Çolakoğlu Metalürji, one of Turkey's major steel producers with an annual crude steel production capacity reaching three million metric tons, has decided to establish a presence on the ground in the US by founding a new wholly-owned subsidiary called Medtrade Inc. in Houston, Texas. Çolakoğlu Metalürji has for years been an importer of scrap from the US, while also exporting finished steel products, including rebar and hot rolled coil, to the country.
Two vice presidents of Çolakoğlu Metalürji are together in charge of the new Houston-based subsidiary. Philip Hoffman, vice president of ferrous scrap trading, is responsible for sourcing scrap from the US to be shipped to Çolakoğlu Metalürji, while José Gasca, vice president of marketing for finished steel products, is in charge of marketing and selling Çolakoğlu Metalürji's finished steel products for distribution throughout North America.
Uğur Dalbeler, CEO of Çolakoğlu Metalurji, answered SteelOrbis' questions regarding Medtrade.
We have seen some reports saying that Çolakoğlu Metalürji has opened a sales office in Houston, Texas. What information can you give us about this new office?
Yes, we have opened an office in Houston. But it seemed a little odd to me, all this uproar about our new office. We were the first Turkish company to open an office in China, back in 1987. In addition to our office in China, we also had offices in Tehran and Moscow. Besides, we had an independent trading company for many years, under the name of Fercom Trading. However, none of these resulted in such a hullabaloo. Many Turkish steel companies have offices abroad. Ekinciler Demir ve Çelik is a good example. Trading firms also have foreign offices.
We want a presence in the US for the following reasons. We supply some of our raw material needs from the US and we have a certain amount of exports to the US. So the US is an important market for our activities. That's why we decided to open an office in the US, a market from which we have supplied our raw material needs for the past 30 years and to which we have been selling products for the past 25 years. Our aim is to be present within the same time zone 24 hours a day, to have a chance to better evaluate what we can do there and, most important of all, to be able to take our decisions on a healthier basis by reaching more accurate information in a shorter time. As you buy your scrap from certain scrap suppliers in the US and sell your products through certain trading companies, then you have to decide your moves according to the information exchanged with these firms. However, the US market has its own dynamics. For finished steel, domestic and import prices vary and the same is also true for local scrap prices and scrap export prices. In this context, the importance of timing is evident, especially in such volatile market conditions. Consequently, we are aiming to attain a healthier information flow with our new office in Houston. In the future, we may also consider some further activities.
Let me also say that this office is not only focusing on the US market, but also on all North, Central and South America, along with the Caribbean region. José Gasca is in the marketing side of the new office. Previously, he was managing director of flat steel business at Coutinho & Ferrostaal. With José, we also believe that we will have a more effective information flow also from the south of the US, as he knows the region quite well and we believe that he will provide accurate orientation for us.
We may certainly consider the possibilities of opening new offices elsewhere in the future.
Do you think that the reason for that "uproar" may be because people believe that you will obtain scrap at better prices from local suppliers, instead of from international suppliers?
Yes, that may be the reason. Lately, some international trading companies have been getting more involved in the scrap trade. They are taking positions at the right time and the cost of that to us is higher prices, since these companies buy scrap when the market is at the bottom, resulting in tighter supplies - which is speculation, obviously - and then they are selling again when the market peaks up. With our new office in Houston, we are hoping to remain at a distance from those who are speculating in the market, even if we will still continue to supply our needs through US suppliers.
The Turkish Ministry of Economy was considering providing incentives for companies which invest abroad in raw material supplies. Have these incentives come on stream and, if so, have you received any such incentive?
So far, I haven't heard of any actual project which received such an incentive. We have certainly heard and read about the plans of the ministry regarding these kinds of incentives. However, we do not have any concrete information nor have we heard of any example of these incentive procedures up to now. As a result, we are not sure if it is necessary to open a scrap yard abroad or to run a mine to be qualified. In brief, we have not received any such incentive.
With your new office in Houston, will you also contact end-users in the US from now on?
No. If I try to reach the customer of my customer, then I would have to compete with my own customer, which is something to be avoided. The same can be said also in Turkey. There are certain steps which should be followed when doing business. We are in no way going to cut out a steel service center and to reach its customers ourselves. Our scale is different and we will do our business the same way in the US. But at least, we will be monitoring domestic prices in the US more closely with our new office there and maybe we will now be able to reach some customers that we had difficulties in reaching before.
Will you run a warehouse in the US? Or will you hold inventories there?
In the short term, we are not planning to run a warehouse. About holding inventories in the US, we will decide that later, depending on the performance of our office. Initially, we do not have such a plan. However, if we see that it is possible to do so, then we may well decide to hold inventories in the US in the future.
"The idea of setting up a US company was about two years in the making"
In addition, Philip Hoffman also spoke to SteelOrbis about the foundation of Medtrade and the vision of the company for the US market.
Philip Hoffman began his career at Luntz Corp before it was bought by PSC Metals and then worked for Hugo Neu in New York and Los Angeles, before they were bought by Sims Metal Management in the early 2000s. For 10 years, he has worked in the field of scrap buying and vessel chartering and international trade. After receiving a degree in International Trade and Maritime Law, he proceeded to trade scrap from the US West Coast to the Far East.
Mr. Hoffman met Uğur Dalbeler at a conference, where both were speaking when Hoffman asked why Çolakoğlu Metalürji did not import containers into Turkey given the close proximity of a container port to the mill. While the idea of container shipments was ruled out due to container freight rates, the two began talking about sourcing scrap for bulk loading.
Hoffman always had the vision that it made logical sense for an overseas mill to vertically integrate given the direct dependence on raw material. The idea of setting up a US company was about two years in the making. About 1-1.5 years ago, Hoffman proposed the idea to Dalbeler following feasibility studies in the US about the best possible location to set up the new trading hub. The Gulf Coast was found to be the most economically viable. The company on Hoffman's side would source scrap from dealers to be exported directly to Çolakoğlu Metalürji, while José Gasca would facilitate the import of finished steel from Çolakoğlu Metalürji into the US. Çolakoğlu was already a major exporter of finished steel to the US prior to the US subsidiary company being set up and was also a major buyer of scrap from exporters out of the east coast.
"Medtrade is ramping up its operations slowly so as not to disturb current scrap market dynamics in the US"
So far, Medtrade has done some business, but it is ramping up its operations slowly so as not to disturb current scrap market dynamics in the United States, according to Hoffman. The volumes Medtrade will be handling will pale in comparison to the other scrap behemoths. Even with Medtrade now established - although the company is still only at its beginning - Çolakoğlu Metalürji will continue to deal with its usual scrap brokers for their normal scrap export cargos.
Hoffman is uncertain as to whether this will prompt other Turkish mills to do something similar, as Çolakoğlu Metalürji is a unique mill in a unique situation -in part because Çolakoğlu Metalürji has its own vessels, there is a significant freight advantage and so this move was the next logical step for the company.