Shray Gulati, Director, EU-Metal BVBA, Belgium
Kateryna Samoilenko, Metal Expert, Milan
Trading companies have been facing a lot of challenges in 2019 amid a dramatic decline in demand, escalation of trade wars all over the globe and numerous steel mills acquisitions changing the landscape of world steel industry. EU-Metal shared with Metal Expert its approach to the survival in these complicated times.
EU-Metal’s distribution network is spread all over the globe. What markets are the most attractive now for the EU-made flat products? How competitive are European premium flat products in the international arena?
To give you an idea, EU-Metal is present in more than 50 countries all over the world and has an extensive lookout of several markets having distribution channels from our 13 warehouses all over the region.
Looking at the scenario of the world situation at the moment, we can see a very competitive environment for steel coming from the preceding years and which gives an advantage to customers over the prices and quality available in the world.
But if we consider the premium flat products from the EU mills, I believe that mergers and acquisitions as well as recently announced production cuts will help the mills recover their power again, even though EU automotive and construction sectors are showing a slowdown.
The new investments in these sectors in the MENA and CIS regions will follow the same path and give support to the premium productions from the EU mills. Africa will also be one of the most markets in the coming years, off course, depending on the economic and political stability of the region. Also, Libya, which is in a post-war recovery stage, can potentially lend support to steel demand.
Which countries are dominating in sourcing and supplying the material?
The main countries of sourcing material for us are Europe, South America, North America, South East Asia and the Middle East.
We cooperate with such producers as ArcelorMittal, Thyssenkrupp, Salzgitter, Marcegaglia, SSAB, Arvedi, Dillinger, as well as a few mills in North & South America, SEA and the Middle East. Our major sales destinations are Europe, Africa, South East Asia and Middle East.
Since EU-Metal is active in many European countries, could you please share with us your view of the current state of the flat steel markets in the region?
In my opinion, the general weakness of a number of key European economies together with local and European elections back in May 2019, the collapse and re-shaping of Italian government are exacerbating the feeling of uncertainty. Moreover, in many countries, concern exists about Brexit, especially if a ‘no deal’ scenario is the outcome.
The substantial import tonnages that arrived at the start of the year will take time to work through the supply chain. Particularly, the global quota for HRC was filled by 97% by the end of the first period of safeguards in force, which means 1.9 million ton of the product arrived to EU between February and June, 2019. The availability of this material allows buyers to adopt a ‘wait and see’ attitude towards ordering from domestic sources.
In Germany, steel demand remains relatively low, due to the marked slowdown in the auto sector. The typical first half a year restocking process failed to materialize this year leading to the severe competition in the distribution sector as companies fight to generate cash by reducing stock levels. Pressure from end-users is forcing them to reject the steelmakers’ price hike proposals because their margins are already squeezed.
In France, business activity is lackluster, amidst relatively high inventories. Customers note that a number of domestic mills are selling quite aggressively in order to try to fill their production schedules. Those local service centers dealing primarily with the auto industry are now experiencing a slowdown in volumes. Forecasts suggest a drop of 5% y-o-y, for tonnages sold to the carmakers. Currently, import offers are uncompetitive.
Italian manufacturing business conditions continued to worsen. All the uptick in flat mill product prices announced this year came to a halt, with basis values stabilizing or developing marginal weakness. Downstream steel demand is dismal. Service centers are under pressure from end-users, who are reluctant to pay increased resale prices. Buyers are purchasing with extreme caution. Downgraded economic growth forecasts provide additional uncertainties.
Spain’s steel market is relatively stable, with regional variations between the north and south of the country. Nevertheless, market sentiment is negative, due to the impact of the summer vacation period and the unwillingness of end-users to pay increased prices. New import quotations are very similar to those from domestic suppliers. Although service center sales volumes are better than earlier in the year, resale values do not reflect replacement costs.
Mainland European mills have plenty of material to sell into the UK market. For the moment, flat mill product selling values have been maintained. Distributors report that demand, with the exception of auto-related sectors, is holding up, despite the uncertainties associated with Brexit. Distributors’ resale margins are tighter than of late but still acceptable.
How do you see the flat market development for the next five years?
Sheets and strips market demand may witness steady gains over the next five years owing to increasing product usage in packaging, manufacturing and home appliances. In particular, the global home appliances market size is expected to reach over USD 590 billion by 2024.
Flat steel market size is predicted to witness a massive growth in the forecast timeline due to increasing construction and restoring automotive industries. North America, led by Canada and the USA, flat steel market size may witness an uptrend due to increasing investment opportunities in construction industries.
Europe flat steel market size, led by UK, France, Italy, and Germany, will witness a steady growth rate by 2024 due to increasing demand for construction, home appliances, and automobile & transportation sectors.
How do intensified trade defense measures all over the globe affect your business? How have your purchase and sales strategies changed over the recent few years?
Trade defense measures like anti-dumping and quotas have been readily seen in all parts of the world to be an aggressive part of protecting the different company growths in the region and to avoid producers like China, Turkey and Russia to dump their low priced products in the market and to disturb the balance of the business.
However, these trade defense measures do not stop completely the business, but rather channelize it giving a chance for premium quality products to be still imported in the market. What we have noticed since the last few years is that we are in a growing need to find quality products because Europe certainly needs import of high-quality steel to support industries due to the lack of such products in the local markets.
In recent years, we have studied changing markets and followed the trend to keep our volumes at a decent level. We have always made long term contracts with our customers to give them the best service no matter whether the market is on an upward or downward trend. This has helped us not just sustain the changes in the market but reach higher targets every year.
What are main pillars of success in the trading business in the current market environment?
With the vigorously changing markets, trends, needs and new mergers & acquisitions, my personal opinion for the main pillars of the trading business will be as follows. Firstly we have to be kept well informed and very aggressively follow the trends. We have to develop the widest channel of procurement sources. EU Metal has been in link with more than 50 mills all over the world and this number is growing to support the needs of our customers.
Also we have been handling substantial amount of flat and long carbon and stainless steel products all these years for the same reason – to be very close to our clients. Having one of the best distribution channels and logistic possibilities is one of the very important points in trading these days. As I mentioned we maintain more than 13 warehouses all over the world, which enables us to minimize the cost of logistics and take the least time to transport the products from the mills to our warehouses and further to provide on-time deliveries to our buyers keeping the minimum cost.
Strengths in fields such as logistic channels, finance rates and providers, documentation and services and new R&D help you to obtain another competitive advantage.
And finally its a constant search for new markets. Reaching far-flung customers and having their needs fulfilled gives you a peak point and niche market to entertain with higher margins intact.