Stainless steel supply chain profit suffered an abrupt fall in the last years. What triggered this phenomenon?
By looking at this image, you can see the participants involved in the distribution chain: we start from the mines where minerals are pulled out, we move on to the steel producers and distibutors and we finally arrive to the end users.
We can clearly deduce how penalising it is to manage to obtain a sufficient distributors’ margin: a low percentage level in general and years characterised by a zero marginality with negative streaks (2015).
Why? What could have the triggers been? Here are some of our hypothesis:
Several factors have played a role in this sudden market change: the recent international crisis affecting the economy and trading, China’s growth considerably slowing down, oil and raw materials suddenly dropping in prices, the USA monetary policy becoming more and more severe.
Speculations generated volatility in the market, causing sudden hikes but also strong falls in raw material prices, therefore creating that instability provoking uncertainty and a slowdown in projects and purchases.
The scarce order quantity from the end users and the consequent lack of liquitidy encouraged distributors to modify their stock management in favour of small-lot-purchases.
For distributors and service centres, this causes a growth in expenses, starting from the orders emission.
The logistics costs significantly influence a business’ turnover, especially as far as transports are concerned. The world crisis led to a growth in the oil price and to the resulting hike in fuel/toll roads/transport insurance costs.
Several manufacturing companies have increased their presence on the market by opting for a forward vertical integration, in an attempt to leave more room for profit margins through verticalisation. This, however, to the detriment of those not taking part in the distribution process.
For us, the fall in profits is a sum of causes among which we find drops in the use of stainless steel (we are talking about 50% between 2009 and 2015) due to many companies outsourcing to cheaper-labour-cost countries.
How do you see this fall in profits?
Do you think there may be other triggers?