With serious changes currently seen in the European steel sector, it is very important for all businesses of the supply chain, and particularly for distribution, to adapt to the new reality, enhance the value chain of steel and remain competitive and cost-efficient. This issue was discussed at EUROMETAL’s Southern Europe Regional meeting of steel distributors on June 27-28 in Barcelona. The meeting was attended by more than 40 industry representatives from Southern Europe and Turkey, including the producers and independent steel service centres (SSC) and distributors.
Participants mentioned that one of the main concerns for South European steel distributors in terms of procurement today is growing protectionism both globally and in the EU that gradually restricts their access to imported products. Particularly, distributors are concerned that the additional safeguard measures, with AD and CVD duties already in place, will significantly reduce import availability in the EU. According to rumours, the EC will impose a quota on imports equal to 75% of the total average annual import volume registered over the last 3 years. “That would mean that around 7 million t of imports of all steel products will disappear from European market. Around 70% will be for flats and 22% for longs,” EUROMETAL director general Georges Kirps said during his speech. And that is the threat for both steel distribution and downstream industries.
Having an example of the US, where protective measures have led to a sharp increase of local prices, European distributors fear the same situation may be seen in the EU “unless we have a vision of the European industry which is based upon $960/t for HRC and god knows what for galvanized steel,” a steel distributor said. Participants believe that potential risks for the downstream industrial base are extremely high. “I only hope that those measures of protectionism are not going to hit these businesses and we will not come to a point where we will have to close them because they are not competitive anymore. And of course this will make a lot of harm to the steel service centers,” a representative of a Southern European SSC added.
Speaking of the necessity of imports for the distribution, the sector participants mention difficulties to get the products from the European mills. This is partially because European suppliers are unable to produce certain specifications, particularly those of flat steel products. Besides, independent distributors say that they are in a disadvantage over those who partially belong to steel mills when it comes to procurement. In conditions of limited availability of certain product types, the material will most likely be sold to a mill-related distributor rather than to an independent one, participants say. Therefore, import becomes essential for effective operations of SSC.
This problem is more pronounced for the Iberian flat steel market rather than for Italy. In Italy, there are four local mills, and coils are also supplied by other European producers, whereas in the Iberian Peninsula there is “only ArcelorMittal and no one else in 2000 km around ArcelorMittal,” said Fernando Espada, managing director of Tata Steel Layde.
Lower competition in the European coils market, which might be caused by lower imports, will also be magnified by the consolidation of the European steel mills. The integration process might also become an important leverage for producers and enhance their power in the market. “Form alliances, chase the mills,” EUROMETAL president and Tata Steel Distribution Europe CEO Jens Lauber pushes distributors for action. Considering high fragmentation of the Southern European distribution sector, consolidation may become a solution, especially since European SSC and stockholders distribute 60% of all finished steel products in the EU.
However, EUROMETAL vice-president and managing director of AMCLN Cesare Vigano believes that the real problems of the Southern European steel distributors are not only external, but rather internal, with several challenges needed to be overcome. One of them is again a necessity of consolidation of local steel distributors. “The problem is that there are too many actors with different business models in the Italian SSC distribution market, where additional services to the customers are “free of charge” and the relative costs are not recovered on the sale’s price,” he said. Yet, there are not many supporters of this initiative today. “Everybody confirms that this process of consolidation should be done but there is no real movement in this direction because there is more individualistic approach [in the industry],” Cesare Vigano said in an interview to Metal Expert in the frame of the conference. The same attitude prevails in Spain and Portugal, participants said.
Another challenge for the local distributors, which they are not really eager to accept though, is digitalization of the steel industry. Jens Lauber mentioned the main elements of the digitalization: new approaches to analysis, such us Big Data and Advanced Analytics, in order to predict customer behaviour, online connection of producing sites, online and offline sales and new technologies in production process. Implementation of those components will allow steel distributors to achieve some main elements that will enhance the steel value chain, Metal Expert understands. One of such elements is flexibility of SSC in fulfilling the needs of their customers by using new technologies and improvement of their cost-efficiency, Tommaso Sandrini, President of Assofermet Acciai and managing director of San Polo Lamiere, said during the panel discussion.
Today, Southern European distributors are quite reluctantly getting involved in the digitalization process for some reasons. Firstly, “the steel industry is too old fashioned,” Fernando Espada said. “Most of the SSC are today working the way they were working many years ago. Not many things have changed. So in most of cases people are just reluctant to even think about it,” another participant said.
Another reason why the digitalization process is advancing slowly not only in the distribution sector, but also in the whole steel industry, is that people don’t really know how to do that. A wide variety of steel applications is making this task even harder. “This is a great [consuming] area we are entering. But there is not a book of how to get into the industry 4.0, internet of things and advanced analytics,” Fernando Espada added.
The development of the automotive sector, one of the most important steel consumers, requires new quality of steel. The growing competition with aluminium and other materials must push modern SSC to develop high-strength solutions for “further processing of this new kind of steel,” Jens Lauber said in his speech. That requires new attitude to the value generation for both a customer and a SSC.
And finally, a challenge that may become an opportunity for Southern European distribution is the fact that local mills are getting increasingly involved in direct distribution. “We are really concerned with the competition coming from the direct distribution. We need to be more efficient than the direct distribution. We need extremely to be capable of processing steel with lower cost, with maximum flexibility and capability to listen to our customers,” Tommaso Sandrini said.
“Wind of change is not calming down. It becomes a storm, a storm of all of the time. We need to prepare to this way of sailing, to those market conditions and to navigate our business to the future.” With these words, Jens Lauber finished his speech at the conference. Solving the above-mentioned issues and adapting to the conditions that are beyond their control is the only way how the Southern European steel distributors and service centres can enhance the value chain of steel, Metal Expert understands.
Apart from the Southern European representatives, the conference was also attended by Ahmed Soybas, vice-president of YISAD, Turkey’s Flat Steel Import, Export and Industry Association, which joined EUROMETAL in February 2018. Speaking of Turkish steel distribution industry, he said that it is also highly fragmented and includes more than 100 players. Currently, one of the main concerns for Turkish SSC is currency fluctuations in the domestic market and financial risks connected with them. “We have to finance our customers may be at lower cost than they can find themselves if they go to the banks,” Soybas said during panel discussion.
The upcoming event organized by EUROMETAL is Steel Net Forum & International Steel Trade Day in Hamburg on October 8-9. The conference will address key topics like industry 4.0 strategies, internet of things, digitalisation, steel logistics and the role of independent steel distribution in European steel industry as well as the latest developments in the field of steel trade policy.
Lilit Papoian, Metal Expert