We discussed challenges that steel trading companies are facing and the role of the trader in recent times with Dirk Weyrather from C&F International.
Could you please describe your company and your role in it?
C&F International is a fairly new name in the international steel trade business, although it is in fact an old company with quite a long history, since the company was renamed back in 2012-2013 from the former Coutinho and Ferrostaal, which was established as a joint venture between Ferrostaal Metals, the steel trading arm of Ferrostaal AG, and Hamburg-based international steel trading company CCC Steel. The longer history of CCC Steel dates back to 1895 and the company emerged as a trading operator active in the worldwide trade of steel and other products. Ferrostaal had been created in the late 1940s. The two companies merged in 2008. Ferrostaal AG, the holding company of Ferrostaal, had decided to sell off the assets of the steel trading activity called Ferrostaal Metals. So CCC Steel, Ferrostaal Metals and Grupo Villacero from Mexico came together to form Coutinho & Ferrostaal. On January 1, 2008 the company called Coutinho & Ferrostaal started operations and as of late last year we changed the company name to C&F International, since two of the shareholders of the company, namely CCC Steel and Ferrostaal Metals, sold their stakes to Grupo Villacero. The new name will better reflect the long-established experience of Coutinho & Ferrostaal, which was already being abbreviated as C&F and the company has also adopted a similar look in brand colors, etc. So this is how the company was created.
My role in the company is managing director for emerging markets within our own nomenclatura. At C&F, we have separated the world into sectors, such as Europe and the Middle East as one major column of our business, North America as a second column comprising the US and Canada, and we also have the so-called emerging markets, comprising of Latin America, Africa and Asia.
What are the main challenges in the market nowadays?
The main challenge for steel trading companies are the very widespread information possibilities that we are seeing in the market nowadays. Traders' know-how which is used to be quite essential in the trading business in the past has now lost its influence because everything has become so visible and every piece of information is quickly spread and widely available, even as compared to a few years ago. And this information structure may now cause overreactions from suppliers or buyers from time to time, thereby making life more difficult for both producers, customers and also for the international trading community in particular.
The services that steel trading companies are offering, namely, to provide the right material at the right point in time, and to provide additional services like shipping and financial services, are sometimes disappearing too much into the background. In fact, when the market moves more quickly than usual, with strong price increases for example, a customer may end up in a challenging position, with the supplier failing to keep its previous promises for lower prices and seeking better opportunities elsewhere, and in these moments the exact role of reliable international trading companies can clearly be seen.
For a quite some while now, traders are said to be working with very tight margins. What is the current situation?
Tight margins are also the outcome of this information overkill. As soon as a deal has been fixed between a customer and a supplier in a market, information about this deal surfaces so quickly in another market through the media that the deal may not even be true yet. This may attract the wrong people to try to attack the supplier or the customer and to try to get a share in the deal as well. So times are a bit dangerous.
Iron ore and coking coal prices have been much lower since last year as compared to the levels of a few years ago. And further price declines are expected in the years to come with new capacities coming on stream. Do you think lower raw material prices will bring more room for higher margins?
I think it is actually the other way around. I think it will rather put further pressure on margins. This is because we do have an oversupply situation at the moment, whereas two or three years ago in particular we had an acute shortage of iron ore and that imbalance has not yet been fully resolved. We have seen iron ore prices declining to levels of $112-115/mt CIF China, down from above $140/mt CIF. Before those higher levels, iron ore prices used to hover at levels of about $80-90/mt a few years further back. With additional iron ore capacities or excavation capacities coming on stream, certain trading companies have established business units in this field as well. I personally believe that margins will remain under pressure.
The steel market has seemed more stable in recent years. What do you think is the reason for this, especially in relation to raw material prices?
Currently, the volatility is not as high as it used to be in the past, both in steel and raw material prices. A certain degree of volatility will exist, because there is limited availability of raw materials, for scrap and iron ore - although in iron ore we are heading to an oversupply situation. We may see times when the current capacities will not be sufficient, and it may occur depending on how good the steel market situation will develop. The steel market will be influenced by developments in eastern Europe, particularly the Ukraine crisis, and also by what is going to happen in the Far East, and in China. For example, will the Chinese government try to influence steel capacities to such an extent as to limit steel production, which they have been doing for years, though less in the recent two to three years?
I believe that there is a need for the steel industry to consolidate. If the steel industry consolidates eventually, this will also have an impact on the raw material side. Consolidation would bring more controlled sales and marketing efforts. These would also affect raw material consumption and could bring more stability to the raw material side, which may then be reflected in steel prices. Until all this happens, we will see the steel industry remaining very fragmented.
As known and discussed already, the iron ore market is basically controlled by three big suppliers. However, new players are also emerging in the market. In particular, India has reappeared in the iron ore market.
So we may only hope that there will be a little bit more organization seen in the marketing of raw materials and steel products. But the steel industry seems to remain a very fragmented sector, particularly on the steel production side.
You have mentioned Ukraine. Do you buy steel products from Ukraine, HRC or billet or both?
The volume of our purchases from Ukraine -mostly flat products - has gone down very drastically over the past couple of years, since China is unbeatable in many markets pricewise. Besides, in terms of quality, China has improved so much in the past five to six years. You can see Chinese products in every market in many different market segments. Ukrainian products are having difficulty in competing with Chinese materials in cost effectiveness. That is why our purchases from this country have been reduced.
We do actively entertain sales activities in Ukraine and in Russia, for certain steel products which see large demand but are low in supply.
Are there any flourishing markets out there?
We do see some markets with quite some activity in some parts of Latin America and we see the same in some parts of Africa. However, all these activities are based on low pricing, with low quality requirements.
We see continuing good demand in Brazil, although prices are now under pressure. The Brazilian steel industry is actively fighting against imports with strategic pricing policies.
In some parts of Southeast Asia there is also continuing good demand, but also for low priced products. These areas are now mostly nourished by China, with South Korea and Japan losing market shares.