FerroMac International: “Producers and customers are finally meeting in the “comfort zone” price wise that gives a hope for more stable next year”
Mr. Nikolas De Wachter, General Director at FerroMac International – Olga Kraus, Steel Trader at FerroMac International
Yuliya Filali Ansary, Metal Expert
Although the trading business requires lower investment for a start in comparison with steel production and looks like an easy doorway to the steel market, this area is much more complicated and challenging, especially in changing conditions and competitive environment. As a result, each trader is trying to find the own way to the sustainable business, inventing new strategies and seeking promising markets. Metal Expert had an interview with Mr. Nikolas De Wachter, General Director at FerroMac International, which is the global trading company with a strong focus on Latin America and Africa. He agreed to explain peculiarities of global steel trading and to share the view on the current market situation.
FerroMac International is a relatively young trading company based in the north of Belgium. Please tell a few words about
your activity, achievements and goals.
We are a young company, mostly active in steel trading, although we do some trading in specific polymer products as well. We were established in 2010 and are based in Antwerp. Our turnover has grown from scratch to EUR100 million and we built up a lot of experience in several purchase and sales markets.
Our dream is to connect all steel players in the world and help them realize their professional ambitions and endeavours through shaping the best talents on the market as part of our recruitment campaign; building trust on a global scale, enhancing and extending our international relationships; attraction the leading steel and polymer lovers (clients should see FerroMac International as a quality brand name).
Which products in FerroMac portfolio play a major role in your business?
From the perspective of the final consumption point mostly we are looking onto construction sector. At the moment, customers see procurement to be more than just a delivery of goods – it is as a complex service in each stage: com- munication, outsourcing, delivery, after sale service. The growing need in receiving all the ’shopping list’ under one umbrella is saving time, efforts and market research once the right ’buyer-seller’ relations are established. Naturally, such a shift in market expectations makes us work with wide range of products starting from basic long & flat ending up with specialized steels or minor items that fulfill the needs of our customers. The products depend on the market and specific client, but generally, it is a wide product mix.
As said, on some markets steel supply evolves from product supply to project supply, that makes us look into diversified product range: polymers (we do a lot of PE100 material, which is just for example for producing irrigation pipes), construction projects supplement. This helps to optimize freight costs and logistical accessibility, which is helpful for some non-regular destinations out of linear shipping lines routes.
At the same time, in the global flows of semi-finished products traders are performing more on a spot basis and normally do a first risk-taking move for the emerging markets. If a market or customer is positively tested by the trader on ’reliability,’ normally mills are taking it over directly, unless special financing conditions required. In the semi- finished segment (billets, slabs) large end users and producing mills prefer to have long-term reliable partnerships excluding mediators; non-regular players are served by the trading houses. With regards to the trader’s margin attractiveness, this segment is the most sensitive and reflective on the market sentiments change, so positions taking remains actual despite the high extent of market uncertainty.
Traditionally, your company is focusing on sales to Africa and Latin America. Why have you chosen these regions as main
pillars of your business? Do you consider expansions in sales geography?
When starting FerroMac International we started already with a vast knowledge of Africa and Latin America. Especially the Caribbean and Central America was the focus in our early years as we had extensive client relations there. Afterwards, we looked more into Africa as our team grew together with the necessary expertise. Our knowledge of Africa developed and we got into more countries bit by bit. The probability of smooth penetration into the new market is conditioned with few factors which define if the move makes sense as such: naturally, state of economic and political institutions, consequently demand and infrastructure development. However, the main questions are: how mature is the market and what value can be created for this specific market as well as what we build our competitive advantage on.
When these questions are answered, the rest is becoming a matter of persistent work and concentrated effort. We keep expanding in Latin America and Africa as there are still some emerging markets where we see ourselves in the near future. Though together with high risk developing destinations, we also ’reopen’ European market as together with quite conservative customer preferences we explore alternative sources on the supply side that creates new business opportunities.
What peculiarities in business with above-mentioned destinations could you mention?
Trading is a people’s business, so the first point is the relationship you have with your client. Being a trading company means to raise 100% faith of the client in your performance, otherwise, competition is lost. Unlike the physical asset related players (mills, service centers, manufacturers, distributors) pure steel trading is a business with the significant value of intangible resources, in other words, 3R rule applies: Reputation, Relations, Records. Spotless reputation gives certain credit of trust from the customers, sustainable relations are giving access to special services or information on the supply side, good records are opening doors to the banks and financial institutions. It is quite an argument what happened to be earlier here: the chicken or the egg, but one thing is evident for sure – if one element is gone, the balance is difficult to restore.
Client knowledge is very important. Every client has its peculiarities, some are more quality conscious, others look more into a price, some want to have the best quality for the unrealistic price levels. Our trading products are very price sensitive, so it means every single dollar can make a difference. Another important aspect that can be defined as a key factor of success, especially for the African markets, is financing. Some years ago, giving credit lines for our customers in Sub-Sahara Africa region would be considered as a competitive advantage, these days – this is not more than an entry ticket to the market. Therefore, with the common accessibility of the major trading houses to the financial allocations and supply options (China, Turkey, CIS etc.), the personalized and trustworthy relations with the customer cannot be overestimated.
How could you describe the current situation in the main sales markets? Which countries, consuming sectors and steel
products are the most promising in terms of demand?
As we are dealing with growing markets, outlooks are good despite some political instability in Africa as there is always a country that is lagging. Overall, looking at the forecasts for the emerging markets, there is always a paradox: from macroeconomic prospective growth and GDP expectations are positive, though to reach the set targets governments are massively imposing the protectionism measures that downsize import possibility even when local production is not fully meeting the existing demand. In these cases, various trade agreements are coming into action, the most evident example now is COMESA (Eastern African countries trade agreement, including Egypt).
On the one hand, regionalization limits imported goods keeping local producers comparatively protected, on the other – market is becoming speculative and oligopolistic as only a few players are allowed to bring the goods in. Each case is individual and defined with complex factors impacting on different levels: global steel market sentiments, regional development, local need and cash availability. At the moment it is difficult to say if the global market defines the local or vice versa.
China remains one of the most influencing market factors in the steel sector. How do you deal with it and compete with
Chinese suppliers at your key sales outlets?
Indeed, for a comparatively short period of working on the export steel markets, China grew drastically from a non- experienced low-quality newbie to the market trendsetter. We should recognize that today Chinese steel giants are defining the market worldwide. Even more, we clearly see that on a daily basis the most trackable index is Shanghai futures market rather than traditional indicators of raw materials and semis deals.
Though, the range of offers from China in terms of quality is quite wide and tricky as without extensive knowledge and reliable partners the probability to be disappointed with reality versus expectation outcome is high. Sourcing from China is the main aspect of our business which we are good at. At the moment it remains the market with the most frequent dynamic in capacity changes – non-efficient players are off, existing players are expanding, new players are consolidating.
Even though we have reliable partners and material sources, including first-tier mills and reputable Chinese trading houses, sometimes quality remains subject for concern especially for value-added items like coated products. From the perspective of the administrative process: daily communication, price update, prompt offering, documentary related matters etc. – we would say it is well-arranged and normally goes smoothly, which is a mutual achievement in this case.
The presence of Russian long steel products in Africa has increased rather explicitly lately. Only in Q1 2017 supplies
exceeded last year’s total result. Have you tightened your cooperation with CIS producers as well? What is the competitive
advantage of working with CIS material?
Starting from the beginning of the 90s till now CIS remains the key player in Europe, the Middle East and North Africa; the combination of raw materials base, strong industrial infrastructure and access to the few major sea gates creates unbeatable competitive advantage even on the era of Chinese domination.
For the last 20 years a lot of M&As took place in the CIS steel corporate sector, most of the mills are consolidated now under the umbrella of large industrial groups with advanced sales services inside of the company and representative offices all over the world. Definitely, such a set up leaves little room for the trading houses intervention, unless it is emerging markets where trades are taking over financial and logistical risks.
Being a comparatively new player in the market makes it quite challenging to interfere in existing channels that have been there for years. Though, at the moment we have started and have developed cooperation with leading companies and see it as is our job to prove that FerroMac International deserves its place and can improve trade between CIS and Africa / Latin America.
Being a trader, you are creating a value-added chain from source to consumer, on the one hand. But, on the other hand,
you take a big part of risks. What are the current threats and opportunities for steel trading?
The main threats are defaulting payments from our clients. Therefore, a tight connection with the client is a must. Another one is delays in deliveries due to unforeseen logistic issues, e.g. tropical storms, other vessel delays. Errors made in administration (for example errors in pre-shipment inspection) also may lead to an impossibility of the customs clearance or even getting material out of loading port.
In every one of our markets there is always one or more rising stars as we are active in growing markets. It is an opportunity for us to grow together in a new market, where we are not settled yet, with these new stars. Also, our current clients are mostly growing on a yearly basis. It creates opportunities for us to grow further with them. As our volumes are increasing every year, we also see opportunities in logistics as we can combine more and more cargo together.
What is your outlook for steel trading in 2018?
Evidently, China remains the price setter regardless of high probability of decreasing export allocations compared to the previous years. The price levels are expected to sustain with slight correction; what we see now is that after a confident increase of the prices for the last few months, both producers and customers are finally meeting in the ’comfort zone’ price wise that gives a hope for more stable environment next year. The biggest challenge remains the growing degree of the market’s uncertainty as Chinese sentiments and quickly changing Shanghai futures indexes often provoke unreasonable market hits.
As for our sales markets, Turkey and CIS have come more on the scene again. We expect that this trend will con- tinue as cases of AD will seemingly continue under the current political and economic climate. The attractiveness of countries from the sourcing prospective will be defined by their involvement in various AD investigations as widely spreading protecting measures shift us back from globalization to regionalization.
Overall, the next year is expected to bring more stability supported with real demand strengthening and affirmative sentiments. Challenges will always be part of our business, though we believe that encouragement, quick adoption to the changes and persistence will be the main ingredients of success in the coming year.
Source: Ansary, Y.F., (2017). FerroMac International: “Producers and customers are finally meeting in the “comfort zone” price wise that gives a hope for more stable next year”. World Steel News, 204, 19-22, Geraadpleegd op 24 oktober 2017 via http://www.metalexpert-group.com