Ask Peter Campo why he spent five years of his young life pursuing a doctorate degree in chemical engineering, and hell tell you he was an engineer from an early age.
I liked to take things apart and see how they worked, put them back together and try to make them better, Campo, the newly appointed president of Gerdaus long steel division in North America, said from his office in Tampa, Fla. I spent a huge amount of my time when I was a kid growing up flying model airplanes. I built model airplanes, rebuilt model airplanes and competed with model airplanes, so that was a good training ground for me.
Good might be an understatement. Since joining Gerdau in May 2008 as vice president of procurement and sales, planning and operations, Campos career has been what might best be described as airborne. In the past six years he has raced up the corporate ladder with successive stints as vice president/general manager of rebar fabrication, vice president of downstream operations and vice president of supply chain at Gerdau Long Steel North America and, since April this year, president of the North American arm of Porto Alegre, Brazil-based parent company Gerdau SA, the 14th-largest steel producer in the world, as ranked by the Brussels-based World Steel Association.
Campo, who earned his doctorate degree from the California Institute of Technology in Pasadena and spent the first 18 years of his fast-track career at General Electric Co.mostly at its former GE Plastics divisionis hard pressed to explain his rapid rise.
I look back on it and I dont know that I can come up with a good answer. ... I tend to run toward problems rather than away from them. I took a lot of challenging assignments. I sort of went the path less traveled, he said. If you look at classic career paths in Gerdau and GE, I was kind of unusual. I hopped to lots of different opportunities and that allowed me to learn a lot of things in different areas. That probably has as much to do with it as anything. It comes down to a certain amount of luck and a certain amount of taking the hard job and doing what you can with it.
No stranger to hard jobs, Campo joined Gerdau in the middle of a steel supercycle. It was an exciting time. The industry was at a unique place, he recalled. Gerdau was growing fast, acquiring companies and the industry was performing well, he said, joking in the next breath that he was blamed for everything after that.
Over the next three years and three months he moved from his first assignment at Gerdau in procurement and sales into rebar fabrication, and then into downstream operations, the largest component of which is rebar fabrication. About half of our rebar production is what we call captive, meaning we add value to it in downstream processes, Campo said.
With its own standalone profit-and-loss statement, Gerdaus downstream fabrication business operates separately and independent of the steelmakers mills in the United States and Canada. We go to market in a coordinated way because the mills sell to some of the competitors downstream, so we have to be sensible and careful about that, Campo said. But basically, it is a standalone business, largely because its marketplace is different.
Among the differences he cited as distinguishing the upstream from downstream components of Gerdaus North American operations are the way you go to market, the way you estimate jobs, the detailing we do and the services we provide.
Another key difference is risk exposure. We sell somewhat reluctantly at fixed prices for the long-term duration of projects, so it is very much a project-oriented business. ... We end up buying at a market price from the mills and selling at a fixed price generally to projects, so there is some risk associated with it, Campo said.
Basically we want to create value, get paid for it and make money in reinforcing steel, but we want to do it in places where it makes sense, where we have steel production as well, he said, summarizing the mission of Gerdaus downstream operations business.
Asked about the challenge that independent fabricators face when competing against the apparent advantages of mill-owned fabrication operations, Campo is empathetic, but only to a degree. We are significantly involved in fabrication so we know how difficult it can be, he allowed.
The reality is the barriers to entering fabrication are very low. People come and go. Its a tough business, he said.
Margins are relatively low for us and our customers. And at least for todayand the foreseeable futuretheyve got lots of options for supply. If I were an independent fabricator, I wouldnt be worrying about where I source my steel, he said. In 2007, you might have had a different point of view. At that time, if you didnt have a good relationship with a mill there wasnt enough rebar in the world and prices outside the U.S. were higher than here. But Im not expecting things to go back to that world right away.
Campo spent just shy of three years as vice president of Gerdaus downstream operations before being named vice president of supply chain at Long Steel North America in October of last year. The new title and responsibilities that came with it were a welcome and apparent natural fit. Probably by nature I am a supply chain guy, he said. Thats sort of where I gravitate.
Mention supply chain and electric furnace-based steel mill in the same sentence, and the subject of ferrous scrap and the dynamics of sourcing it invariably tops the list of hot topics. For Gerdau, which transforms about 16 million tonnes of ferrous scrap into steel annually worldwide, the material represents the most critical, challenging and volatile link along its steelmaking supply chain. As an input, it accounts for an estimated 60 percent of the cost structure at Gerdau Long Steel North America.
The strategy that Gerdau employs to source scrap to feed its furnaces differs markedly from major competitors in the long steel arena. Others have gone down different paths, Campo acknowledged. We see it as surety of supply and critical to having a cost-effective and competitive billet cost. We dont approach it as a separate business. ... We arent interested in the merchant scrap business. We dont really want to be traders. And we are not interested in exporting scrap. We want to have a footprint that gives us a competitive advantage in collecting scrap for our mills. We want to collect scrap, but in a way that is very well coordinated and operationally connected with what we are doing in the mills.
At last look, Gerdaus long steel division in North America counted a total of 33 recycling locations. The latest addition to that stable came in February last year, when Gerdau completed the acquisition of certain operating assets of Cycle Systems Inc., a metal recycler based in Roanoke, Va. The purchase of Cycle Systemswhich had nine locations, including a shredder and several feeder yards throughout central and western Virginiawas billed at the time as supporting the companys goal to minimize billet costs by having scrap sources closer to its mills. Gerdau operates a 1.2-million-ton-per-year-capacity (raw steel) near-net-shape caster and multipurpose structural mill in Petersburg, Va.
Campo is as adept at articulating Gerdaus position on the scrap surcharge mechanism as he is on the companys ferrous scrap sourcing strategy. For historical reasons, I think it makes a lot of sense and I know how it got here, he said. But I think the day when we sort of mechanically adjust prices once a month based on one input cost is kind of behind us.
Major domestic scrap-based steelmakers began shifting away from across-the-board implementation of the surcharge in May 2013 and havent looked back. There are just too many other factors driving what should be the pricing set in the market, Campo said, sharing one explanation of what prompted the shift. And it fundamentally drives too much volatility, which isnt particularly good for our customers and is not good for us.
Other hot topics on the ferrous scrap circuit range from the explosion of ferrous scrap exports and proliferation of shredders to the debut of scrap futures. And Campo wasnt short on words on any of the three subjects, starting with the rise of scrap exports.
Ferrous scrap has become a global commodity in a very transparent way, he said. The U.S., being an open-markets country, allows scrap to flow across its borders. As a consequence, price discovery happens on a global basis. So if there are places in the world that want to pay more for that raw material, they will. The upshot is twofold, he said. My observation is it has created a coupling between ore and scrap. People can, and do, substitute between them, so you see a correlation between the prices. And it has created a coupling between the U.S. market and the external market.
Campo used two words to describe the shredder phenomenon: vastly overbuilt. The business model was we dont have to sell scrap to these few domestic mills that maybe have some buying power, we can sell it to the world, he said. The next step was to develop the technology and a supply chain for export. ... That is the Holy Grail. And that encouraged people to invest and, frankly, overinvest.
As for scrap futures, Campoacknowledging that he is not an expertsaid he has difficulty identifying the benefits for actual industry players. I think it makes a lot more sense for bankers, financiers and speculators than it does for the steel industry, he said. It is difficult for me to see how futures are really going to help the supplier or consumer of scrap. Even so, he stopped short of pronouncing steel futures a bust. The market will do what the market needs to do, he said. If thats a product people want to buy, they will buy it. But we are not particularly interested in seeing it developed.
Gerdaus long steel division in North America also isnt particularly interested in developing a direct-reduced iron (DRI) facility, but not because it doesnt see the merits of the technology; its more a matter of fit, given the range of products in which the company specializes.
We looked at it pretty hard in the last couple of years, Campo said. And our perspective on DRI is the material is a meaningful competitor to pig iron. So if you are buying merchant pig iron today, you have capital and you want to invest, you might look at building a direct-reduced iron plant. It is a viable technology. It makes sense in North America with low-cost gas. But if you dont need pig iron quality in terms of residuals, you dont really need DRI. So for what we are doing in long steel, its not particularly attractive.
Gerdaus special steel operations in North America buy a little bit of pig iron, while the long steel unit purchases a very small amount. But it is not enough to be meaningful to us from that standpoint, Campo said. We are very happy being scrap based. And, at least in North America, we expect to be scrap based for a very long time.
When Campo was named president of Gerdau Long Steel North America in early April, he took the reins of an organization that recorded 2013 revenue of $5.8 billion, sports an annual manufacturing capacity of more than 11 million tons of finished steel products, operates in 29 U.S. states and two Canadian provinces, and counts about 9,500 employees at more than 130 locations, including 20 steel mills, 56 reinforcing steel locations and 33 recycling locations.
His immediate agenda is to build on initiatives already set in motion. Theres nothing new or radical, Campo said when asked what was one of the first changes he made after assuming his new post. I didnt come here with any particular mandate to fix or change something. A lot of it is strengthening initiatives that we have already done.
Campo quickly ticked off three areas around which Gerdau organizes its management scorecard: safety, employee engagement and financial performance. Were very proud of our safety performance but we are not as good as we want to be, so we are focused on some improvements in safety, he said, noting that Gerdau is one of the safest steel companies in the world. We are also investing in and working on strengthening the work force. We want to have the best people in the industry working at Gerdau, so that is important for us.
Last but not least are the companys financial results. We are not particularly happy with recent financial results and are spending a lot of time there, Campo said. And that breaks out into customer engagement, commercial policy and commercial competency, cost and cost containment, competitiveness and some elements of strategy.
Campo noted along the way that Gerdau has been making a conscious effort over the past six to eight months to reconnect with our customer focus. We have done a lot of things over the past four or five years that were fairly inwardly focused, he said, citing the buyback of Ameristeel shares, the rebranding to Gerdau and the implementation of the SAP AG project across Gerdaus North American operations. Since the downturn, we also spent some time homogenizing all the acquisitions in North America, and now we want to redouble our efforts to get back to our roots being very customer-centric.
Commenting on customers Gerdau serves in key end markets, Campo noted that manufacturing has been better than construction since the downturn. Everybody knows that. ... And it has certainly been true for us, he said. Some of our (special bar quality) markets have been materially better than some of our construction-related markets. And oil and gas is terrific. We dont have as much exposure as we might like (in North American long steel), but that has been good for us. Those are probably the two strongest for us right now.
Another bright spot is automotive, which he described as very strong for Gerdaus North America specialty steel division.
Asked what he considers the most promising market over the next one to five years, Campo pointed to construction. It is going to come back, he said. I dont think it is going to be gangbusters. Im not looking for 15-percent growth, but well see high single-digits and I think it will be pretty steady. ... I dont see any reason why it wont have quite a ways to run.