Lakeside Steel says it will be cheaper to ship steel pipe products to customers as far north as Alberta from a new plant in Alabama than from its current base in Welland, Ont., thanks to lower labour costs and massive incentives from the hard-hit US state.
Lakeside announced in June that it would build the plant in Alabama to add capacity to meet growing demand from North American customers, primarily energy companies based in Texas and shale gas customers in the northeastern US.
“We just simply have not be able to provide enough product to them at a competitive price,” Lakeside president and CEO Ron Bedard said.
“Bringing Alabama on just over a year from now will allow us to be more competitive and to supply the right amount of product to have a meaningful presence in the Marcellus Shale. It will actually be cheaper or less expensive for me to ship to the Marcellus shale and Alberta from Alabama than it is from Ontario.”
There is a growing need for steel pipe for wells and pipelines in the rapidly expanding shale gas industry in the US Appalachian region, home of the Marcellus Shale rock formation.
The Marcellus formation spans several states in the US Northeast, which Lakeside has been serving from its main location in Welland, Ont., near the US border.
Demand for its products in the region currently outstrips supply, but the new plant will help to supply steel pipe required for extraction and transport of natural gas, Bedard said.
The plant in Thomasville, Ala., where construction began Sept.1, will reduce supply costs for the company, largely because people are willing to work for less and because the state offered a host of incentives that Bedard said will roughly cover start-up costs.
“I take a look at the Welland facility, we have an expensive workforce operating that casing mill. We will have an inexpensive workforce in a right-to-work state in Alabama.”
Alabama is one of more than 20 US states that have enacted the pro-business right-to-work law banning mandatory union membership. The largely rural and industrial state’s steel manufacturing and automotive industries were ravaged by the recession.
The community of Thomasville has about a 20% unemployment rate and an average per capita income of $14,000, Bedard said. “Having a manufacturing site in their community is a big, big deal.”
The new plant is also within 257-kilometre radius of most of its suppliers.
Lakeside manufactures steel pipe and tubing for oil and gas, mining, automotive and commercial and industrial supply companies.