Steel buyers gather to talk shop, trade stories and discuss concerns about the current market.
There are various associations in existence that bring together members of the steel industry: MSCI for service centers, ASD for distributors, SMA for manufacturers, AIIS and AISI for the industry in general, along with many more. However, there are not many opportunities for end-user purchasers, who buy steel at the end of the supply chain, to network, share ideas and concerns, and forge relationships that will benefit them in their professional life.
However, within the Institute for Supply Management (ISM), which is comprised of thousands of purchasing managers and other supply management professionals across the vast spectrum of US commerce, there is a small niche of buyers who share something in common: steel.
At the ISM's annual conference in San Diego on April 27, a dozen or so attendees gathered in a cozy seminar room within the Hilton Bayfront Hotel for the Steel Buyers Forum, a chance for them to discuss the near future of the steel industry and how it affects their specific business. The companies represented included machine parts manufacturers, a garment rack producer and even a government-contracted energy facility builder among others. Although each business buys vastly different steel products, they all have a stake in the developments of the steel market: pricing, inventory levels, mill capacities, and the influence of foreign markets in the US.
After an informal discussion period, Amy Bennett, Senior Steel Consultant for Metal Bulletin Research, took the podium to discuss the general market conditions for steel and her company's outlook for the future. She declared that the 2008-2009 recession has come to an end, with improving economic conditions not only in the US, but around the world. While the domestic automotive sector is showing improvement, she outlined the weaknesses in the construction industry, such as tepid growth and a "severe oversupply" of office space and other commercial buildings.
"Depression in the construction sector is negatively affecting steel demand, particularly for steel long products," Ms. Bennett said. "This has been reflected in a noticeably slower improvement in long product prices and plate prices as compared to the recovery in sheet and coil markets in recent months."
The recovery in the flats market can be attributed to a strong US automotive industry, which enjoyed a 24 percent year-on-year increase in light vehicle sales in March. However, she reminded the audience that while 2010 will be a better year than 2009, "it is essential to remember that any growth this year is starting from a record-low base. Actual consumption will remain well below pre-crisis levels."
Something to keep in mind, according to Ms. Bennett, is the lack of credit and liquidity in the market, which will determine the sustainability of any perceived recovery. Even though demand for flats has improved, buyers are cautious about their purchases, operating on an "as-needed" basis. She warned that "the challenge in obtaining adequate credit will not only dampen potential manufacturing activity, particularly for smaller OEMs, but will force steel purchasers to maintain lean inventories as buyers are unable to finance large stock holdings."
Ms. Bennett briefly touched on raw materials, and how their recent rapid rise has affected steel prices across the board. Low scrap supply and the resultant higher prices has driven steel prices to significantly high levels, but the US has been mostly insulated from the developments in the international iron ore market due to arrangements between North American steelmakers and domestic iron ore producers. However, Ms. Bennett noted that "higher iron ore costs in international markets also influence slab and other semi-finished steel prices, which slab-short steelmakers and others supplementing their melting capacity with imported semis...will be forced to pay."
Overall, Ms. Bennett predicted that 2010 will not turn out like 2008, mostly because she does not believe that "credit availability would today allow for steel prices to climb as high as they did previously." Raw materials still have much to do with price increases, but demand is also picking up enough to be influential in offering prices. According to Ms. Bennett, "global demand for finished steel has returned to late-2007 levels within the last couple of months," indicating the healthy growth before the sudden boom and bust of 2008.
However, any optimism was tempered by warnings of the current recovery's sustainability. Ms. Bennett was concerned that "the significant increase in steel prices over the last several months seems to have been made possible by the fact that steel inventory levels were historically low." Once steel buyers have regained "normal" inventory levels, price increases will depend on "actual" demand; and although it seems to be improving, Ms. Bennett suspects that consumer demand in North America "will struggle to sustain a strong rate of growth throughout 2010."
Murat Askin, General Manager of SteelOrbis Americas, took the podium next to introduce the audience to the world of steel trading. As a former trader and influential aspect of the steel industry publication he currently heads, Mr. Askin was able to provide useful insight into the steel purchasing cycle, from mill production to end-user delivery.
He began the presentation by offering a general explanation of steel trading. Steel traders have no affiliation with buyers or sellers, they primarily deal with steel products, they are a principle in the transaction (meaning they own the steel for a portion of the purchase timeline), they finance the transaction, and they assume product, payment and transportation risks. They are basically a neutral entity that handles the specifics of steel transactions so individual sellers and buyers don't have to.
Mr. Askin took the audience through the entire purchase timeline, and also detailed the costs that go into a purchase, from ocean freight to insurance to unloading, even including the trader's commission. That commission, which only works out to be about two percent of the total cost, is much less than many purchasers imagine, and according to Mr. Askin, quite a fair price considering all the work a trader puts into a transaction.
During the question and answer portion after the presentation, Mr. Askin was asked how the steel trading business was faring in the current market. He explained that there are not many trading companies to begin with-it's a very concentrated field. And while some companies have had to trim their personnel, most have stayed afloat because regardless of the recent economic slump, steel is being made and bought in the US and abroad.
At the conclusion of the forum, amid the standard handshake-and-card-trade routine, the attendees seemed to be grateful of the opportunity to meet up with fellow steel buyers. They discussed their next conference in the fall, during which they plan to visit a steel mill and see where the steelmaking process begins. Learning all the steps of the supply chain, and the roles of each participant within it, will enhance steel buyers' understanding of their product and hopefully improve their ability to navigate the marketplace. And even though the steel market is showing signs of recovery, any advantage that steel buyers can find will boost their chances of flourishing in the future.