José F. Gasca Mejia, 36, CPA and MBA in the area of international trade, has been working in the steel industry for almost sixteen years. He initially worked for the Mexican steel mill AHMSA for eight years, in its sales and marketing departments in Mexico City and its export office in the USA. Subsequently, he was seconded to the International Iron and Steel Institute (IISI) - in Brussels, Belgium as World Steel Fellow for almost two years. Then he returned to AHMSA where he worked in the operational and technical departments, after which he was appointed General Manager Marketing and Planning. He joined Ferrostaal in 2002, and worked in the Los Angeles and Houston offices in the USA. He was invited to join CCC Steel in 2005 and moved to Hamburg as Managing Director Worldwide Flats Products. With the merger of the company and creation of Coutinho & Ferrostaal in 2008 he became one of the Managing Directors of the company based in Hamburg.
Mr. José F. Gasca Mejia kindly answered our questions during the SteelOrbis Spring 09 Conference & 60th Irepas Meeting:
What is your general sentiment of the tendency of the markets today, after experiencing two depressed quarters?
I am positive in general. Although the market perspectives and the economy as a whole continues to be unclear in some aspects, we see demand coming up slightly in some segments and in particular regions. Some of these markets are climbing on the back of real demand though, in some cases, the cost of raw materials is making prices go up. There are some customers that need to reorder and cover some items in their inventories. At the end of the day, there is more activity. Many customers are showing greater confidence as well.
How do you see the steel markets handling such depressed conditions?
In different ways. Obviously, there are markets where it is no secret that certain sectors, e.g construction and automotive, were operating under overpositive scenarios. Since the economic activity was adjusted to real levels during and after the crisis, the recovery of these markets is going to take some time. Patience and time is what our industry needs to recover. Steel is needed, infrastructure projects are needed. In most of the emerging markets worldwide, the population keeps growing. There continues to be a deficit in housing. The average citizen in China, Brazil, India, Mexico, Southeast Asia, Eastern Eruope, Turkey, Africa, etc. demands services, needs a car, appliances. In Europe and North America, the economic stimulus will create real demand and consistent activity. We just need time.
As an international trading company, what have been your main measures against the global weak demand or the troubled times in general?
It was very difficult to anticipate the global crisis, no one really foresaw the magnitude of the events we are experiencing today. At the same time, we understood that the price levels we reached at the end of the second quarter of 2008 - for instance, rebars and hot rolled coils sold in some cases above FOB prices of US$1,400/mt - were neither healthy nor real. We tried to avoid any speculation in supply and demand, we adjusted our traditional back-to-back trading business to the real demand we were experiencing on a daily basis. In addition to our natural marketing advantages, Coutinho & Ferrostaal is in a strong and healthy financial position. This, combined with creative trading and combined financial schemes, allowed us to explore new opportunities that the situation itself brought to our table. We are developing many structured trade opportunities, financing inventories and purchases to different mills, service centers and end-users with real and tangible value added. For this, we charge an operational/trading fee plus a very competitive interest rate depending on the market. We have found many people receptive to this concept. We are convinced that even in difficult times many opportunities and challenges arise. The combination of all this has brought us closer towards suppliers and customers.
What is your opinion of the latest recovery in price levels in the longs markets? Is it temporary or permanent?
The recovery in prices has been mainly driven by the production cutbacks and raw material cost increases, in scrap in particular. We think it is a good start to the recovery. However, we will come to a point where we will need to see real demand at the end of the day. Without demand, the market cannot recover. In Europe and the Middle East, the challenge we face depends on what will happen during the next two months before the traditional summer break characterized by low activity in Europe (southern Europe in particular), followed by Ramadan in the Middle East and the Maghreb countries.
If this recovery is temporary, when do you think there will be a permanent recovery?
If a permanent recovery means going back to the levels of 2007, we still need to see if the different efforts from the governments in the world to stimulate activity in construction and infrastructure projects have the expected results. At the same time we understand that this will take time and is accompanied by other economic factors that need to gain stability.
What do you think of President Obama's economic stimulus package and how will it affect the US and global steel markets in the long term?
The impact will initially be more mental and will be seen in attitudes. It appears that approximately five percent of the infrastructure spending of the economic stimulus package will be reflected in steel purchases. In broad numbers this is about US$4-4.5 billion. If we take an average price of US$650, we get about 6 to 6.5 million metric tons to be purchased during the two or three years the program is expected to last. This might not be so representative based on the output numbers of our industry, but it will indeed be interesting to see how much confidence the program brings and the other indirect benefits reflected by creating activity, jobs and trade. The TARP (Troubled Assets Relief Program) will have a more visible impact which will help filter and clean up many variables in the economy that are out of balance. In general, it seems the measures President Obama is implementing will bring an important and tangible benefit in the short and mid-term.
What is your view of the weak demand situation globally?
It is definitely the main obstacle preventing the market from recovering on a real basis. Markets cannot be created artificially based on costs of raw materials or decreases in supply. Demand is needed. Ultimately, demand drives the trend of each cycle. If there is no demand, there can hardly be any consistent trade flow.
Looking at the general picture in the Eastern European steel market, it seems that things are a bit negative compared to other regions in Europe and in the world regarding both demand and price. In your opinion, what is the main reason behind this situation?
Demand is the main problem of course, while credit availability is also an issue. However, the economic role of the emerging economies is of substantial importance and there is no doubt that Eastern Europe will eventually recover its pace and the growth rate it showed until recently.
What kind of perspective do you have on future price trends?
Apparently prices in general have reached the bottom. The Chinese export rebate issue seems to have been clarified and, so far, does not affect hot rolled coils and wire rod. This takes pressure away from many markets. There has been some recovery in long products. At the same time, for this trend to be consistent, demand needs to improve. If there is no continuous or sustainable improvement of demand the price curve will continue showing ups and downs in weekly or monthly cycles of time, just as we are seeing these days.
You are the head of the IREPAS Social Responsibility Committee. How did this idea for the committee come about and what is its purpose?
The idea originally came from the IREPAS board and Ugur Dalbeler. He is an ambitious chairman who wants to anticipate to different scenarios. He is determined and focused in creating a very strong basis for IREPAS' development and operational benefits. I can only thank him and the members for the invitation.
The committee has many purposes. One is that IREPAS voluntarily assumes an obligation for the good and benefit of our industry as a whole, and for our community, in addition to the core objectives of IREPAS.
We also look after the interests and objectives of IREPAS members which are mainly to gather and enlarge the community, promote and observe a consistent dialogue which ultimately helps everyone to do more and better business with a social focus.
What kind of projects are there on the table of the IREPAS Social Responsibility Committee?
Promotion and enlargement of the participation of certain regions with IREPAS, in particular Asia and Latin America, the expansion of our dialogue to other segments of the industry, e.g. flat products, producers and traders, customers and users, and the intensification of our internal communication. We have a list of projects that we would like to launch. We need to promote IREPAS, we need to promote the values of IREPAS. Our current coverage and communication within Europe and the Middle East is a good and quite concrete example. However, there are some regions such as Asia and Latin America where there are still many great opportunities to bring aboard new members with which we can exchange information. One of our targets is to promote the benefits and name of IREPAS all over the world. We need to promote a healthy and productive internal dialogue within IREPAS. We are required to become an interactive organization with our environment in both good and bad times. We also need to promote and communicate externally what we are doing in and for the industry as one of its largest global entities.
What impression did you gain of the iron and steel markets from the SteelOrbis Spring '09 Conference & 60th IREPAS Meeting?
A very good impression. From the contacts I made, from the Board meeting at the cocktail, people seemed to be more positive, talking about recovery and projects, and exchanging valuable and objective market information.
We hope to see you at the next SteelOrbis and IREPAS gathering. Thank you for your time.