At a time of low sales volumes, market competition between service centres has become more aggressive. And the coming weeks will be decisive in understanding whether price increases, driven by rising production costs, will be sustainable. It is in this context that Sidastico, a sheet metal service centre in Fara Vicentino (Vicenza) specialising in the flattening, cutting and processing of customised carbon steel sheets from hot-rolled coils, is moving. And which, after a 2023 of growth, is preparing to face a complex 2024, expecting stability and focusing on further investments. We talked about this with managing director Davide Chilò (left in the picture), the third generation at the helm of the company.
The domestic and European flat products market seems to be in a calm phase. What are the trends you are noticing?
In Italy, in the carbon flat steel sector, demand has shown signs of weakening since the beginning of 2024, in contrast to manufacturers’ prices, which see a steadily growing trend, generating uncertainty among end users when purchasing. The economic situation in the EU and the conflicts with no solution in sight in Ukraine and the Middle East are continuing to dampen the economy. European steel mills, however, do not show any signs of price drops due to import restrictions and reduced production capacity. The gap that made purchasing from non-EU countries attractive is mitigated by the fast depletion of free import quotas and the resulting duties. Steady cost increases may lead to higher sales prices in the short term, but service centres will not be able to absorb these increases for much longer, as the market demands prices that are not sufficient to cover operating costs. Sales are mostly ‘on sight’, fragmented and lacking in planning, also resulting from the uncertain situation in obtaining funds for business development. In the absence of a recovery in demand, the coming weeks will be crucial to determine whether the price increase will be sustainable. In any case, service centres seem destined for mere survival pricing policies.
With uninspiring demand, low supply from steel mills and imports, what do you expect to happen to prices in the short term?
Due to low sales volumes, many service centres tend to compete aggressively, which seems destined to cover the purchase prices of coils without any consideration of industrial costs that the downstream market is not interested in covering; however, hot rolled coils have had a cost increase of about €70/tonne since the beginning of the year, at a rate of €10-15/week. The downward trend and price uncertainty are forcing buyers to leave the market, reducing liquidity and demand and, at the same time, increasing competition to fill the production floor. Due to the lack of demand, fragmented marginal contracts are being concluded, which is reflected in loss of efficiency.
In this context, are the CBAM and the Safeguard an additional element of difficulty?
The CBAM mechanism and the Safeguard measures on steel imports are hampering the daily operations of Italian and European steel companies. The management of the CBAM will generate increased costs for users down the supply chain, and potentially a serious loss of competitiveness for Europe. We may think that by extending the Safeguard quotas, imports would decrease, giving more structure to domestic market prices; while this is certainly true at the purchasing stage, it is not so true at the selling stage. Since steel mills cannot sell below a certain price threshold, who should pay the extra cost that service centres incur at this stage? It would almost seem that Safeguard is the solution to redefine a market that is now accustomed to a non-European product, as are the service centres, but this is not the point. Nowadays, service centres must continue to fight among themselves to acquire a share of orders, mostly without margin. The price problem, and consequently the margins, will only go away when Europe decides to revive the economy with the ‘promised’ policies, otherwise we will face a further slump with a succession of uninterrupted instability. It is repeatedly said that increases in imports from third countries destroy the market, however, in this day and age, eliminating Safeguard would be the only way to allow us to create profit to offset the price burden we are facing when buying in the European market. What is most worrying, on both fronts, are the impacts that these policies could have in the long run, without really mitigating the real problems in the market.
Coming to Sidastico, over the last five years you have invested in expanding your warehouse and increasing your processing services, expanding your production capacity. What is next in the short to medium term in terms of investments?
The constant technological evolution we have undertaken guarantees precision, power, efficiency, flexibility and security throughout our supply chain, offering tailor-made services to customers. We are currently investing heavily in business intelligence, innovation of management and quality control systems to ensure precise monitoring of all business flows, ensuring transparency and traceability with the aim of achieving better responsiveness at every stage of the process to respond to a market whose needs change daily. Particular attention is clearly paid to respect for the environment and eco-sustainability. With the current area covered by photovoltaic panels of over 12,000 m², we are able to generate 1,680,000 kWh/year, which almost completely covers our energy needs. In addition, by-products and processing waste are 100 per cent recycled, further reducing the company’s environmental impact. What creates and maintains the company are the people who work there. We invest a lot in our people, giving them the opportunity to always have new stimuli and face new challenges. The investment in personnel is not only in the form of professional training, but also in the form of attention to physical and mental health. For some months now, we have set up a regular physiotherapy check-up and therapy service, a canteen service and are completing the construction of the Sidastico gymnasium, because we firmly believe that the working climate and environment are fundamental to the quality of life of all our employees.
Exports now generate half of your turnover. Which are the main destination countries for your products? What are your plans for the future in terms of possible further internationalisation?
We currently ship to all European countries, North Africa, Arab countries and the Middle East. We take great care to maintain existing relationships and work to create new ones. We realised long ago that each country must be studied and understood in its specificity and that each strategy must be carefully localised; each diversity has its own potential and it is up to the seller to seize both. Moreover, the last few years have taught us that every situation can change drastically and in a very short time; we need to pay the utmost attention to all signals, but especially to the weak ones because they often foreshadow substantial changes to which we need to adapt as soon as possible.
How did 2023 end in terms of turnover, volumes and margins? What do you see in 2024?
2023 was a year full of satisfaction. We managed to optimise many business flows, we obtained ISO-9001, ISO-14001 and ISO-1090 certifications, and we can say that we have established ourselves on the market as a solid reality, with a turnover of more than 150 million. This achievement was the result of major optimisations in all processes, from order acquisition, to purchasing campaigns, stock management and closed contracts and projects with certain realities. The volume, in terms of tonnage, was close to 160,000 tonnes produced (about +15% more than in 2022), with a margin that was positive, albeit to a lesser extent than the previous year. The July-September 2023 quarter was a ‘ghost period’ in many companies’ sales budgets: it was expected that, given the absence of projects and small year-end replenishments to align inventory, the first quarter of 2024 would see an improvement in sales based on a generally positive macroeconomic outlook, driven by a slippage of these projects into the first quarter of the following year. At present, much uncertainty remains and consumption is expected to remain in line with the last months of 2023, while downstream price stabilisation has been the main trend to date, still hoping for a possible improvement in margins.
How is the role of service centres in the steel supply chain changing? What levers should we focus on in order not to lose competitiveness?
Nowadays, companies producing products directly related to raw materials in sectors such as steel are facing increasing global competition, many times coming up against ‘low-cost mass’ competition. One way to counter this challenge is to use a strategy aimed at the ‘niche market’. Increased competition has forced many traditional commodity-based industrial companies to update their offerings with more specialised and customised products to better serve a smaller niche in the market. The strength of this sales channel is to avoid direct competition with low cost/price competitors, especially in stagnating or even shrinking markets. The process of transitioning to a niche market strategy can be both costly and time-consuming, but it has the potential to generate higher returns and profits than wholesale competitors. Clearly, to succeed in developing a niche market, one must first have an established trial-market. Market share is the percentage controlled by the company and is an essential metric for developing the profitability and success of a project; gaining and maintaining market share should be a primary objective. Through this, a company can expand its operations and experience opportunities for greater profitability. Gaining market share can strengthen a company’s reputation, as well as increase sales and bargaining power.
