HupSteel

[gautam]

Same for asiaent, cosmosteel etc
i believe one of the reason is that the local stockist is able to custom make products to suit customer needs and are more nimble and responsive to the needs of their customer. Steel producers located far away i believe are harder to do the above.
Not vested.

[FatBoi]

I agree with Gautam.

The only vertical integration that steel producers currently are in keen on is mining (as it helps them to control costs of raw materials). A good example is ArcelorMittal which created a separate mining business in 2011.

The reason why the vertical integration did not go the other way could very well be geographical as what Gautam suggested. It simply makes more economic sense to sell in bulk to steel stockists who in turn serve the respective local markets and have established the local distribution networks. A lot of the steel producers do not provide full suite of products so the value-added customisation is done at steel stockist end.

From the end users' perspective (the oil & gas, marine sector that steel stockists serve), you can't buy on low volume / piecemeal basis from steel producers, and you would not want to store too much inventories, so getting goods on as needed basis from steel stockists is a good idea.

[Clement]

I agree with Gautam.

The only vertical integration that steel producers currently are in keen on is mining (as it helps them to control costs of raw materials). A good example is ArcelorMittal which created a separate mining business in 2011.

The reason why the vertical integration did not go the other way could very well be geographical as what Gautam suggested. It simply makes more economic sense to sell in bulk to steel stockists who in turn serve the respective local markets and have established the local distribution networks. A lot of the steel producers do not provide full suite of products so the value-added customisation is done at steel stockist end.

From the end users' perspective (the oil & gas, marine sector that steel stockists serve), you can't buy on low volume / piecemeal basis from steel producers, and you would not want to store too much inventories, so getting goods on as needed basis from steel stockists is a good idea.

Hi, most large steel producers already customize their products to the end consumer but as you've said, probably only if the order was large enough. If they are willing to take smaller orders, I don't think stockists will be well positioned to compete with their suppliers. I think it is a risk to bear in mind.

[Greenrookie]

I agree with Gautam.

The only vertical integration that steel producers currently are in keen on is mining (as it helps them to control costs of raw materials). A good example is ArcelorMittal which created a separate mining business in 2011.

The reason why the vertical integration did not go the other way could very well be geographical as what Gautam suggested. It simply makes more economic sense to sell in bulk to steel stockists who in turn serve the respective local markets and have established the local distribution networks. A lot of the steel producers do not provide full suite of products so the value-added customisation is done at steel stockist end.

From the end users' perspective (the oil & gas, marine sector that steel stockists serve), you can't buy on low volume / piecemeal basis from steel producers, and you would not want to store too much inventories, so getting goods on as needed basis from steel stockists is a good idea.

Hi, most large steel producers already customize their products to the end consumer but as you've said, probably only if the order was large enough. If they are willing to take smaller orders, I don't think stockists will be well positioned to compete with their suppliers. I think it is a risk to bear in mind.

I wonder if the barrier of entry could the low margin nature of the distribution business. Of what I see, good years margin of 2008 of the various stockists are around 7%. It is usually worse than that.

I am not sure how much capex is required to start an efficient network, and how much will it improve margin to justify going downstream.

But it is a real risk, since we can be sure margin can never be too fat. Also while millers might not go all out for downstream network, there is no stopping of customer buying straight from the mill, as long as distance is not too much of a problem. All projects regardless of sector will require significant volume.

So stockists face more demand risk than supply risk. IMHo

[NTL]

This is what I think.

While smaller end users may not meet the volume required by the mills, how about this bigger end users like ship/rig builders and construction contractors who are involved in mega projects? Their needs in steel is in term of several hundred millions dollars a year.

I have worked with other kind of stockists/distributors before. I believe one of the reasons is the number of separate accounts need to handle. Mills, like other manufacturers of basic parts, will not want to handle the large number of end users account, so they will prefer to work with a few stockists, and let the stockists handle the end users accounts.

Another possible reason is the leadtime to goods delivery. End users may not want to hold on to stocks (think Toyota!), thus stockists come in handy in supplying them their wanted materials in the fastest time. Mills generally will need some leadtime to produce the parts needed, and will need time to ship from elsewhere in the world to end user location. Using stockists will save them this hassle.

[brattzz]

stockists = provide logistics/warehouse/machining and accounts handling at a % of the steel product's cost (mills) to end user.

[Ben]

This is what I think.

While smaller end users may not meet the volume required by the mills, how about this bigger end users like ship/rig builders and construction contractors who are involved in mega projects? Their needs in steel is in term of several hundred millions dollars a year.

The projects undertook by rig builders/shippers usually last for few years. Rig/ship builders will not want to buy all the steel requirement at one go. They would rely on the steel stockist to hold the steel for them and deliver to them at short notice. Each party do what they do best and there will be overall saving for everyone.

[CityFarmer]

This is what I think.

While smaller end users may not meet the volume required by the mills, how about this bigger end users like ship/rig builders and construction contractors who are involved in mega projects? Their needs in steel is in term of several hundred millions dollars a year.

The projects undertook by rig builders/shippers usually last for few years. Rig/ship builders will not want to buy all the steel requirement at one go. They would rely on the steel stockist to hold the steel for them and deliver to them at short notice. Each party do what they do best and there will be overall saving for everyone.

This business model is similar as electronic parts. There are services provided by distributor e.g. inventory management etc, that motivate companies to order from them.

[gautam]

In addition, certain stockist are able to supply other products which wld complement their steel eg sealants, adhesives. Some can do or provide sandblasting services.
In short, one stop value added services for their clients.

[Clement]

http://www.arcelormittal.com/distributio...ow_res.pdf Here is an example of services already provided by arcelormittal. A lot of it overlaps with stockist business activities.