EUROPEAN STEEL DISTRIBUTION - Platts · · 2013-10-18customer driven market maker . during ... adapt sales and purchasing contracts in a way to cope with ... due to shift of power

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PLATTS STEEL DISTRIBUTION & SUPPLY CHAIN CONFERENCE ANTWERP, 15 OCTOBER 2013 GEORGES KIRPS, MANAGING DIRECTOR EUROMETAL

CURRENT STRENGTH AND FUTURE COMPETIVENESS OF STEEL DISTRIBUTION IN THE STEEL SUPPLY CHAIN IN EUROPE

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EUROMETAL PRESENTATION PLATTS STEEL SUPPLY CHAIN CONFERENCE, ANTWERP 15 OCTOBER 2013

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STUDY GROUP OF DISTRIBUTORS

OF STEEL, TUBES AND METALS

EUROPEAN ASSOCIATION OF FLAT STEEL SERVICE CENTERS

STUDY GROUP OF STEEL TRADING

COMPANIES

ASSOCIATION OF NATIONAL STEEL DISTRIBUTION

FEDERATIONS

EU STEEL DISTRIBUTION TODAY REPRESENTS: 73 MIO TONS OF SALES

5 000 STEEL DISTRIBUTION COMPANIES 150 000 EMPLOYEES

MORE THAN 1 MILLION CUSTOMERS

EU STEEL TRADERS PLAY A RESPONSIBLE ROLE IN CHANELLING NON EU IMPORTS INTO EU MARKETS

EUROMETAL IS THE VOICE OF EUROPEAN STEEL INTERMEDIATION WITH FOUR MEMBER ORGANISATIONS COVERING ALL TYPES OF STEEL

INTERMEDIATION

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STEEL INTERMEDIATION PRODUCERS END USERS

HOME MARKET PRODUCERS

&

FOREIGN PRODUCERS

STEEL, TUBES AND METALS

END USE SECTORS

STEEL, TUBE, METALS STOCKHOLDING

FLAT STEEL PROCESSING

STEEL & METALS TRADING

WITH NAT.FED, DISMET, EASSC AND STSG, EUROMETAL IS COVERING ALL MAIN OPERATIONS OF STEEL, TUBES AND METALS INTERMEDIATION

EUROMETAL NETWORKS INCORPORATE ALL ASPECTS OF STEEL, TUBES & METALS INTERMEDIATION

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SMALL ORDERS ADDITIONAL

PROCESSING INCREASING COMPLEXITY SHORT

LEAD TIMES SERVICE AND VALUE

RAPID RESPONSE DELIVERY

REQUIREMENTS FLEXIBILITY

BIG VOLUMES

LONG RUNS

ECONOMIES OF SCALE

STEEL DISTRIBUTION IS THE INTELLIGENT MATCHMAKER BETWEEN STEEL PRODUCERS AND STEEL CONSUMING INDUSTRIES

PARAMETERS OF STEEL PRODUCTION BUSINESS MODEL

PARAMETERS OF STEEL END USER BUSINESS MODEL

PRODUCT AVAILABILITY

DELIVERY IN 24-48 HOURS

PROCESSING SERVICES

LOCAL & REGIONAL FOOT PRINTS

ONE STOP SHOPPING

MULTI- PRODUCT

MILL ORDER LEAD TIMES DELIVERY BY RAIL OR BOAT

NON COMPLEX ORDERS

CLUSTERING ORDERS

PARAMETERS OF STEEL DISTRIBUTION – CUSTOMER SIDE

PARAMETERS OF DISTRIBUTION – MILL SIDE

PRODUCT SOURCING

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CUSTOMERS VALUE CREATION

STEEL AND METALS INTERMEDIATING VALUE CHAIN

VALUE

UNIQUE SERVICE

PROPOSAL

SUPPLY CHAIN MANAGEMENT TECHNICAL SUPPORT

FINANCING - IT NETWORK

LOGISTICS - FREIGHTING STOCKING-PROCESSING-TRANSFORMATION

SOURCING - TRADING

HIGH VALUE ADDED

PRODUCTS

COST SAVINGS IMPROVED

PRODUCTIVITY

EFFICIENT MARKETING AND SALES

INNOVATIVE BUSINESS MODELS

UNIQUE SERVICE PROPOSALS BY STEEL DISTRIBUTION HELP CUSTOMERS TO CREATE VALUE

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PROXIMITY SUPPLY CHAIN MARKET SUPPLY CORE BUSINESS

4 EMERGING BUSINESS MODELS:

TREND 1990-2010 1980-1990

TREND

BUSINESS MODEL 1960-80

LOCAL PLAYER

REGIONAL / GLOBAL PLAYER

MONO PRODUCT MONO SEGMENT

MULTI PRODUCT MULTI SEGMENT

BUY & SELL

PROCESSING READY TO USE

MARKET FOLLOWER

CUSTOMER DRIVEN MARKET MAKER

DURING LAST 50 YEARS, EU STEEL DISTRIBUTION HAS BEEN IN A CONTINOUS PROCESS OF ADAPTING BUSINESS MODELS TO CHANGING MARKET ENVIRONMENTS

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BUSINESS MODELS OF STEEL DISTRIBUTION ARE FOLLOWING THE CHANGING AND DIFFERENTIATED MARKET FUNCTIONALITIES…

…LEADING TO A RATHER LARGE SCOPE OF OPERATIONAL MODES IN STEEL DISTRIBUTION

MARKET FUNCTIONALITIES AFFECT STEEL DISTRIBUTION BUSINESS MODELS IN LOCAL, REGIONAL AND INTERNATIONAL STEEL MARKETS

PROXIMITY BUSINESS FOCUSED ON SERVING LOCAL / REGIONAL MARKETS

MARKET SUPPLY BUSINESS FOCUSED ON LARGE MATERIAL SOURCING FOR SME STOCKISTS

SUPPLY CHAIN BUSINESS FOCUSED ON INTEGRATING INTO VALUE ADDED NETWORKS

CORE COMPETENCE BUSINESS PRODUCT SPECIALIST / SERVICE SPECIALIST ACTING IN NICHE MARKETS

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BEAM & PROFILE CENTERS & GENERAL STOCKIST

PLATE PROCESSOR & STOCKIST

HIGH CARBON & ALLOY STEELS STOCKIST

STRIP MILL PRODUCTS SERVICE CENTER

STAINLESS STEEL SERVICE CENTER

REINFORCING STEEL CENTERS

DISTRIBUTION OF TUBULAR PRODUCTS

TYPICAL STEEL STOCKHOLDING

FLAT STEEL SERVICE CENTERS

BASED ON PRODUCT AND SERVICE OFFER, EU STEEL DISTRIBUTION IS RUNNING DIFFERENT TYPICAL OPERATIONAL MODELS ADAPTED TO

SPECIFIC SUPPLY CHAIN REQUIREMENTS OF EACH END USE SECTOR

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EUROMETAL PRESENTATION PLATTS STEEL SUPPLY CHAIN CONFERENCE ANTWERP 15 OCTOBER 2013

OTHER 68 %

TOP FIVE 32 %

OTHER 67 %

TOP FIVE 33 %

2012 2006

TOP FIVE STEEL DISTRIBUTORS REPRESENT A 33 % SHARE IN EU STEEL DISTRIBUTION. BUT STEEL DISTRIBUTION IN EU DEVELOPS MORE AND MORE INTO A BUSINESS WITH ABOUT 25-30 REGIONAL CHAMPIONS

% ARE RELATED TO SALES OF EU STEEL DISTRIBUTION

MULTIPLICITY OF OPERATIONAL MODELS IN STEEL DISTRIBUTION IS ONE OF THE REASONS WHY STEEL DISTRIBUTION TODAY IS STILL A VERY FRAGMENTED BUSINESS

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THE TYPICAL STEEL PRODUCT PORTFOLIO TRADED BY STEEL DISTRIBUTION REPRESENTS 86 % 0F ALL PRODUCTS OFFERED

BY STEEL INDUSTRY IN EU MARKET

BEAMS MERCHANT BARS

REBARS PLATES

STRIP MILL PRODUCTS

TUBES STAINLESS & OTHER ALLOY STEELS

86 % = 114 MT

EU MARKET SUPPLY IN CONSIDERED PRODUCTS : 132 MT

EU MARKET: ALL FINISHED STEEL PRODUCTS OFFERED BY STEEL INDUSTRY

WIRE ROD

RAILS

SHEET PILES

14 % = 18 MT

STEEL PRODUCTS TRADED BY EU STEEL DISTRIBUTION AS WELL AS BY MILLS

ONLY BY MILLS

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EU MILLS 87 %

DIRECT

DELIVERIES MILL TO END USER

64 %

36 %

SUPPLY SIDE INTERMEDIATION DEMAND SIDE

STEEL DISTRIBUTION INTERMEDIATES TODAY 64 % OF EU-27 STEEL MARKET SUPPLY,

NON EU MILLS 13 %

EU STEEL

DISTRIBUTION STEEL

DEMAND BY END USER

SEGMENTS IN EU-27

STEEL MARKETS

64 %

36 %

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FLAT SSC

2011 DELIVERIES BY: STOCKHOLDING DISTRIBUTION MILLS

MARKET SUPPLY: 114 MIO TONS

MAR

KET

SH

ARE

0 %

50 %

1

00 %

RA

ILS

MER

CH

ANT B

ARS

BEAM

S

REBARS STRIP MILL PRODUCTS

PLATES

TUBES

* EXCLUSIVE PRE-MATERIAL FOR REROLLING AND FOR TUBE PRODUCERS

TUB

ES

FLAT SSC

THE FOCUS OF STEEL STOCKHOLDING DISTRIBUTION IS ON LONG STEEL PRODUCTS AND TUBE THE FOCUS OF FLAT SSC DISTRIBUTION IS ON SMP, PLATE & STAINLESS

SOURCE: EUROMETAL UPDATED 12.06.2013 STAIN

LESS

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EU MILLS ARE PUSHING FOR DOING DIRECT BUSINESS WITH END USERS

39 %

35 %

2010 2011 2012

35 % 36 %

25 %

24 %

40 % 40 % SHARE IN EU STEEL MARKET SUPPLY

DIRDIRECT MILL SALES

DIRFLAT SSC SALES

DIR STEEL STOCKHOLDERS SALES

SINCE 2010, FLAT SSC

LOST SOME MARKET SHARE IN

EU MARKET SUPPLY

26 %

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14

EU MILLS 87 %

DIRECT


• OEM RESALE

54 %

46 %


FLAT SSC DISTRIBUTION INTERMEDIATES TODAY 54 % OF EU-27 MARKET SUPPLY IN STRIP MILL PRODUCTS

NON EU MILLS 13 %

STEEL DISTRIBUTION

HR, CR, COATED • CLEANING,PICKLING • SHEETING • SLITTING • BLANKING • STAMPING • BENDING

END USER SEGMENTS

IN EU-27 STEEL MARKETS

• AUTOMOTIVE SUPPLIERS • WHITE GOODS SUPPLIERS • GENERAL INDUSTRY • METALWARE • PACKAGING

54 %

46 %

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EU MILLS 84 %

DIRECT


• PROJECT BUSINESS

58 %

42 %


PLATE STOCKISTS & PROCESSING CENTERS INTERMEDIATE TODAY 58 % OF EU-27 MARKET SUPPLY IN PLATES

NON EU MILLS 16 %

STEEL DISTRIBUTION

PLATES & HR FLATS • SHOT BLASTING • PRIMERING • PLASMA & FLAME CUTTING • DRILLING, PUNCHING • STAMPING, • BENDING • MARKING

END USER SEGMENTS


• SHIPBUILDING • WINDTOWERS • YELLOW GOODS • OIL & GAS • MECH.ENGINEERING • CEMENT INDUSTRY • MINING • WASTE RECYCLING • TRUCK BINS

58 %

42 %

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EU MILLS 98 %

MILL TO END USER

90 %

10 %


BEAM & PROFILE STOCKIST & PROCESSING INTERMEDIATE TODAY 90 % OF EU-27 MARKET SUPPLY IIN BEAMS & PROFILES

NON EU MILLS: 2 %

STEEL DISTRIBUTION

BEAMS, PROFILES, ANGLES, HOLLOW SECTIONS • CUT-TO LENGHT • SHOT BLASING • PRIMERING • EDGING • BENDING • DRILLING • MARKING

MILL TO END USER • PROJECTS

END USER SEGMENTS


• STRUCTURAL STEEL FABRICATORS • CIVIL ENGINEERING • MECHANICAL ENGINEERING • YELLOW GOODS • TRAILERS • MINING • ENERGY, OIL & GAS

90 %

10 %

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EU MILLS 94 %

MILL TO END USER

81 %

19 %


REBAR STOCKISTS & PROCESSORS INTERMEDIATE TODAY 81 % OF EU-27 MARKET SUPPLY IN REINFORCING STEELS

NON EU MILLS: 6 %

STEEL DISTRIBUTION

REBARS, WIRE MESH, DEFORMED BARS EXPANDERS • CUT-TO LENGHT • DECOILING • BENDING • FABRICATING • ALL-IN SERVICES

MILL TO END USER • PROJECTS

END USER SEGMENTS


• RESIDENTIAL • NON RESIDENTIAL • CIVIL ENGINEERING • REFITTING

81 %

19 %

SOURCE: EUROMETAL, DATA REFER TO 2012

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EU MILLS 83 %

DIRECT


• OEM RESALE • PROJECTS

58 %

42 %


STAINLESS SERVICE CENTERS INTERMEDIATE TODAY 58 % OF EU-27 MARKET SUPPLY IN STAINLESS STEELS

NON EU MILLS 17 %

STEEL DISTRIBUTION

STAINLESS LONGS & FLATS & TUBES • SAWING • POLISHING • PLASMA-, LASER- AND WATERJET CUTTING

END USER SEGMENTS


• CHEMICAL INDUSTRY • PHARMA-INDUSTRY • FOOD PROCESSING • AEROSPACE • AUTOMOTIVE • BUILDING • METALWARE

58 %

42 %

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IDENTIFYING NEW CHANCES IN STEEL SUPPLY CHAINS …BY OPTIMISING BUSINESS PROCESSES

SERVICE OFFER

CUSTOMER REACH

STEEL

DISTRIBUTION PROCESS

OPTIMISATION

TRANSFORMATION COSTS PER UNIT

SITE UTILISATION SHARING OF ASSETS

DEVELOP SERVICE TO MARKET

• PROXIMITY NEEDS • CUSTOMER RELATIONSHIP • OUTSOURCING/ INSOURCING NEEDS

LOGISTICS PERFORMANCE

MARKET INTELLIGENCE

TRANSPORTATION COSTS AND DISTANCES

DELIVERY TIMES LEAN SUPPLY CHAINS 3PL NETWORKING

MARKET GROWTH POTENTIALS IDENTIFY GROWING REGIONAL MARKETS EXPLORE NEW NICHES & MARKET SEGMENTS

OPTIMIZING ALL STEEL SUPPLY PROCESSES IS A KEY SUCCESS FACTOR FOR STEEL DISTRIBUTION

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STEEL DISTRIBUTION STRATEGIES REGARDING THE “NEW” STEEL SUPPLY CHAIN CHALLENGES

SOURCE: McKinsey

STRATEGIC AVENUES ANTICIPATED STEEL DISTRIBUTION DEVELOPMENTS

SELL BEFORE BUYING

▪ TO MAXIMIZE CASH POSITIONS, INVENTORY LEVELS PLAY A KEY ROLE. ▪ DO NOT PURCHASE MATERIAL BEFORE SIGNING A CUSTOMER TO BUY IT. ▪ ENHANCE CROSS DOCKING MATERIAL FLOWS

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MANAGE VOLATILITY

▪ LIMIT VOLATILITY EXPOSURE OF TOO HIGH STOCKS ▪ USE FUTURES TOOLS TO MANAGE PRICE RISKS ▪ ADAPT SALES AND PURCHASING CONTRACTS IN A WAY TO COPE WITH

VOLATILITY EXPOSURE

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COPE WITH RISING PRICES

• ENHANCE SERVICE SOLUTIONS TO HELP USERS TO REDUCE MATERIAL INPUTS BY MARKETING CUSTOMISED ADDED VALUE SERVICE

• LEVERAGE PURCHASING POWER BY ACQUISITIONS, JV AGREEMENTS, ETC • ENHANCE MARKET INTELLIGENCE TO PROVIDE COMPLEMENTARY ADDED

VALUE TO STEEL USERS

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OPTIMIZE VALUE CHAIN CONTRIBUTION

▪ BUNDLE AND CUSTOMIZE VALUE CHAIN OFFER BY END USE SEGMENTS ▪ DIFFERENTIATE FROM MILL OFFERS ▪ ENHANCE ROLE OF STEEL DISTRIBUTION BY GREATER CUSTOMER PROXIMITY

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SOURCE: MCKINSEY, EUROMETAL

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BUSINESS MODELS OF EU STEEL DISTRIBUTION WILL FACE FOUR KEY CHALLENGES

SOURCE: McKinsey, EUROMETAL

CHALLENGES IMPLICATION EXPECTED DEVELOPMENT REQUIRED BY DISTRIBUTORS

PRICE VOLATILITY

▪ DUE TO SHIFT OF POWER IN RAW MATERIAL SUPPLY, LONG TERM CONTRACTS UNLIKELY TO BE REESTABLISHED

▪ WINDFALL PROFIT RISKS INCREASE, IMPORTANCE OF INVENTORY MANAGEMENT

▪ LONGER-TERM SUPPLY CONTRACTS BECOME DIFFICULT

▪ HEDGING NECESSARY?

▪ STOCK MANAGEMENT OPTIMISATION

PRICE INCREASE

▪ OVERALL PRICE INCREASE SUSTAINABLE DUE TO RAW MATERIAL PRICE AND COST INCREASE

▪ INCREASING RESISTANCE OF CUSTOMERS TO OFFSET PRICE INCREASE. DISTRIBUTORS CAN MOST LIKELY NOT PASS COST INCREASE TO END CUSTOMERS

▪ LEVERAGING PURCHASE POWER TO

▪ DIFFERENTIATE ▪ PRICING

SHIFTS IN VALUE CHAIN

▪ VALUE CREATION FOR STEEL DISTRIBUTORS LIKELY TO BE LIMITED BY STEEL COMPANIES' DOWNSTREAM INTEGRATION INTO STEEL DISTRIBUTION

▪ BUSINESS IS LIKELY TO BE CHALLENGED BY UPSTREAM STEEL PRODUCERS EXPANDING DOWNSTREAM TO REACH SCALE EFFECTS

▪ TAILOR MADE VALUE PROPOSITION TO CUSTOMERS?

OVER- CAPACITY

GAP OF OVERCAPACITY ESTIMATED AT 20-25 %

BATTLES FOR VOLUMES WITH NEGATIVE IMPACTS ON PRICING

CLOSURES, PRICING FOR VALUE

EbelHoferConsultants S t r a t e g y & M a n a g e me n t

MAIN ACTION FIELDS IN PRICING FOR VALUE

2013EN_Steel Net Forum 22

MAIN ACTION AREAS

1 Pricing of (extra) services

2 Training and value argumentation for sales

3 Tactics during price negotiations

4 Know your competitive position 5 Development of new services 6 Value based pricing 7 Optimization of price adjustments (volatile raw m.)

8 Discount and bonus system for customers

9 International pricing

10 Pricing of innovations / new products

11 Terms and conditions

12 List price setting

13 Incentive system for sales

Prof

it im

pact

med

ium

hi

gh

Need for action

medium 2.0

3.0

4.0

2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9high

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EVALUATION PRICING ASPECTS

Source: International Study ‘Steel Distribution 2013’- Pricing for value N=30

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8 12

11

10 13

7 6 5

4 3 2

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EUROMETAL’S INTERNATIONAL STUDY `STEEL DISTRIBUTION 2013`HAS IDENTIFIED THE FOLLOWING MAIN ACTION FIELDS IN PRICING:

Question 6/7: What is the need for action regarding the following aspects in your company? What is the profit impact of the following aspects in your company?

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EUROMETAL presentations include forward-looking information and statements about the steel sector (production, distribution, consuming industries and their stake-holders). Forward-looking statements are not historical facts but have to include financial or other projections & estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance.

For EUROMETAL the expectations reflected in such information and statements are

reasonable. Any third parties are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of EUROMETAL, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Consequently EUROMETAL • denies all responsibility regarding the said informations and statements • undertakes no obligation to publicly update forward-looking statements, whether as a

result of new information, future events, or otherwise.

DISCLAIMER

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EUROPEAN STEEL DISTRIBUTION - Platts · · 2013-10-18customer driven market maker . during ... adapt sales and purchasing contracts in a way to cope with ... due to shift of power