Last week, we looked at the driving forces behind rising steel prices in the US: surging raw materials, a weak dollar and global consolidation. Those are the Big 3, but there are other long term forces at work here, including greater vertical integration and steel executives with finance (rather than operations) backgrounds.
Global mills are doing a much better job at controlling the global steel price by becoming more vertically integrated. Large integrated mills (which make steel from coke, iron ore, etc in large blast furnaces) are extensively acquiring global mines to better sure up their supply chain of steel-making raw materials. And mini-mills (those smaller, more nimble mills predominantly making steel by melting down scrap steel in electric arc furnaces) are now acquiring scrap dealers in an attempt to better control their raw materials supply and pricing volatility.
This shift towards integration is no coincidence. It’s brought about largely by a new crop of executive leadership in the industry that came from finance/accounting backgrounds rather than operations (case in point - US Steel CEO John Suma). The number crunchers have worked hard to get a handle on steel’s historically rocky supply/demand. Their intentional limiting of supply has had a stabilizing effect, but it’s also contributed to relative scarcity and price hikes.
The reality is, steel suppliers are getting smarter. Market trends coupled with their consolidation, management of supply, and overall approach towards the bottom line have them in the driver’s seat right now on price. That’s not to say there aren’t opportunities to better manage your spend on steel. But, you’ll certainly have to do your homework.
Mike Petro is the Senior Category Manager for Metals in Ariba’s Global Sourcing Organization. Previously, Mike analyzed supply chain options and competitive pricing for US Steel.