Steel Buyers Basics: Mitigating Supply Risk

In an earlier article I talked about price risk in steel and several strategies to hedge that risk.  Another, perhaps more important, steel buyer risk is continuity of supply.  Steel making is a difficult and dangerous activity, and a global one.  Unfortunately suppliers often make (and don’t catch) unusable product.  Also, every year there seems to be a steel mill accident that takes out many tons of flat rolled steel supply for extended periods.  Add to that, there are political risks such as the type we see right now in Russia and the Ukraine or the type of risk associated with trade embargoes/taxes (both issues currently in the news).  Finally even if there are no problems with steel making, there can often be problems with transportation, trucks have accidents, rail shipments get held up, dock workers go on strike and ocean freight lines go out of business.

Supply risk is therefore a complex problem that does not have a one-size-fits-all solution.  At its core, evaluation of risk is a judgment issue.  Having said that there is a process a steel buyer can use to at least get a sense of the level of risk he faces in his supply chain and what he can do to lower that risk.