Finding Bottom and Lining Up Cost Cutting Initiatives

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Yesterday, I penned a short piece on ArcelorMittal’s recent earnings announcement and falling steel prices. I also promised to publish the results of a short quiz embedded in that article on what our readers are seeing in terms of current demand. Feel free to take that survey now if you wish. Unfortunately, we didn’t receive enough responses to justify publishing the results so hopefully, we’ll capture a few more responses and post the results next week.

Today, we are pleased to report that a steel executive, Paul Zuckerman CEO of Fletcher Building Ltd.’s Pacific Steel Mill, New Zealand’s second largest producer, made one of the most candid comments yet about the current steel buying environment. Speaking about why prices are still holding up, “Typically with an inventory overhang you’d expect prices to drop if people thought they could work their inventory through more quickly by dropping the price and selling more,” he said. “It’s fairly well acknowledged that demand just isn’t there,” according to this Bloomberg article.  Zuckerman believes global steel demand could take up to six months to recover based on both production cuts and public works projects that could come on stream in the next few months. He went on to say that the “heavy beams, pipes and other long steel products” would pick up first and steel sheet would take longer.

What I found most interesting about his comments, however, was his candid assessment of when the industry will hit bottom. He believes it may take another quarter. Finding bottom remains a subject of paramount importance for most companies within most industries. People tend to become paralytic in a free-fall state and until/unless/when a bottom becomes established, the notion of any activity looks more like a fish trying to swim through molassis. Yet for those of you who are not part of your company’s people reduction/RIF/down-sizing team, now is the time to implement your sourcing strategies (even with rapidly falling volumes) BEFORE demand picks up, even slightly. Remember, markets move on very tiny bits of data. A few ticks up in demand in Q3 can begin to significantly effect steel pricing, for example.

So instead of spending your time wondering if you are next person to hit the unemployment line, implement a sourcing strategy like this one: Does Your Firm Meet or Beat the Market? Because the money you save for your company could be your own!

–Lisa Reisman

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