Mario Sala, Area Manager of Italia's leading steel supplier Tuxor expressed the company's operations and the general situation of the steel markets at the SteelOrbis Spring '12 Conference and 66th IREPAS Meeting held in London.
Could you give a brief history of Tuxor?
Tuxor is a leading European company which supplies steel materials for civil and petrochemical engineering industries all over the world. Since the foundation of Tuxor in 1983 by Giuseppe Ferrero, we have shipped thousands of tons of structural steel, building materials, pipes and fittings and non-ferrous metals to our customers all over the world. From our beginning, we have operated in the African, Middle Eastern and Central American markets. In the 80s, we also operated in Eastern Europe, but generally in collaboration with construction companies, both Italian and international. We still work with construction companies. In particular, I am responsible for the Algerian and overall North African market, and we work with Chinese construction companies which have sites in Africa. Beginning from 2005, we have participated in a number of big projects in Algeria, together with a Chinese consortium, for construction of highways. In this period, we have been able to create a series of contacts which we are still using and taking advantage of today.
Which products do you offer? And can you give some idea of your turnover?
Our core business is definitely represented by rebar and wire rod, helped by our liaisons with various steel plants in Brescia, including Feralpi. However, we are adapting ourselves quickly to changing market trends. So an increasing share of our most important purchases are made outside Italy and outside Europe (for example, in Turkey and Asia). The mentality in the market has seen changes, even if purchases are made in Europe. From 2008 onwards, margins have been squeezed and everyone in the market has adapted themselves accordingly. As we have no debts, all our operations are self-financed and sometimes we operate on the basis of payment at sight and payment within 90 days. We can also make small margins through these operations.
2008 was an exceptional year. In 2006-2007, we achieved a turnover of about €50 million, while in 2008 we surpassed €120 million, thanks to the increases in volumes and prices - which had approximately doubled. After the crisis, in 2010 and 2011 we recorded a turnover of between €50 million and €54 million. In 2011, we increased our market share in Algeria, while we lost the Libyan market due to the political turmoil in the country. The loss of the market has cost us about €6 million to €7 million a year. Although we have compensated for this loss in part with our operations in other markets, if we had not lost the Libyan market our improvement would have been even greater. We have felt the effect of the crisis in terms of our margins, which have decreased, and in terms of certain customers, as regards payments. Even some foreign customers, such as the Germans, have recently become less punctual in their payments.
You are active in every step of the supply chain. How would you describe your service to your customers?
We differentiate ourselves from other traders in terms of size - our company employs 17-18 people - and in terms of our competence or business strategy, as we do not speculate in the pure sense of the word. We are trying to provide a certain quality of service to construction sites, which then justifies their purchasing from us. We try to follow every construction site from the beginning. Our biggest success in recent years has been highway construction in Algeria. We worked with Chinese companies for the central-western part of the highway from the very beginning (2007), where we had our ‘rebar moment' as well as our ‘bitumen moment'. Accordingly, we have diversified our business a little, also supplying all accessory products, such as guard rails, signs, etc. At present, we are still supplying some orders, but this is the tail end, and so we hope there will be new projects soon.
You are shipping materials all over world. How do you see the situation in the Middle Eastern and North African countries?
Since 2010, there have not been so many large projects in these countries, also due to political matters. The highway project I mentioned was given to Asian companies which have not subcontracted works to local firms. So there was talk of scandals, bribes, etc. Also, the economic crisis began in the autumn of 2008, one year after the project started. Consequently, the number of projects has decreased. Besides, Algeria is a rich country, but it cannot launch large scale projects worth hundreds of billions of dollars every year. The Algerian government has issued a very clear directive: new projects will begin, but only once current projects have been concluded. There now seems to be a recovery, particularly with regard to a rail project in Algeria. We are handling interesting rebar orders for the Italian companies involved in this project. In the first three months of the year, we made at least three shipments. So there is some movement. Last year, projects were idled throughout the year, but now they are starting again. Our contacts are beginning to ask for quotations, etc.
Apart from Algeria, in North Africa there is not much activity. In Libya, there is some movement, but there is a lack of the political power that makes decision in order to move things forward. Projects are also idled because of the lack of manpower. Due to security issues, the Asian workforce has not yet returned to Libya. Meanwhile, in June this year there should be elections for a new government. We are already gearing up to have good contacts and to be well positioned when the correct time comes.
In the Middle East market, we are working with construction companies. For example, we have a big order to be filled with Saipem for a project in Sharjah in the UAE. At present, there is work for us but there is a lot of competition too.
We also have a lot of competition in Algeria. Compared to 2008, the profit from rebar orders has been halved, while the risks have remained the same. The rebar bought in Europe also needs to be sold in dollars, because this is more convenient for Algeria. Nowadays, there are more players in the Mediterranean markets, but there is plenty of work in Algeria. However, you must know how to work - not everyone knows how to.
There is always a lot of demand for rebar. In the Gulf of Guinea, we are trying to shift more quality materials, which are not available, such as beams, special qualities and plates which cannot be found locally. There are interesting opportunities in Angola too, again through Chinese companies. They too realize that it is not convenient to sell certain products from Asia (eg. rebar), and that is when we come into play with our role. Many companies, especially in the Far East, are used to buying rebar supplies in their own region, although they have sites around the world; and consequently they are caught unprepared when certain economic advantages come to an end and then they do not know who to turn to.
What challenges has Tuxor been facing lately?
As regards company strategy, we always work on ‘back-to-back' basis. Back-to-back operations eliminate risks, since time (the biggest risk factor) is eliminated. Traders act as intermediaries, and so they have no inventories. Working like this certainly decreases risks, but it can be costly when it comes to buying some lots where shipment is critical. For example, we may not have the material at port, and so we must wait and then we can load and ship. In the current times, position purchases have definitely become even more dangerous.
In which markets and for which products does Tuxor see greater demand?
It is difficult to make forecasts. It seems like a simple sneeze in China can become a tidal wave across the world, and so it is hard to say. Africa seems and is the reference market for everyone. North America is already developed, like Europe, while Asia is taking care of its own construction activities. Something can be done in South America, but it is a closed market where there are giants which form cartels. The African market is very fragmented. It seems a big market, but it is small because everyone is going there. In such a scenario you have to fight. The Middle East is another region, but countries like Iran and Iraq have already neighboring countries such as Turkey alongside them. In North Africa, Libya can be an important market, but only if and when political power is reactivated. There are interesting opportunities in the Gulf of Guinea and in Mozambique, Tanzania, and in the Horn of Africa.
By traveling, going on site and by consolidating relationships, you can gain a better understanding of the opportunities you have and how to handle them. These rules have not changed. It is important to visit, to see, and to understand. Even in the era of globalization and the internet, a handshake still has its importance.