Future Of Worthington Cylinders

[runsongas]

Luxfer does make cylinders in China. Just not sure if only industrial gas cylinders or if that includes their scuba tanks.

 

[kelemvor]

Luxfer does make cylinders in China. Just not sure if only industrial gas cylinders or if that includes their scuba tanks.

Interesting, so perhaps Luxfer tanks are the ones Worthington saw as a problem.

 

[Leadking]

As a former Worthington distributor, I tried to find the details on the closing. My sources tell me the equipment, at Worthington, was cut up to ensure it could not be used again. When I viewed the equipment auction, no cylinder manufacturing equipment was offered. My understanding is there was over-capacity in the market and smaller (?) companies were being bought out to eliminate competition. Recent conversations repeated to me claim that Worthington's Canadian operations, when accounted properly, never made money. It is a shame as I really enjoyed bringing the cylinders to market.

Also understand that the equipment used to make Worthington steels (deep draw) are completely different than that used for aluminium (reverse extruded) and are incompatible to each other.

 

[kelemvor]

Wow that seems bizarre! Why destroy the equipment rather than sell it and recoup some of the investment?

 

[Leadking]

Wow that seems bizarre! Why destroy the equipment rather than sell it and recoup some of the investment?

Because another entity with more money than brains could buy it and enter the market. The purpose was to eliminate competitors, not make them.

 

[DA Aquamaster]

Wow that seems bizarre! Why destroy the equipment rather than sell it and recoup some of the investment?

It's about controlling the supply of tanks to keep the prices up. It works that way in a lot of industries where the number of competitors is fairly small.

Consider gold prices. They were pretty stable from about 1982 through about 2000 at around $400 per once. Homestake Gold Mine was the largest gold producer in the US and one of the largest in the word. Homestake also had at least 25 years worth of gold reserves that could be profitably extracted provided the price stayed above about $325 per ounce, given Homestake's cost of production.

However, Barrick started dumping gold on the market in 2000 and by 2001 had brought the price down to about $275 per ounce. At that price they were losing money but it was successful as Homestake could not remain profitable and Barrick used the low prices to force Homestake to sell it's assets to Barrick.

Barrick then became the second largest gold producer in the world, and promptly cut production by closing Homestake, and not just closing it but shutting off the pumps and flooding it with about 5,000 feet of water to effectively take Homestake's reserves permanently out of production. In 2007 Barrick agreed to allow the upper levels of Homestake to be used as a deep underground science lab, further ensuring it would be even more difficult to every put Homestake's underground reserves back in production.

Why would they destroy Homestake's production potential after they bought the company? Because it was cheaper than keeping the pumps running, and they wanted to ensure the gold market remained strong by permanently reducing the supply, so shutting off the pumps made perfect sense.

It was effective too, as gold prices steadily rose from $275 an ounce in 2001 to over $1800 dollars on ounce by 2010.

In the same manner it makes more sense for competitors to cut up Worthington's production tooling to boost demand by reducing supply. Any new company considering getting in the market would have to invest a lot more money to produce new tooling, than would have been the case if they could have both Worthington's tooling.

 

[kelemvor]

I guess I don't understand why Worthington cares about the scuba cylinder market. Didn't they deliberately exit the market? Or did a third party purchase and subsequently destroy the equipment?

 

[Leadking]

I guess I don't understand why Worthington cares about the scuba calendar market. Didn't they deliberately exit the market? Or did a third party purchase and subsequently destroy the equipment?

Bought by another manufacturer and Worthington's equipment was scrapped

 

[scubafanatic]

Bought by another manufacturer and Worthington's equipment was scrapped

So, who was this 'other manufacturer' with the scorched earth policy ? By the way, nobody has filled the hot-dipped galvanized tank niche in the tank/cylinder ecosystem, so was that market too microscopic for anyone to fool with ?

 

[kr2y5]

Aren't there laws against this sort of thing? I'm surprised.