Steel marketing - Changes and challenges in the '90s

Anirudha Dutta

The early 90s were an euphoric period for a steel-marketer in India. With liberalisation and decontrol, the days of rationing steel were over. Marketmen who were used to granting quotas to users, who in turn thrived on selling their quotas, had to suddenly start wooing the customer. Pricing was decontrolled - no longer was the government setting a price, which the consumer was forced to pay up. Import norms were eased and import duties came down to non-usurious levels. Demand for steel-marketing personnel obviously shot up. The steel companies suddenly needed an MBA-graduate, who could also talk steel, to be stationed in Ludhiana, because the greasy steel trader would not do anymore. Aggressive investment in the sector also meant an increasing demand for steel professionals. From one producer of hot rolled coils (HRC) till early 90s, we have witnessed five new producers entering the market. And HRC was the product, which needed sophisticated marketing directly to the user industries, unlike the longproducts.

Steel industry, where poaching of marketing professionals was unheard of, saw activity revving up in the 90s. Salaries were being hiked by 50 per cent as the new entrants tried to get a foothold in the very competitive and oversupplied market. It could do no harm to know the established player's strategies! Speaking to a cross-section of steel marketing executives, there are a few clear trends evident today. I enumerate some of them below:

Long term relationships are increasingly becoming important. It is becoming a game of relationship marketing and is people driven more than company driven. The relationship also ensures that there is continuous offtake of material as against one off sales earlier. Today a HRC marketer takes pride in the fact that XYZ cold roller only buys form him or he is his first port of call when XYZ wants HRC. Recently, I met with a marketing executive of a new entrants and he recounted with evident pride how after he left Delhi, the company has been finding itdifficult to sell material in North India. Exaggerated? Probably yes. But apocryphal? Definitely not.

However, in spite of long term relationships and annual contracts, the rates are decided with almost each lot that is taken. At best a producer can hope for quarterly rate contracts. That is the commodity part of steel marketing. I watched this other marketing executive win an order of about 10,000 tonnes from a cold roller - his selling line was that he had not seen an order for three months and he was willing to match the rival producer's price. A few seconds before, he was telling me how sentiments have improved in the domestic market. Did anyone say that steel demand in India is booming? According to one of the leading steel companies in India, about 10-15 per cent of their material in the western region is sold on annual rate contracts and about 30 per cent on quarterly rate contracts. For the balance, it is a month to month contract.

Imports were never a threat in India in the 80s, whatwith high tariffs and import restrictions. Tariff, after declining in the first half of the decade, has sharply risen in the last couple of years thanks to additional duty, SAD etc. But with unrestricted imports being available, the challenge that a steel-marketer faces is that of "threat of imports" rather than "actual imports". As every buyer of aluminium today quotes the LME price of the day before, similarly all steel-buyers are armed with a price quotation form an overseas supplier - match the prices, otherwise we import. Hence, even while import volumes have not increased - in fact, it declined in FY99 - domestic producers have had to reduce prices. Of course, the domestic oversupply scenario has not helped, but that as they say that is another story.

The problems of the last couple of years have given rise to another trend. Imagine PSU executives sitting with their private sector brethren to decide on quantities to be sold in the domestic market. Finally, the steel industry seems to have come toan informal understanding and restricted its supplies to the domestic market. This has at least prevented the kind of price erosion one saw in 3QFY99. In fact, since January 99, prices in the domestic markets have improved marginally - a combination of floor pricing, improved pricing scenario in international markets, production cutbacks by domestic steel producers and an informal understanding to export about 20-25 per cent of their production of HRC.

The last and probably the most important shift have been the emergence of steel service centers. According to a senior marketing official of Tisco, steel producers will not have much choice in the coming years, but to service their long-term large customers through service centers. The customer has been discerning and the seller has been wooing the buyer. I remember reading a few years back, how a steel company in USA bagged an exclusive contract for a project, which required the supplies of a variety of steel products aggregating several hundredthousand tonnes. The company promised to deliver within 24 hours, any steel of any size, at the project site and opened up a temporary service center close to the project site. Tisco has taken the lead in this direction with its joint venture with Ryerson for setting up steel service centers. Others are likely to follow suit. Posco, the South Korean giant, had planned to open a service center near Chennai to cater to Hyundai and Ford's requirement.

What are the lessons from the above? Inexorable changes are sweeping through in the marketing of steel, which normally is considered "just another commodity". And who is the winner out of all this. It is the steel consumer - the customer is finally the king.

The author is director, Probity Research & Services Pvt Ltd and he can be contacted at anirudha@indiainfoline.com

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