A 2006 with more positives than negatives, and a 2007 that should maintain the same trends – the view of Roberto Lunardi, president of Assofermet (association of Italian steel industry traders).
What is the initial assessment of 2006 on the part of the Italian distributors?
-2006 has been without doubt a good year from the point of view of the distributors, even if less impressive compared to that experienced by the producers. All the lively activity in the international market has certainly also boosted trade but with quieter tones. Our activity is, in fact, strongly linked with the territorial reality that surrounds us and so we only indirectly experience the global macro cycles. However, it is true that the steel world, and also on an Italian national scale, has shown a better performance than other sectors, in spite of the fact that the national economy can definitely not be described as brilliant. In any case, the year has been positive; constant demand without abrupt accelerations or halts in pricing- a completely different tune compared to the frenetic 2004.
How have you experienced the rise in steel prices?
-The increases in prices of both steel products and scrap has significantly shifted the emphasis to warehouse stocks. The importance of supplies management has assumed an ever-more important role. The immediate reaction of the scrap trade was to lower stock levels in order to reduce both financial burdens and the risks linked to the volatility of steel price quotations. For the distributors – who are the ‘breathing lung’ of the market – various mechanisms have been at stake. The increase in prices was answered by an increase in supplies, yet the warehouses have been more empty than in the recent past, meaning a lower intakes of ‘oxygen’ for the market. Against this negative aspect, a resulting positive factor is that speculative activity has not been possible.
How were your relations with your customers (in 2006)?
-We had to keep moving to meet their requirements. For the distributors, the margins have been narrowed. It’s certainly necessary to have a well-stocked warehouse but it’s not enough. In order to remain competitive we have had to become more flexible. We have done this downstream from production by serving finished products to users, and also upstream from production by supplying scrap to the mills according to their requirements.
What will 2007 be like?
-I believe that the year will follow the tracks laid down in 2006. The trend of the steel market will remain good with demand in steel increasing. Italy will also benefit from this international movement. However, the risk remains of an increase in production capacity superior to the increase in demand, especially in China. It all still remains to be seen if we will have to face a new lack of equilibrium between demand and quantities being offered. In any case, I don’t think there will be huge changes in the market. We already went through the big structural ‘jump’ in 2004.
Will there be more risks than opportunities?
-The loss of centrality of the EU can be read in two ways. If, on one hand, the beating heart of the market – and of steel consumption – will be in the Far East, on the other hand it is not to be excluded that the same eastern markets will absorb the flows of exports, thus taking pressure off of Europe. This is obviously taking for granted that the Chinese colossus doesn’t find itself in a situation whereby it is obliged to find an external release valve, in the case where internal consumption is not able to absorb production. This risk remains.
What will be the effects of consolidation on the Italian distributors?
-This is an unstoppable process that, however, hits the large businesses more than it does the small ones. For us traders, the traditional link to our own region becomes a sort of barrier. The level of specialization that we have reached is an element that can be replaced only with difficulty. And this may be an appropriate reason for the steel giants to leave the relations with our national territory to those who have always looked after them.