Tampa Steel: Navigating risk, pricing in a volatile trading environment

He was speaking on the “Trade Matters: The Value of a Flexible Steel Supply Chain” panel at the Tampa Steel Conference on Monday, Jan. 29. Joining him on the panel were Jose Gasca, managing director of Metrading International, and Brion Talley, president and CEO of JFE Shoji America.

The values that trading companies supply include risk management, reliable delivery, and problem solving.

Traders manage a risky business

While many consider importing steel to be a risky business, Talley pointed out that it’s the job of trading houses to manage that risk as professionals.

“It’s managed risk, known risk, risk we enjoy,” he noted.

Such risks include things like the Section 232 tariffs. Those levies were quickly imposed in 2018 without warning, but trading companies learned how to navigate them to keep products moving. Talley’s staff, for example, has become quite adept at working with exclusions.

Another risk in the current market is traversing the Panama and Suez canals.

Leibowitz said of fighting in the Red Sea affecting the Suez Canal: “It’s a dangerous situation but one that people in the business are managing.” Diversion is one of the key ways to manage that particular risk, he noted.

The panelists estimated that transiting the Cape of Good Hope to avoid the Red Sea adds approximately three weeks to a product’s trip.

Part of being a responsible trader is having arms-length knowledge of what’s going on in the world. Customers pay trading companies to assess the risk in situations and make informed decisions on how or where to move product, Gasca said.

Is it all about price?

While price is a part of the equation, when it comes to importing steel, a long-term business model that takes much more into account.

“Steel isn’t fungible. It’s hype that it’s all about price.”

– Lewis Leibowitz

Talley said that most customers buying offshore material are “buying month in and month out.” If customers were buying solely on price, traders wouldn’t be in business, he said. Traders need regular customers just like other companies in the supply chain.

Some products are simply not available from domestic producers because of reasons as diverse as specifications, tolerances, and alloy content, Leibowitz said. Companies buying offshore material for those reasons will continue to do so, regardless of price, unless there is some sort of “long-term, catastrophic shift,” he said.

“Trade can be a valuable part of a vibrant supply chain for US steel,” Talley added.

Talley said the drought on the Panama Canal could lead to ships choosing to go around Cape Horn in southern Chile. But he also noted that it was a manageable situation that the marketplace would sort out with time.