those plates every two or three passes. So we’re able to do that, whereas some mills, once you take it out of the furnace, they can only roll it so far and then that’s it. It’s also a hand mill, so we can take anything from 100 pounds up to 3,000 pounds and roll that into a different dimension. When we buy slabs, they start out anywhere from three to six inches thick. So if we’re rolling down to anything less than a half inch, what we do is roll it to an intermediate size. Then we anneal it to soften it back up. We’ll de-scale it to clean the surface, send it down to our sheet mill where we then reheat it again, finish roll it to size, anneal it, flatten, and ship.

I guess people don’t do what we do because the quantities are relatively small. We take on anything from one piece to a truckload, and our ability to deliver on time and relatively quickly is hard to beat. So that’s why we have this small segment of the market kind of, not to ourselves, but, why we’re doing well with this kind of product.

Larrin:

So I know for the steel that I developed, MagnaCut, a major reason why I was able to make it happen is because I got your buy-in early on. Crucible was a bit skeptical of trying a grade that I designed since I had not designed any tool steels or stainless steels before. So I know you guys have had a big commitment to the knife industry. Getting steels from other companies is often challenging because a lot of times, they’re sitting around in several-inch-thick pieces. So I think that’s awesome that Niagara has been so good. And the reason why we have a lot of these awesome grades is because Niagara is able to roll them and deliver them, at a good pace, like you said.

So Crucible, you hear, they’re maybe not doing well. So, what was your approach next? What did you start doing to make sure that we weren’t losing out on everything?

Bob:

Sure. Yeah. So last January, January 24, we started increasing our inventory with Crucible. So we started ordering more than we needed to, to kind of boost the inventory. And then, last fall, just in discussions with Crucible, we knew they were for sale. They had announced that. And I asked the president of the company in my position, should I start looking for other places to buy steel? And he said, yes. So I give him a lot of credit that he didn’t try to hide the fact that they were in a desperate time.

So we already had relationships with Carpenter Technology. We’ve processed millions of pounds for Carpenter and Erasteel for other industrial customers. So we, we reached out to both mills, explained our situation, and they were happy to help. So they both right away started looking into the ability to make MagnaCut. Because that’s our most popular grade right now. Erasteel already makes a version of CPM 154. So we ordered test heat of those grades from both mills. And they’ve been fantastic. You know they basically have delivered when they said they were going to deliver. We know the quality is good. It’s just a matter of ensuring that chemistries from different mills, you know, certs are, they don’t read right or they don’t read exactly the same. There might be some offset between mills. So, before we start releasing anything to the public, we want to make sure that it performs like it should. And we really should have everything ready to go here in the next next quarter or so.

Larrin:

So what you’re talking about is that different mills have different equipment for measuring the composition of the heats. And those pieces of equipment can be calibrated somewhat differently. And so one mill might measure 14% chromium and another might read 14.5% chromium for the same thing. And so if you’re then trying to transition grades over between companies, it might behave slightly differently if they have the same composition target. So we’re trying to work on any offset that might be necessary. Not that there would be a problem with a grade with a slightly different composition, but if all of your customers are used to heat treating at specific temperatures, and then it starts heat treating as if you’re 25 or 50 degrees hotter, you know that could be an issue for them if all the steel’s coming out different.

But the quality is high from Erasteel and Carpenter. They have a good reputation for making powder metallurgy steel.

Bob:

Yeah. Yeah. For years, Carpenter would send us their cutlery alloys in addition to aerospace and tool steel. So I think all of the XHP that’s ever been processed and sold to the market has been rolled here in Niagara Specialty, and we’re now stocking it. They felt that they would have better success or move more XHP if they would just sell us the steel and let us sell it to whoever we want. So that’s starting to take off. We also have their version of S90V, 10V, M4. So, yeah, it rolls really nice. There’s really no issues with it at all.

Larrin:

Well, I know XHP, which is a powder metallurgy stainless steel used in knives, that it has had a reputation for being difficult to obtain or having inconsistent availability. And I do think that’s one thing that Niagara has maybe been the best at is just having steel in the sizes that you want available to buy. When you call up these steel companies and they say, yeah, we can get you XHP, just you need to order many tons of it, and then you need to wait a year, it’s not very enticing. And if you’re a small custom knife maker, then obviously it’s just a total no-go. It’s impossible.

So what about our ability to make new alloys? We’re trying to make a new steel with the same concept of MagnaCut, but with improved wear resistance called MagnaMax. Are we going to be able to make that happen now that Crucible is gone?

Bob:

Yeah. So that’s a grade that, thanks to you, we had a prototype heat or an initial two heats made at Crucible, and the feedback’s been great. So, we patented it with you. We also trademarked it. So that gives us the ability to buy from both mills. And they both are getting ready to make it. So by, I think, the fourth quarter this year, we should have heats from both mills ready to go. As far as future alloys go, it’s something we’ll have to discuss with them. You know, our primary concern right now is getting the grades that we’ve always sold and making sure they test out and we get them locked in. And then we can have discussions with them about making new grades as you develop them.

Larrin:

So I guess we haven’t said explicitly that Erasteel bought the IP of Crucible CPM alloys, so all their powder metallurgy alloys. So that includes trademarks and also patents. Though there’s not very many patents remaining because all of the patents date back to before Crucible’s first bankruptcy in 2009. Is there any chance that Crucible will come back, or are they just Erasteel now?

Bob:

I think they’re just Erasteel. I don’t know all of the particulars of what’s going on inside the Crucible facility, but I just don’t see that getting started back up. In fact, I don’t see any domestic companies getting ready to atomize iron-based alloys that would be used in cutlery. There’s atomizing for nickel alloys and maybe titanium, but, um, iron base, I think, is just such a small portion of the overall steel industry. Nobody’s going to put the kind of money into it that they would be required to, and to bring that back on shore.

Larrin:

Well, that would be very disappointing. Nickel and titanium alloys, they have higher profit margins, which might explain why they prefer to make those, even if they have atomization equipment.

So, are we going to continue to make all these grades? I mean, Crucible had… a ton of grades, S30V, S35VN, S45VN, S90V, (etc.) there are so many. Are we going to be able to keep all of those, or are we going to need to simplify the portfolio?

Bob:

We could, in theory, buy them all. Except for 15V, I think that the atomizing temperature on that is higher than what Carpenter or Erasteel can do in their atomizing furnace. They both have said that they can’t make 15V. So until we come up with an alternative there, I think that grade’s going away. But yeah, everything else we could buy. I mean, I think that once MagnaMax comes out, we will take a look at the existing grades in our portfolio and decide if some should be obsoleted. You know, we tried to bring S6 V back a few years ago. We bought a small heat and half of that heat is still here. That didn’t work out. Sales of 20CV have slowed down. So that might be a potential candidate to not buy anymore. But we still sell a lot of CPM-154, S30V, S35VN, S45VN. So I don’t see any of the major grades going anywhere anytime soon. And they’re all on order. We have all those grades on order with Erasteel at this point.

Larrin:

So, how is branding going to work going forward? Are you going to use the same names, or are some grades going to have different names?

Bob:

Yeah, so anything we buy exclusively from Erasteel will retain the CPM grade name. We’re not going to enforce (the prefix) CPM. So if people want to buy S30V, I think we’ll just be calling it S30V. And that satisfies everybody. CPM CruWear, because of an existing agreement they have with another company, we’re going to have to rebrand that. You know, that’s still a big moving grade for us. They currently make that same composition. They have been making it for years. So we’re going to buy that, and it would just be rebranded NSMWear, unless somebody can give me a better name. S90V is not a real big grade for us. And we have a lot of that in stock from Carpenter that we bought during COVID as a way to let Crucible focus on cutlery grades. We had placed orders for industrial grades with Carpenter. So their name for that is CTS 420CW MOD.

Larrin:

And that is not a good name.

Bob:

And I don’t see anybody putting that on a knife blade. So I think we’re going to rebrand that as NSM90 and just try to make sure everybody understands it’s the exact same composition, or virtually the same exact composition, as CPM S90V. So those two grades we’re going to rebrand and see how it goes. And that gives us the ability then to buy from both mills and be single source like we were with Crucible.

Larrin:

So we’re going to have continued availability. Niagara, they’re a great American company specialized in rolling these difficult grades to thin sizes that we need for knives. Everything is in motion to continue. Is there a chance that there is a gap in availability, or is it going to be a smooth transition?

Bob:

Yeah, there’s going to be some disruptions, almost certainly. I think once people found out that Crucible is going out of business, there’s some panic buying. So hopefully everybody has what they need for the next five or six months, but everything except for a CPM-154, MagnaCut, we still have plenty of stock to get us through for the next several months. It’s just a matter of getting in these initial heats, getting them approved. And once that happens, it’s full speed ahead. So I think that the next quarter or so, there are going to be disruptions almost certainly. But once approved, I think that Erasteel and Carpenter both are really looking forward to participating in this in a meaningful way. And they’re here to support us and the whole knife community.

Larrin:

Well, that’s great. I am biased, but I think Niagara is an awesome company and a major reason why we have so many knife steels available in a good range of sizes.

Bob:

Thank you.

Larrin:

So I’m happy things are continuing. I’ve gotten messages from a bunch of knife companies that are freaking out, worried that stuff isn’t going to be available anymore. I keep telling them that Niagara is going to keep stuff going and not to worry.

So hopefully we can quell some of those fears. Supply is going to continue. I think people didn’t always realize that, yes, like Crucible was making the powder and sending slabs to Niagara, but Niagara is the company processing all this steel and selling it all. So hopefully we can get the word out that Niagara is a great company that is delivering all these steels, and Niagara is still here and Niagara is doing well and continuing to make these steels.

Bob:

Yeah, we’re financially very sound. You know, the people we have working here, they’re awesome. I mean, they really make it happen. You know when we have something important, like a new heat of MagnaCut coming in from Erasteel and we need to get it approved, they’re right on it. Literally unloading it from the truck and putting it on the saw and cutting it into blocks to get it rolled the next day. So they really are invested in (the) success of the company and the industry as a whole. So yeah, we’re here for the long haul.

Larrin:

And Niagara’s made some upgrades in recent years, right?

Bob:

Yeah. We did our biggest project ever last year. It’s still in process, but for us it was big. I mean, it is about a $7 million investment. So we added about 15,000 square feet to our sheet mill building. And then we had six small electric box furnaces that they did the job for several years, but the heat in them could be uneven. The elements were delicate and expensive to replace. And it was a bottleneck. The guys could work faster than the furnaces. So lots of times they’re just waiting for the steel to heat up. So once we got the building built, we put in a continuous gas furnace. So now the sheets are in the furnace for 25 to 35 minutes instead of three hours. And the temperature on the blanks is really uniform from front to back and side to side. So the gauge coming off our mill is much more even and easier to control. The surface is a lot cleaner. There’s no scale because it’s not in the furnace as long.

And then the last step of the process is going to be a new housing for the rolling mill itself. So the housing is essentially the structure that holds the rolls and the rolls are, rotating and feeding; that’s where the steel goes through to get reduced. The new housings are complete, but we’re not ready to put them in here yet. We need another month to get all the wiring in place and control panels. So around Labor Day, we’re going to install that. So there we’re going to increase our separating force. There’s going to be some machine learning on it so we can put in recipes. Right now, we just turn the dial and get it to where we think it needs to be, and then we have to check the gauge. So in the end, once that comes in, with the much stronger housing, it should be higher throughput, even more uniform gauge from piece to piece.

So that was a real big investment for us. In addition, we’re getting ready to put on another, I think about 12,000 square foot building for our grinding operation. We have a Blanchard grinder for grinding our sheets to size that’s starting to get a bit of a bottleneck. So we already bought another Blanchard grinder, 84 inch diameter that’s in storage until the building gets built.

We have a fiber optic laser that we can cut up to about 3/8 of an inch and we use high-pressure nitrogen in that. So we cut a lot of knife blanks for the industry now. And that’s starting to get busier. So we cut for small shops that give us a DXF file, we can cut their blanks for them. And (that) saves them shipping whole sheets to a laser shop and then taking the blanks to their place. So kind of a one-stop shop here. So with that filling up, we want to get another laser to put in the new area. And then outside of the cutlery industry, we do a lot of bandsaw cutting. So we roll a lot of big heavy plate, or people send us their plates, and we saw cut it into either small rectangular shapes or strips or full-size plate. So over the past couple years, we’ve spent two to three million dollars in in bandsaws just upgrading our cutting capabilities.

Larrin Thomas

Wow, on bandsaws.

Bob

Yeah. There we have two of them now, they’ll cut in two directions. So all of our bandsaws to date either just cut along the length of a plate or across the end. These two axis ones, we can cut the ends first, then the head goes back, and then it’ll just strip it out. So just put the plate on there one time and you’re done, essentially let the machine do the work. So it just makes it easier to get accurate cuts. The guys like it cause it’s safer, a lot less handling moving plates around. So, yeah, that’s been a big part of our business.

Larrin

Well, thanks, Bob. Hopefully, we answered people’s questions and didn’t just add to the confusion. So we’ll have to bring you back on if we get a lot more questions based on the interview. But thanks for joining me and talking about Niagara and the whole plan for keeping knife steel going.

Bob

All right, anytime. Thanks, Larrin. I appreciate it.