What To Do When The Sky Is Falling

acetylene cylinders

 
On March 21, a tragic fire ripped through the Louisville, Kentucky, plant where Carbide Industries manufactures calcium carbide. The effects have been felt by gases and welding distributors everywhere. Welding & Gases Today spoke with ten distributors in various parts of the United States, each of whom has one or more acetylene plants. As their customers came looking for acetylene, distributors went into action. Were they ready to handle this unexpected situation? What did they learn from it? What’s next? This roundtable delves into the preparation and planning needed to survive a very tough business challenge.
Steve Atkins, Senior Vice President
    nexAir (Memphis, TN)
Jack Butler, President
    Butler Gas Products (McKees Rocks, PA)
Wally Brant, President & Mike Gunnels, VP of Operations
    Indiana Oxygen Company (Indianapolis, IN)
Bryan Gentry, President & CEO
    GTS-WELCO (Allentown, PA)
Greg Groome, General Sales Manager
    Arcet Equipment Company (Richmond, VA)
Dave Melo, President, Melo’s Gas & Gear (Bakersfield, CA)
Ned Pontious, President, Norco (Boise, ID)
Ron Savage, General Manager, WestAir (San Diego, CA)
Jim Smith, Vice President
    DeLille Oxygen Company (Columbus, OH)
Mike Sutley, VP & GM, Oxarc (Spokane, WA)

 
As operators of acetylene plants, how did the supply slowdown of calcium carbide impact your operations?

Dave Melo: The uncertainty of supply was the biggest issue. We bought our acetylene plant on January 1, 2011. We barely got two loads of carbide before we found out it was going to be in short supply. The initial shock of it was rather unnerving.

Jack Butler: We had emergency meetings every day where we asked, “Do we have enough calcium carbide to serve our customers’ needs?” The answer was always yes—even if it was tight. In April, we filled cylinders at 60 percent and shut down for a couple of days. We went from day to day. The hassle was managing the supply chain.

Melo Tanks

Dave Melo, president of Melo’s Gas & Gear in Bakersfield, California, stands inside the acetylene plant his company purchased from Air Liquide on January 1, 2011. Since then, Melo’s has doubled capacity to 600,000 cubic feet of acetylene.

Mike Gunnels: Like the water that we combine with the calcium carbide to produce acetylene—we always had a feeling that it was going to be there. It turned our world upside-down, changing our priorities and schedules. We went into crisis management mode. Indiana Oxygen’s executive management team met daily to determine our allocations, our supply chain, what we had coming and what the alternatives were.

Wally Brant: And it was a moving target. We had a response for one circumstance, and the circumstance would change.

Greg Groome: We spent a lot of time talking to our competitors and industry colleagues to ascertain how serious the situation was and if anyone had any ideas we had not yet thought of. We put into effect an allocation plan for our customer base. We contacted suppliers that had acetylene to see what they were willing to sell us on the spot. That was difficult. In the first week of the situation, very few people were willing to even discuss whether they could supply carbide or acetylene. It was all very hush-hush. It started out, “Yes, we may be able to help you,” and then a couple days later it was, “No we can’t.” I think all suppliers were covering their own bases, trying to see what their situation was before they would even think about offering help to others.

Bryan Gentry: We have two plants that produce acetylene from calcium carbide and from chemical. We increased our chemical consumption to offset our carbide decline. We are typically at 90 percent carbide to 10 percent chemical, and we operated at 50-50 while we waited for product to arrive from South America and South Africa. 

 

Bryan-Gentry

Bryan Gentry is president and CEO of GTS-WELCO in Allentown, Pennsylvania, which produces acetylene both from calcium carbide and chemical sources.

With less product, what did you do?

Jim Smith: Our eight locations were immediately put on allotment. We did not want individual stores ordering extra cylinders and stockpiling. We ran reports and gave them 100 percent allocation of their weekly average. It didn’t matter what they ordered. Each store then allocated to their customers. We didn’t produce for about a week, but had plenty of acetylene in stock due to our allocations and not taking on new business.

Mike Sutley: We immediately allocated our core retail business, as we received only a third of a scheduled shipment. I lost some wholesale business.

Wally Brant: We too set an allocation. We did not make determinations based on who buys the most and who has the most influence. Everyone was affected the same.

 
What sources were available for obtaining calcium carbide?

Mike Sutley: There are only two sources of calcium carbide in North America, and the next closest source is near Mexico City. After that, you get it offshore. If you’re on the East Coast, it’s easier to import from Brazil or South Africa. On the West Coast, it’s easier to get it from China. I worked with one importer who was looking at Russia, but there were questions as to the quality of the carbide coming out of that facility. I was fortunate enough to reach out to another distributor who has been importing other products, and he had a connection in China and was able to act as an import agent for us. I have it coming from China, Argentina and South Africa.

Jim Smith: We imported three containers of calcium carbide from Durban, South Africa. We made arrangements on March 23 to start the procedure, and the containers were aboard a ship on April 8. From there, it took about three weeks for the carbide to arrive at the docks in the U.S.

Jack Butler Cylinder

Jack Butler, president, stands outside the plant where Butler Gas Products of McKees Rocks, Pennsylvania, produces just under a million cubic feet of acetylene per month.

Mike Gunnels: We looked at importing calcium carbide, but we did not like the contractual obligations. Many overseas manufacturers wouldn’t supply product unless we made an annual commitment to buy from them. We decided to wait and see. We felt confident our supplier had obtained adequate overseas sourcing that we didn’t need to enter into that agreement ourselves. Our regular supplier really stepped up.

Ned Pontious: It’s important to have a good contract in place. Because of the agreement we arranged with our supplier, we have been guaranteed carbide at our 2010 purchasing level.

Bryan Gentry: We imported from South America and South Africa.

Dave Melo: We got some from China. 
 

Did you have any concerns about importing product?

Mike Sutley: We wondered what the yield would be. Also, would there be too many impurities left over that could plug the generator? Then we’d have to deal with additional costs to shut down the generator, clean it and put it back together. What we got from China has been relatively good.

Greg Groome: Our supplier imported some carbide and processed it further to refine it, so it comes closer to their specs than if we bought it direct as raw product.

Jack Butler: I didn’t have any concerns about quality. We belong to the International Oxygen Manufacturers Association, and we’ve talked to companies all over the world who are using this carbide. It is exactly the same as what we’re using now, it just costs more.

Ron Savage: We have some unknown issues relative to the quality of imported carbide. Material handling is another issue. Because the imported carbide comes in smaller containers, it adds the cost of transferring the raw materials into our existing generator flow bins.

Steve Atkins

Senior Vice President Steve Atkins stands outside the chemical acetylene plant where Memphis, Tennessee-based nexAir produces one million cubic feet per month of acetylene.

Jim Smith: Handling imported carbide is tremendously different. Our regular supply comes in 5,000-pound flow bins. The product coming from South Africa is in 265-pound steel drums, so we had to open five drums for one load. A platform was set up outside the plant where we store a pallet with nine drums at a time. Employees roll the drums over to a pneumatic opener inside the plant and then pour them into the hopper. This slowed down the manufacturing process.

Mike Sutley: The drums differ in size and weight from suppliers. Getting them open and dumped, then disposed of, create additional labor costs, as they must be cleaned and crushed.

Greg Groome: Another challenge was delivery time. I think foreign suppliers thought they could get their production up faster than they actually wound up being able to do, causing delayed shipments and missed headlines. 

Jim Smith: Offshore manufacturers don’t put oil on the carbide to lower the dust. We ordered full face shields with respirators to protect employees’ eyes and their breathing. OSHA requires that any employee using a respirator must have a health evaluation. Since it’s not a supplied-air respirator, you have to breathe harder to get the oxygen you need. We made sure our employees have a doctor’s approval and have the respirator properly fitted.   

How did you explain the situation to your customers?

Wally Brant: We kept customers informed as soon as we heard any news, and sometimes that meant sending three emails in a day, each with a different twist.

Ron Savage Cylinder

According to General Manager Ron Savage, the capacity of San Diego, California-based WestAir Gases & Equipment’s acetylene plant is 500,000 cubic feet of acetylene per month.

Jack Butler: We did email blasts, so all of our customers heard the same thing at the same time. We communicated that it was difficult to source calcium carbide, but we would be in tip-top shape after May 1.

Greg Groome: We told our customers to expect a shortage and that we were doing all we could to fill the pipeline with raw product at additional expense, and a portion of those costs would be passed on as a surcharge.

Jim Smith: To keep customers from stockpiling acetylene, we made a corporate policy that we would only do an even exchange. If a customer came in asking for an acetylene cylinder and didn’t have one to return, he didn’t get one.

Greg Groome: Several customers called to order acetylene, and then we found out they already had product in their own inventories. A production facility may have 20 to 30 cylinders in the facility and may be using only 15 to 20 percent of those cylinders while the rest are sitting somewhere in the plant. We worked with customers to identify those cylinders and helped them get product from within their own organization.

Dave Melo: We pared back every customer and tried to make what we had last long enough to take care of those that really needed the product. We rationed it the best we knew how.

Bryan Gentry: We let customers know what was happening, and we wanted them to understand the reason for the uncertainty in the market and what that cost would be going forward. We had to allocate for a couple of weeks.

Ron Savage: We sent letters explaining why the shortage happened, and we made targeted calls to all of our larger acetylene customers. Customers knew we’d have product for them or we’d help them with an alternative gas. I don’t think customers panicked too much, other than on the price.

Jim Smith: There were tremendous costs right from the start to get to the point where we could get shipment out of South Africa. In addition to the increase in the cost of raw material, there were shipping costs, tariffs and the cost to get an annual customs bond to use the port. This doesn’t take into account any increased costs in labor due to the packaging. Money had to be put up front on the first go-around for three containers of calcium carbide.

Wally Brant Cylinders

Indiana Oxygen Company President Wally Brant (r) joins Vice President of Operations Mike Gunnels in the Indianapolis, Indiana, company’s acetylene plant, which serves ten wholesale distributor customers.

 
Did all of you implement a price increase?

Mike Sutley: We implemented an increase across the board.

Ned Pontious: We passed a price increase on to our customers.

Dave Melo: We implemented a price increase.

Ron Savage: We had to make price adjustments.

Wally Brant: We added surcharges, not price increases. It’s an enormous difference.

Bryan Gentry: We had to raise the price. I don’t think these costs will come down in the near term, perhaps at the end of the year.

 
There has been a great deal of discussion surrounding other gases. Are you introducing customers to alternative fuel gases?

Greg Groome: We feel acetylene is the superior fuel gas, and we have never been very big at promoting alternative fuel gases, so we don’t have a lot of cylinders. As soon as this situation occurred, the availability of alternative fuel gas cylinders became very spotty while customers and competitors rushed to buy them. We’re being careful not to over-commit to alternative fuels because a) we have an acetylene plant, and b) we have limited assets. We are, however, getting a lot of calls from customers who previously considered switching to another type of fuel gas and now are interested again. That’s a normal reaction.

Wally Brant: We’re letting customers decide if they want to explore alternatives. If they used acetylene, they probably had a reason to do so. The majority of customers will come back to acetylene when it’s available. When it comes to promoting one fuel gas over another, you have to do what’s in the customer’s best interest, even if it means that your annual output may suffer. If you don’t, they’re going to feel that you were protecting your own best interest before theirs. That may give you a short term gain, but in the long term, it will hurt you.

DeLille Cylinder

DeLille Oxygen Company Vice President Jim Smith, left, is joined by John Meeker, senior acetylene plant technician, at the Columbus, Ohio, company’s plant, which produces 350,000 cubic feet per month. Meeker demonstrates a pneumatic drum opener and a respirator that plant employees wear to protect against the dust on imported carbide.

Jack Butler: We’re not promoting alternative fuels. I think acetylene is a much better fuel gas. Also, the price of propylene has doubled in the last 12 months.

Steve Atkins: It’s always amazing to me in the acetylene business just how dependent acetylene users are on acetylene. There seems to be a very consistent acetylene customer base out there.

Bryan Gentry: We are promoting alternative fuels, specifically a branded, propane-based product used for cutting. I think you’ll see increased cost in acetylene on a permanent basis, which will drive some users to alternative fuels.

Dave Melo: Alternative gases are nothing new for customers. They’ve always been available. Some customers have changed to them, but most are just hoping to wait out the storm and stay with acetylene.

 
What alternatives do they go to?

Dave Melo: Mainly propylene and hydrogen flame, a blend of hydrocarbon added to propane.

Mike Sutley: We purchased 200 additional alternative fuel cylinders and are doing a focused conversion of customers. The problem with going to alternative fuels is that you have to make the program stick. If you don’t educate the customer up front, they fall back into old habits and stick an acetylene tip on a torch that’s running alternative fuel. When it doesn’t function properly, the whole thing breaks down and they end up going back to acetylene.

Ron Savage: The question remains whether customers will use alternative products. We are either going to continue to offer customers acetylene at higher prices, or they can get into some of the propylene-based alternative gases, which we can also provide.

Mike Sutley Cylinder

Vice President & General Manager Mike Sutley stands in front of pallets that Spokane, Washington-based Oxarc uses to stack drums of imported carbide at its acetylene plant, which has the capacity to produce one million cubic feet per month of acetylene. The gold drums are from Argentina; the gray are from China.


Looking forward, what effects will the shortage of calcium carbide have?

Greg Groome: We feel we are going to be in and out of shortages over the next year, and I think we’ll see prices spike. We may have an allocation situation and certainly a surcharge situation.

Ned Pontious: I think product will be there for purchase. Pricing is going to be the big question.

Bryan Gentry: We may see an increase in the cost of acetylene on a permanent basis, which will drive some users to alternative fuels.

Steve Atkins: As the cost of calcium carbide-generated acetylene rises, I expect to see an increase in the cost of chemical acetylene as well. Inevitably, we will have to use carbide-generated acetylene as a backup when our supplier’s pipelines are down. We certainly see an opportunity to increase output. We now require a minimum one-year contract from new customers in order to support the hiring of staff doing what needs to be done to increase our production.

Jack Butler: I think there will be a slow migration away from acetylene. The acetylene curve has been flat or declining for 20 years, yet our business is up 30 percent this year because there are fewer plants. If you’re an independent distributor with an acetylene plant, the future is extremely bright.

Ned Pontious Cylinder

Norco President Ned Pontious (r) and Plant Manager Ken Goicoechea in front of the acetylene generator at the company’s Boise, Idaho, plant.


Where do you see yourself on July 1?

Jim Smith: Business as usual with no allocations. The sales force will be freed up to take on new business.

Jack Butler: We now have two sources for calcium carbide and most of our heartburn is behind us. We are soliciting new acetylene customers.

Steve Atkins: We increased our acetylene production and added a large amount of new acetylene business, along with additional plant employees. We will further assess the situation to determine if we can add additional acetylene volume throughout the summer months.

Dave Melo: I think I’ll be worry-free and in great shape. Full steam ahead.

Mike Sutley: We have enough carbide on hand or on order to run us through the end of July if we get the allocation our U.S. supplier has committed to us. We are addressing orders going forward.

Greg-Groome-Cylinders

Richmond, Virginia-based Arcet Equipment Company’s acetylene plant produces 500,000 cubic feet of acetylene per month. General Sales Manager Greg Groome stands over a sorting area for full cylinders.


Any lessons learned from this experience?

Jim Smith:We would rather buy carbide domestically, but in the future, we probably wouldn’t want to put all our eggs in one basket by signing an all-requirements acetylene contract. We would want to have the ability to import carbide if needed.

Ned Pontious: It taught us the value of an agreement/contract with a supplier, because our supplier had a contract in place that he would guarantee to give us product. Those working without a contract were the first ones to get cut off. So there’s value in an agreement with your supplier.

Jack Butler: In reality, there is no shortage of calcium carbide. There’s plenty of carbide—it’s just not all in the U.S.A. Distributors have to re-learn how to source materials. It’s very similar to what happened with helium. It was hard to get until the price reached a certain point. Now there is plenty of helium to be had.

Mike Sutley: It raised everyone’s awareness that we were selling acetylene too cheaply as an industry and that there is great value in acetylene, but it’s not necessarily for everybody. Alternative fuels can be a good choice.

Jack Butler: Acetylene is going to be a product sourced throughout the world, like most products are. We’ve all had to learn how to outsource. We learned, and now we move on.

More Disaster Planning: Facing down floods, hurricanes and other natural disasters, distributors share their emergency response plans. Read “Weathering The Storms” in Welding & Gases Today.

Gases and Welding Distributors Association