A new approach is needed in the relationship between scrap dealers and steel mills - this in short is the solution presented by Romano Pezzotti, president of Assofermet Scrap division, and Cesare Pasini, vice president of Feralpi Group, during the morning session of the 1st Assofermet Day & SteelOrbis Conference held on November 15 at Villa Fenaroli Palace Hotel in Rezzato, Brescia, in northern Italy. The debate, chaired by Mr. Pezzotti, focused on the lack of scrap availability in the Italian steel industry. According to Pezzotti, among the most critical problems in the current system is the lack of loyalty shown by scrap dealers to their customers, with scrap dealers becoming "loose cannons" that one day sell to one steel mill and the next day decide to sell to another mill. This generates price volatility which is difficult to manage, even for big companies, he said. "This requires consideration of how we should face the future," added Pezzotti, who said he believes that the Italian steel industry is trying to deal with the current tough times by using old solutions. He went on to express hopes for greater synergy between scrap dealers and their customers (i.e., steel producers), who were represented in the debate by Cesare Pasini. The Assofermet official remarked, "With Pasini, I always talk about these problems and there is a common intention to try to evaluate new projects and initiatives, but this is not enough. The entire supply chain must change its way of doing things."
For his part, the Feralpi Group vice president said that last year the share of Italian scrap requirements obtained from abroad was equivalent to 30 percent of total domestic consumption, not much different compared to the figures of previous years. However, he added that in recent years new variables have emerged. For instance, the presence of Turkey has become increasingly significant. "We are at the mercy of what is decided in Turkey as regards knowing what prices we are going to pay in the near future," Mr. Pasini said. In this situation, he continued, any glimmer of recovery in production will run the risk of being undermined by the difficulty in tracking the necessary volumes of scrap. "The volumes that Turkey withdraws represent about 12 percent of scrap consumption in the EU. In 2012, 11.5 million metric tons of scrap were exported from the EU to Turkey, while in the first nine months of 2013 the volume was 8.9 million metric tons. In Germany [where Feralpi subsidiaries are based, including ESF Elbe-Stahlwerke Feralpi GmbH and EDF Elbe-Drahtwerke Feralpi GmbH], the situation is a little different thanks to a geographical area with large scrap resources and an export market which is less vulnerable. Moreover, it helps us to have monthly contracts that contribute to a much more stable price for scrap," Pasini stated. He added that problems in scrap supply have been felt particularly in the past month. "Today, the difference between the costs of scrap for our Italian establishment and the costs for our German facilities is €30/mt," he said.
To solve the problems in the Italian steel sector, the Feralpi official continued, "We need to stick together and find new sources of supply, and to buy as a team in order to bring a great volume of scrap into the Italian market… there are structural problems that are difficult to overcome - primarily a huge infrastructure deficit compared to competitors, but unity gives strength."
"A review of our strategy is the first change of approach we need to implement," said Pezzotti, who, just like Pasini, said he also favors monthly contracts that would increase stability in the market. He went on to say, "There is a worrying lack of scheduling, especially for producers, but also for scrap dealers. Reviewing our strategies from week to week, if not almost daily, has become a difficult task, which is why I say that we need a total change of strategy." The Assofermet Scrap division president reiterated the need for scrap dealers to retain their customers with regular and constant volumes, preparing to act as a strategic stock source for them. The main focus, however, he said, is to overcome the great fragmentation which exists in the market and to encourage the creation of associations and aggregations along the supply chain. Without this prerequisite, according to Pezzotti, scrap dealers and steel producers will continue to oppose each other in a game which sometimes hurts one side and at other times hurts the other side.