Dogged by overcapacity and weak prices amid an uncertain economic scenario, key distributors are seeking higher margins outside the European Union, and particularly in the US
Steel distributors’ margins in the European Union have not fully recovered from the global economic crisis, and subdued regional growth prospects have led several to seek growth in the more lucrative North American market or eastern Europe, the Middle East and Latin America.
Compounding the market problem is a structural one: the EU distribution system, which accounts for about 62% of regional steel supply to end-users, is largely controlled by mills, whose direct sales to end-users meanwhile account for the remaining 38% of the market. A fight for tonnage with independent distributors has ensued, amid persistent overcapacity and prospects for zero growth in distributors’ sales this year.
“Margins are low due to overcapacity in steel distribution, mill tied and independents, in a no-growth market,” said EUROMETAL, the Luxembourg-based EU steel distribution association.
Together with its national associates, EUROMETAL groups around 3,100 distribution companies, of a total of around 5,000 active in the EU: a number which is, moreover, in decline due to mergers and acquisitions, as well as liquidity problems, especially in southern Europe. “EUROMETAL estimates that there is a pending overcapacity in steel distribution averaging between 20 to 30% depending on business model and product and service offer,” it said.