Automotive downturn challenges distributors, quotas irrelevant: EUROMETAL chief

EU distributors have access to sufficient material despite safeguard quotas, but business is being challenged by the downturn in the regional automotive industry, says new EUROMETAL director general Daniel Guinabert.

Initial fears over material shortage on account of quotas have not materialised, as European steel demand has declined compared to 2018. Steel service centres (SSCs) and distributors “… import from outside of Europe when you have quite good visibility in demand and pricing trend,” Guinabert told Kallanish in an interview in Prague last week. “Currently, unfortunately, compared to the beginning of last year demand is weaker,” he continued, adding that the European automotive sector and German economic slowdowns are major factors behind this.

Steel prices have been under downward pressure since the tail end of 2018, which is not good news for distributors who keep sizable stock levels and therefore stand to make losses, Guinabert continued.

Safeguard quotas are doing little to support prices in the current environment. “I’m fully convinced that the market price level is not driven by the quota,” Guinabert commented. “Because, we have all the distribution actors that can find volumes easily from their current source of supply.” He added: “All European suppliers are looking for volumes.”

In any case, imports remain key to distributors’ ability to make a profit margin. “We must keep significant volumes of imports,” Guinabert said. “European steel suppliers cannot source 100% of their global volume within Europe because… sometimes they (mills) are out of some market segments.”

As a distributor, “…if you wish to get the price level, you must keep a constant flow with some selected suppliers external from Europe,” he continued. “If not, you cannot get the best price.” Guinabert estimated that EUROMETAL members source around 20% of volumes from outside of Europe.

In terms of the ArcelorMittal/Liberty asset reorganisation, Guinabert believes Liberty will consequently become a major player in the European SSC business. Besides acquiring ArcelorMittal’s processing capability in Dudelange, it has gained control of four SSCs in Italy from ArcelorMittal CLN Distribuzione Italia.

Although the automotive downturn has reduced EU mill production and therefore distributors’ deliveries, SSCs’ individual performance depends on their carmaker affiliation. While German and Italian carmakers’ production has been significantly impacted, for instance, French carmakers – and therefore the SSCs supplying them – are performing better, Guinabert pointed out.

As for the projected slowdown in global economic growth, the director general said distributors’ flexibility is likely to be tested. These firms often end up with too much stock during a downturn, which can damage profitability. “In our business people are optimistic by nature,” he commented. “When the steel service centre Ebitda is €20-25/tonne, you can consider it’s not a bad result… Compared to the price of the coils or the price of the beams, the path is very narrow between profitability and losses.”

“In Europe you have 250 producers including tubemakers, you have 5,000 distributors and 1 million end-users… We’re trying to do our best to defend the interests of the profession – distribution. It’s not a question of independent, of family company, the problems are the same.”

EUROMETAL will hold its Nordic regional meeting in Helsinki on 22-23 May.