Metallics/scrap Sourcing in Today’s Volatiles World - Platts · Metallics/scrap Sourcing in...
Transcript of Metallics/scrap Sourcing in Today’s Volatiles World - Platts · Metallics/scrap Sourcing in...
Metallics/scrap Sourcing
in Today’s Volatiles World
Henk van de Belt
Lead Buyer Metallics, Group Procurement
Tata Steel Group
Commodity Sourcing in Today’s Volatile Times
Agenda
• Tata & Tata Steel
• Observations
• Trade
• Managing commodity sourcing
• Summary
Tata Group
A worldwide concern (I)
India’s largest business group
with businesses in seven sectors
and operations in over 80 countries;
with products and services available in over 85 countries,
and over 425,000 employees.
Group revenue of $ 83.3 bn;
58% in geographies other than India.
Tata Group
A worldwide concern (II)
Largest companies
Tata Steel
Tata Motors
Tata Consultancy Services
Tata Power
Tata Communications
Tata Chemicals
Tata Teleservices
Titan
Voltas
Tata AutoComp Systems
Indian Hotels
• Tata Steel Group:
• Fortune 500 company
• One of the world’s top steel company
• The world’s 2nd most geographically diversified steel producer
• Global mining portfolio
• Employees strength of 81,000
• A balance global presence in 50 markets
• Manufacturing operations in 26 countriesacross 5 continents
• Serving customers all across the globe
• Turnover 2010-11: $26.6 billion
Tata Steel Group
At a glance
Tata Steel Group
Our values
• Unity
• Working together
• Integrity
• Fair, honest and transparent
• Responsibility
• Commitment and ownership
• Understanding
• Care, respect and genuine interest
• Excellence
• Highest standards, first time right
Tata Steel Group
Automotive Construction Energy & power
Rail Industry & portfolio (consumer goods, shipbuilding, aerospace,
defence & security)
Packaging
Lifting & excavating
9
Tata Steel Group
Tata Steel Europa
Tata Steel Group
Global reach
UK & Ireland
2 production hubsCrude steel capacity 10.7mtpa16 manufacturing locations33 distribution centres
3 manufacturing locations2 distribution centres
USA 1 production facilityCrude steel capacity 6.8mtpa22 distribution centres
India
1 production facilityCrude steel capacity 0.65mtpa4 distribution centres
South East Asia
3 production facilitiesCrude steel capacity 1.2mtpa3 distribution centres
Thailand
19 manufacturing locations13 distribution centres
EU (excl. UK, Irl & NL)
1 production facilityCrude steel capacity 7.5mtpa6 manufacturing locations3 distribution centres
Netherlands
BOF EAF
Global Scrap Demand & Supply observations
� Global scrap demand remains positive and is projected to keep growing with 25 to 30 Mt/year (2013 – 2017)expect to grow from 535Mt in 2012 to 648Mt in 2017 > +113Mt; growth mainly in SEA, China and India, not in EU27
� Russia moving from large over-supply to under-supply (conversion of OHF’s into EAF’s, depletion of scrap reservoir)
� China accounted for 99Mt of this demand in 2012 and this is expecting to grow to 137mT by 2017 > +38MT� What if China scrap charge achieved government aim of 200 kg/T of crude steel (first signals are an increase from
500kg/T to 600kg/T in EAF production) ; additional demand of ~75Mt of scrap is likely to lead to supply issues?
� Scrap prices movements trends with steel price/demand but typically show a strong first quarter and weakness in the
fourth quarter of a calendar year; Global prices trend in the same direction� Prices are volatile, again suggesting it is a competitive internationally traded commodity. � Results highly impacted by demand volatility, lead times and shipping (container) rates
as a consequence users moved from international to more interregional supply.
Source: WSA
� DRI production capacity is forecast to increase by over 40Mt to 2018 (from ~120Mt in 2012 to ~ 170Mt to 2018),additional short term supply mostly from N- America and Middle East supported by low cost energy (Shale gas), with the majority of planned capacities in troubled regions – Venezuela, Bahrain, Egypt, Iran, etc.
� DRI production is forecast to increase by over 30Mt to 2017 (from ~75Mt in 2012);
Global Scrap Demand & Supply observations
Source: WSA
� The majority of scrap generated is consumed within the region it arises.
� c.10% is international trade and typically flows from developed economies into developing economies with the biggest exporters being NAFTA and EU27.
� Internationally trade set by import requirement of Turkey who import c.21.5mT in 2011 (+11.8%)� Asia (excluding China) currently import c.14.3mTpa and China 5.3mTpa.� Dependency on scrap varies dramatically by region,
SEA make 83% of their steel from scrap whilst China 18%, India 29%, Japan/ S.Korea and Taiwan 41%.
International Scrap Trade
Source: WSA 04
Issues in scrap market
Scrap Trade
Situation Main Concerns
40 countries restrict scrap export by prohibiting exports, imposing taxes or controlling through administrative measures.
This protectionism could have a domino effect and hinder scrap trade (EU, USA)
Export taxes creates distortions in the intern. scrap market (price)
Scrap quality
More scrap flow in several countries.
Availability of prompt could become an issue
Without additional “pure material”, this scrap will no longer be fit for commodity grade products
• Flexible scrap collection
acceptance encourages exports
in small quantities.
• Recession and process efficiency
leads to lower prompt scrap
generation.
• Increase of non-desirable trace
elements (Ni, Cr,…) in steel due to
repeated recycling.
Strategic Objectives for Scrap
From our scrap strategy meetings the following objectives were noted:
– Optimising the use of internal scrap generation
– Working with steel plants to manage metallicsbased on value-in-use
– Securing low cost supply chains and making them more efficient for both domestic and import markets
– Group lead buying of imported scrap
– Reducing Group’s working capital
– Emphasis on supply chain visibility and control, including targeted purchases without merchant involvement & backward integration
– Set up more strategic long term scrap supplier relationship
– Explore scrap exporting area’s again
Megatrends – Impact in Steel & Commodities
• Global trends impacted massively
• China drove demand; India is accelerating it
• Capacity utilisation not yet on pre crisis levels
• Price volatility enormous in the last few years
• Cost price of raw material in steel > 60 % ; spread in scrap versus steel squeezing
• Consolidation in commodity market reduced due to crisis – but could it go any further ?
• Prohibiting exports by imposing taxes or controlling through administrative measures
• Consequences
• Spot prices very volatile
• Hedging and backward integration part of sourcing strategies
• Supplier /customer relationships changed; long term damaged?
• CSR stretches wider and outside consumer industries
Adjust sourcing strategies
Adapt sourcing organisations
Tata Steel Group Procurement
• Principles
• Maintain a single face to the market
• Maximise value through our supplier relationships
• Achieve visibility of all spend and its co-ordination by sector
• Align and integrate our processes and communications with those of our end-users
• To be a single World Class organisation sharing best practice in tools, processes and procedures
• To promote compliance with Supplies and Corporate policy across all Tata Steel Businesses
Raw Materials
Bulk Shipping
Alloys
ScrapRefractories
Energy & Utilities
Metals
MineralsRolls
Paint
MRO Goods
Services
Corporate Services
CapitalSteel Other
Transport
Annual spend in the Group:
Managing Commodity Sourcing
Moving to the Next Phase
• Supplier Relationship Management is vital moving forward
• Needs to be carefully managed in raw materials and scrap markets driven by commodity behaviour
• Balance of power a challenge
• Technical projects will need to be more robust to drive value
• Risk management will play a greater role
─ Hedging
─ Cover policies
─ Input pricing more closely linked to outsell prices
• Backward integration is an important strategic choice
o Maybe in partnership with suppliers
o Will need to be carefully managed and value creation clearly understood
Commodity Sourcing in today’s volatile times
• Summary & Conclusions
• The markets have changed forever
• You need to adjust sourcing organisations to respond
• Sourcing strategies are more linked to marketing & sales
due to the impact of cost changes
• It can be managed – do not have to be a complete hostage to fortune
• Be proactive – evaluate options and put them on the corporate agenda