SSAB Moving Into the Service Center Business

In the US, Europe and Japan, a well-established network of distributors provides a ready route to small and medium consumers for the major metals producers. In some markets such as Europe, manufacturers have a greater wholly owned presence among distributors while in the US it is largely populated by private or publicly owned corporations rather than the metals producers themselves. When working with clients looking to develop low-cost or emerging-market sourcing for the first time, we are sometimes asked why there is not the same network of distributors in Asian markets. Doubtless there are a number of factors, but our opinion has always been that a distributor market only develops when the end-user or consumers reach a critical mass, when there are a sufficient number of usually privately held manufacturing companies looking for the service role that distributors provide.

In state-dominated markets like China and India in the last decade, large sophisticated distributors — as we know them in the US or Europe — were slow to develop where the state could direct their producers to manufacture for major (also state-owned) consumers. But as small- to medium-sized consumers have grown in number and technological sophistication, and as the infrastructure has evolved to allow distributors to cover a reasonable geographic area arguably still a major hurdle in India — more sophisticated distribution firms have become established. Leading this trend have been some of the major western mainline distributors such as Reliance in South Korea, Ryerson in China and ThyssenKrupp Materials in just about every location around the globe.

Well, joining the trend is steel producer SSAB. Once considered a slightly stuffy Swedish steel producer, SSAB has developed into a major global player in the flat rolled products market with a mission to move from the commodity end of the market (the firm is, for example, a significant force in the North American steel plate market) to a supplier of higher-value steels. In a Financial Times article, the firm lays out its twin goals of moving its primary focus from the commodity to the specialty steel end of the market while also establishing itself in higher growth emerging markets. SSAB intends to do this by developing a network of service centers in Asia to capitalize on the region’s infrastructure boom and corresponding demand for high-strength and wear-resistant steels used in the manufacture of cranes, trucks and heavy excavators, according to the FT. The article goes on to outline the company’s plans to push up the proportion of its total revenues that are derived from niche grades of steel to about 60 percent by 2015, up from about 40 percent last year by setting up service centers in a range of countries including China, Malaysia, Vietnam and Indonesia that would be modeled on an existing center in Shanghai. Clearly it feels the existing service centers do not or cannot effectively market the firm’s products or service the major users’ needs.

Last year, SSAB earned only 6 percent of its total $6.4 billion in sales from Asia, with about half coming from Europe and the rest mainly from North and South America, the FT said. But in what it terms ‘niche’ products, such as specialty steels, the percentage from Asia was double those from other markets underlining the demand Asia has for specialty steels. Much of this growth will come from Asia to the benefit of US exports, since much of the “quench and tempered material (which is particularly strong and hard) comes from one of its plants in Mobile, Ala., in the US. Global sales of specialty and high-strength steels are expected to be about 20 million tons this year, worth about $30 billion, according to the article.

To what extent SSAB’s competitors — such as JFE, Nippon, ArcelorMittal and Dillinger Hutte — will follow in setting up service centers in Asia is doubtful, but for SSAB the policy and the objective appear on the face of it to have a lot to commend it.

–Stuart Burns

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