Tyrone Roothman
The rand-dollar exchange rate, coupled with a rising nickel price, has meant that this year’s trading environment is markedly different from last year’s. Stainless Steel speaks to Tyrone Roothman, GM of Stalcor Gauteng, about the current state of the industry.
The year began with a bang as customers sought to pre-empt an expected 30% increase in stainless prices by March, says Roothman. There has been a big leap in the nickel price, compounded by the fluctuating exchange rate and more conversion-price increases.
Roothman argues that the survival of the industry will depend on further rationalisation and consolidation. “This year will be a year of strategic alliances and joint ventures. We have already seen a lot of new entrants into the industry, as people perceive some gap or other for niche expertise, and then go in and try to fulfil these requirements.” Commenting on the acquisition by Acerinox of a 64% stake in Columbus, Roothman says the Spanish producer will probably invest in tweaking Columbus’s production process. “This could produce price benefits in terms of economies of scale, but it depends on Acerinox’s strategy for the South African market, and whether or not it will be in line with Columbus’s original vision.”
Reflecting on the general state of the stainless industry compared with this time last year, Roothman remarks that it represents “two totally separate trading environments”. Last year the market was characterised by a number of price decreases, such as in the price of nickel, with the general effect of a downward spiral.
Price increases take effect
“This year we have the exact opposite, as price increases take effect. We are now selling in a rising-price market, with such complications as customers tied into contracts at old rates. The pricing issue has resulted in a totally different perspective.”
Important substitution due to excess capacity of international mills posed a real threat last year. “This year we have a moderate to low threat of important substitution,” says Roothman. What made last year remarkable was that it was characterised by a high real growth rate.
“The stainless industry experienced high growth in such sectors as pipe and tube and catalytic converters, where there was a high level of exports. The architectural, building and construction sector also saw a lot of growth, with a big shift to stainless in kitchens, for example, and new products such as stainless tiles from Rimex. The Rooms on View exhibition saw a brilliant response from the public as to the possibilities of stainless. Growth rocketed, with some sectors upping total year-on-year volumes by 400%.
This year the industry is faced with low real growth due to the rising price of stainless. “The biggest threat is posed by people reverting to traditional materials.” Ironically, the aluminium industry is faced with a similar problem, and is equally concerned at the possibility of material substitution in run-of-the-mill applications.
Move away from aluminium
“The significant increase in the price of locally produced aluminium in the domestic market is already prompting a move away from aluminium to more economically viable alternative materials. The anticipated loss of market share is going to be extremely difficult to regain,” says Hans Schefferlie, executive director of the Architectural Aluminium Association of South Africa.
Stainless stockists and service centres also find themselves in a different trading environment. “Last year we were susceptible to import substitution due to excess capacity of international mills, coupled with low global prices and short lead times from overseas suppliers. At that time the rand-dollar exchange rate was also relatively stable, so people could access imports easily.
“This year the extra capacity is tied up, with long lead times of up to six months. If you import now you need to have a buffer stock in place. Global prices are also up due to the lack of capacity, but international prices have stabilized – as opposed to the South African market – largely due to their stable currencies.
Niche marketing
In certain sectors, stainless stockists and service centres now have to focus on niche marketing and ‘hard selling’ of the benefits of stainless, such as lifecycle costing. In the commercial sector, stainless used to be a more emotional purchase based on the fact that it is shiny and pretty. Very few people bought it due to the perceived benefit of non-toxicity and corrosion resistance, for example.
“The real buyer behaviour decision-making criteria have to be revisited, especially on the marketing side. The biggest challenge and opportunity is to retain the use of stainless in certain applications, as competitive products will be looked at again due to the price increases. We need to at least maintain the status quo and not lose market share to other products,” argues Roothman.
Plenty of opportunities
“There are plenty of opportunities both in the domestic market and internationally, but only as long as suppliers do not jump onto the exchange-rate bandwagon to increase prices, and thereby destroy any opportunities derived from our weakened currency.
“Suppliers use every opportunity to push up their prices, and then blame it on the exchange rate. Our labour cost is not the cheapest, and therefore any benefit derived from the deterioration of the rand creates new opportunities for manufacturers.”
Roothman adds that exporting quality products is one of the biggest advantages facing the local stainless industry at present. “From a fabrication point of view, South African quality is among the highest in the world. We can compete with any country on the basis of quality. We need only curtail our cost base; then we can export as much as we can manufacture.
Promoting an export culture
“We need consensus as to what will help the country. We must get Sassda to promote an export culture, involving more role-players in such initiatives as the Stainless Steel Co-operative Development Initiative,” notes Roothman.
“We must focus on the people with the right expertise and products. This, in turn, will increase our own volumes and have a ripple effect on the whole industry. The greater the exports, the more material is used and more people are employed and trained. It is quite simple. But we have to identify the right products and opportunities at the outset.”
Transform into turnkey supplier
Roothman explains that Stalcor’s immediate strategy for the future is to transform itself into a turnkey supplier. “We are not just a product supplier, but a solution provider as well. We can call on the relevant expertise in the company and the industry to form a lot of joint action groups. We will not take the place of Sassda in doing this, but instead slot in with Sassda’s activities.”
In terms of the future, all we can predict with any confidence is that things will change – and if you do not change fast enough, you will be left behind. Stalcor is a young and dynamic company, and so it is easier for us to adapt. Users can rest assured that we will not be left behind.”
