NEW YORK Steel importers must offer more risk management services to customers in order to compete with domestic suppliers, members of the board of the American Institute for International Steel (AIIS) said during an AMM-led roundtable at the Steel Success Strategies XXVIII conference in New York.
The conference is sponsored by AMM and Englewood Cliffs, N.J.,-based World Steel Dynamics Inc.
Long lead times and buyers who are wary of todays uncertain economic environment have made selling imported steel increasingly difficult in recent years.
"Theres a fundamental metamorphosis in the way business has been done and the way business is going to be done. The days of the big traders are coming to an end. With all the mergers, acquisitions, supply-side and sales-side changes, its created a very different environment for traders to be in," Fremak Industries Inc. president and AIIS director Leon Goldenberg said. "There are less mills to buy from and less customers to sell to. In addition, customers no longer want to be six or 10 months out."
Lead times have been a major factor for buyers, particularly as domestic material on certain products like hot-rolled coil can be as short as two weeks vs. months for imported material. Buyers are also concerned that by the time foreign material arrives, market prices might have taken a nosedive, causing inventory to be overpriced.
The trading community can ameliorate that risk by removing more of the uncertainty.
"The risk management aspect is the biggest angle of this thing. Buyers are still wary of long lead times because domestic lead times are fairly short," according to John D. Foster, chairman of the AIIS, president of Kurt Orban Partners LLC and managing director of consultancy Partners in Steel International LLC. "The trading industry is having to reinvent itself and bring a lot more value, which includes trade services like financing assistance, logistics, risk management to help customers run their business more efficiently."
Traders are increasingly bringing in foreign material and holding it in depots or warehouses for specific customers until they are ready for delivery, Foster said. That way, foreign material can compete with domestics on lead times. Traders also are increasingly value adding steel, including cutting, slitting and coating the product, he added.
"Inventory management is a subset of risk management. Were being asked to bring a value-added element, which helps customers manage inventory better," he said. "Weve had to evolve a little bit for the benefit of the traditional customer base."
Much of the difficulty in recent years is due to the recession, which has caused wild fluctuation in pricing. Once demand returns, which some hope will be marked by a return of nonresidential construction at the end of 2013 and early 2014, the future could look just a little brighter.
"Another element to this is that the driving force of these changes is a macro issue," AIIS president David Phelps said. "If you look back prior to the great recession, back to 2006, we had over 40 million tons of imports. Whats happened since then are these mini-cycles. Nonresidential construction is still so weak, and you have to have this leg of the stool."