NEW YORK Steel traders are adding services to cope with a still-recovering U.S. steel market in which the traditional back-to-back import business model doesnt always work, members of the American Institute for International Steel (AIIS) said at an AMM-led roundtable at the Steel Success Strategies XXVIII conference in New York.
"The trading industry has had to reinvent itself," said AIIS chairman John Foster, who is president of Burlingame, Calif.-based Kurt Orban Partners LLC and Houston-based consultancy Partners in Steel International LLC. "Trade services" such as financing assistance, logistics and risk management are playing a larger role in traders business, he noted.
AIIS president David Phelps pointed out that with delivery lead times measured in months, it can be difficult for imports to successfully compete with much shorter domestic lead times, especially in a market that still hasnt rebounded fully from a slump that began in 2008.
"The customer is not willing to be out five or six months," Leon Goldenberg, AIIS vice president and president of New York-based trader Fremak Industries Inc., said. "Risk management is much easier with a two- to three-week lead time from a U.S. mill."
"Were coming back slowly; theres a positive trend," Foster said. "But buyers are still very wary of long lead times."
Some of the largest U.S. service center chains, now being run under the tight financial control of "bean counters," will only allow their buyers to order imports if the steel is "inbound in 30 days," Goldenberg said.
Services were involved in "zero" percent of Fremaks oil country tubular goods (OCTG) business three years ago, he said, but services such as upsetting and threading gradually grew to 15 to 20 percent two years ago and are now involved in about "60 percent of what we do in OCTG."
Foster noted that while virtually none of his pipe sales involved additional services two years ago, its currently included in "maybe 20 percent" today. And while cutting services might be involved in only 10 percent of bar business today, that nonetheless represents "something that hasnt been done before."
Meanwhile, despite a "slight" improvement during the past few years, a key leg of the U.S. steel marketnonresidential constructionremains weak, preventing a full recovery, Phelps said. "The largest segment of steel demand is still in the Great Recession."
Foster noted that traders expanding role can go as far as taking positions and actually laying down inventory. But he emphasized that this practice, which moves risk from the customer to the trader, is best applied "selectively" with a traders traditional customer base. "To do it smart, you do it with people you trust," he said.
The Steel Success Strategies conference was sponsored by AMM and Englewood Cliffs, N.J.-based World Steel Dynamics Inc.