Solid as Steel
Named after the nineteenth century German metallurgist Adolf Martens, Martensite commonly refers to a hard type of steel with incredible tensile strengths. Martensite Australia is also the appropriate name for a highly progressive and resilient Australian processor and supplier of engineering-grade steels.
At his headquarters in Tomago, just outside Newcastle, joint owner of Martensite, Mark Brennan gave us the background. Martensite Australia has evolved over the past 20 years or so by the amalgamation of Durachrome Industries (bright drawing, peeling and centreless grinding facilities) and Pyrosteel (heat treatment facilities). “Given we do heat treatment and similar processes, we changed our name a few years ago,” he explains. “We held a competition for a new name and one of our employees suggested it.” During the heat treatment of alloy steels, rapid cooling or quenching causes a phase transformation to a crystalline structure known as martensite. Fully tempered martensite exhibits not only tensile strength and hardness, but also impact resistance. As it happened, another company called Martin Bright steel was closing down at the time, giving the new name an extra dimension.
Martensite today is a major Australian processor and supplier of carbon and alloy grade steels in a full range of sizes, sections, surface finishes and heat treatments – typically grades such as 1020, 1030, 1045, 1214, 4140 & 4340. Supplying locally and to New Zealand, the company’s products are ideally suited to machining and shafting applications for a variety of industries such as mining, agriculture, petrochemical, automotive, manufacturing and general engineering.
The company processes primarily domestically produced steel except for larger dimensions – Australia’s only manufacturer of engineering-grade steels rolls only up to 100mm in diameter. Anything bigger has to be imported.
Martensite processes around sixty per cent of its total throughput, with the rest being imported. As a greater proportion of the perhaps dwindling number of users of steel in Australia talks about sourcing from abroad, is this a danger for Martensite – or an opportunity? Mark points out that importation has been happening for a long time. “But the end users themselves, the people making the actual widgets, are finding it more and more difficult to compete with finished components and they are going to their steel supplier and asking for cheaper steel.”
The steel industry as a whole is in a state of major change at present. Manufacturing is dropping and anyone in the construction sector in particular (Martensite isn’t, says Mark with some relief) has had it tough for a long time already. “We are right in the middle of major changes ourselves,” he shares. “The change is that we traditionally have been a wholesaling operation, supplying large volumes to distribution outlets throughout Australia. But we have not sold to the end users.” That was effectively because the distributors threatened to go elsewhere if they found Martensite talking direct to their customers. However, Mark says the distributors have increasingly only been buying from them as an emergency supply, importing the bulk of their requirements from Asia. “We decided we could not continue with that model so we are in the process of merging our business with Global Metals, one of Australia’s leading engineering steel distributors with warehouses in Brisbane, Sydney, Melbourne, Adelaide and Perth.” A dedicated distribution warehouse will also be added to Martensite’s Newcastle facility in the very near future.
As a result, Martensite will at last have contact with the end user, albeit mainly via Global Metals’ staff. This will cut out a whole level of distribution stockholding, something which Mark estimates will stem the loss of twenty-five per cent of gross profit. “For the conventional distributor, when they are making a twenty-five per cent gross profit, their effective profit is zero and the market won’t allow it anymore,” he explains. Global Metals will retain its outlets, but large customers will be supplied direct from the Martensite plant.
There is an element of risk inherent in this move, as other distributors will now regard Martensite as a no-longer-preferred supplier – indeed a competitor. However, Mark points out the risk in maintaining the old business model would have been much greater, with its dependence on the whims of those distributors coupled with their reducing purchase of Australian-sourced product. The customer is likely to see only advantages. “We are now looking at what we call solution selling,” he says.
Mark has seen all sides of the steel industry – including trading – over the last thirty years and says there has been remarkably little investment in education. “Generally the people visiting the end users today have remarkably little knowledge and when we are allowed in, we find ourselves asking why the end user is not using different solutions.” Quite often the end user has never been informed of more modern or effective solutions for their particular application. Mark cites the case of a Victorian company that asked for a “good strong steel” and, for the next fifteen years, was using a material three times stronger than it needed until finally advised by experts as to actual requirements.
“We have metallurgists here with a huge amount of experience who have never, until now, had the opportunity to discuss problems and solutions direct with the end user of the materials or treatments.” In reality, until now, Martensite’s experts have largely been prevented from even knowing who their individual end users are, although Mark points out that does not mean they are not familiar with the demands of the specific industries involved.
Indeed, the company is able to react to changing demand quickly as a kind of ’boutique’ manufacturer, “as opposed to the large line where you have to buy whatever our processes are.” This chimes with the changed nature of Australian manufacturing. “We don’t have too many users these days just doing large repetition jobs day in, day out. More engineering businesses these days are working on a jobbing basis and they don’t know from one week to the next what exactly they may be working on. Distributors believe they have to keep a bigger range because they generally need to buy minimum quantities. That means they are keeping way too much stock.”
The Martensite argument says the future of engineering steels in Australia is based on a central processing and stocking facility, combined with a strategically sized distribution outlet and coupled with a major supply operation. “We are creating a business which will allow us to serve all levels of consumption from the large bulk users down to the cut-to-length-deliver-today requirement, within a structure which our competitors will be unable to replicate.”
“We are right next to the Pacific Highway – the main thoroughfare on the east coast – we have interstate transport through here every afternoon. I can have material delivered in Brisbane or Melbourne by lunchtime tomorrow. Why would I need to keep large volumes in Brisbane or Melbourne?” This restructuring will enable the company to offer product to customers at price and service levels, “they probably have not seen before. We are confident we will be able to grow our business this way because we believe the old model is dead.”
Mark’s extensive experience as a steel trader with a leading international player leads him also to look at bringing sourcing of steel in-house instead of relying on external trading. It’s about keeping afloat and adapting the business to the changing conditions. One adapted service of Martensite is the toll heat treatment of other companies’ material – usually the sort of material it is not involved in itself. This traditionally makes up around ten per cent of the business, keeping the heat treatment facilities at Tomago busy and occupying the metallurgists. “We do gearboxes and other fabrications. We did the hull of one of the large maxi-yachts that took part in the Sydney to Hobart. We do a whole range of forgings and wheels and axles for companies around Australia, and we welcome more, although I recognise the geographical limitations. We have large furnaces here – two of them – and we want to keep them occupied.”
However, Mark does not accept these facilities have been under-utilised. Martensite has done a good job of maintaining its profitability during the recent upheavals and has now positioned itself with Global Metals as a serious player for the future too. “We have been thinking for more than two years how we can make these changes – and now is the time to make that move.”