Coutinho & Ferrostaal

A new steel trading giant is created by the merger of three global players, as John Foster, COO of the US hub Coutinho & Ferrostaal Incorporated explains to Gary Toushek. CCC Steel (Coutinho Caro & Co.), of Germany, Groupo Villacero of Mexico and MAN Ferrostaal AG of Germany combined their global steel trading and supply chain activities on┬á1 January, 2008 to create one of the worldÔÇÖs leading international steel trading companies, Coutinho & Ferrostaal GmbH & Co. KG.  CCC Steel is a joint venture between Hamburg, Germany-based MPC (M├╝nchmeyer Petersen & Co GmbH) and the industrial corporation Grupo Villacero, based in Monterrey, Mexico. CCC has a history in global steel trading dating back to the end of the 19th century and had been aggressively courting Ferrostaal Metals Group, a subsidiary of MAN Ferrostaal of Germany, an importer and distributor of a variety of steel products (and a subsidiary of the German metals trader and heavy construction company MAN Ferrostaal AG, which itself is part of MANÔÇöMaschinenfabrik Augsburg-N├╝rnberg, a diversified German manufacturer based in Munich).The new company, in which MPC, Grupo Villacero and MAN Ferrostaal each have one third shares, commands a leading position in the international steel trading market with about 340 employees worldwide at 58 locations in 28 countries. In 2008 the company is expecting to achieve a turnover of around $3.0 billion on about 5.0 million tons of steel. The three key global trading hubs are in Houston, Texas, Hamburg and Essen, Germany. The deal required approval from the European Union and US antitrust authorities. John Foster is executive vice-president - commercial, and COO of the Houston hub for the new entity Coutinho & Ferrostaal Inc. His primary regions of responsibility are the Americas, from Canada in the north to Argentina in the south. During his past 17 years in steel trading, he was product manager and vice-president of several major trading lines, and offers some of his insights into the merger. He says Coutinho & Ferrostaal is primarily a trader; its vendors are shippers, mills, and transportation service companies.Although Ferrostaal was known to have one of the broadest arrays of steel product coverage in the industry, adding the CCC team provides particular strengthening to the key product sectors of flat rolled, semi-finished steels and long products. Grupo Villacero also brings added components in terms of steel processing and distribution. The combination of all three makes the merger a major consolidation move in this sector of the market.ÔÇ£I think itÔÇÖs important to highlight,ÔÇØ he says, ÔÇ£itÔÇÖs a key vision that although Coutinho & FerrostaalÔÇÖs core business will continue to be founded on the age-old and respected profession of steel trading, the more traditional foundation of basic arbitrage (sometimes known in the business as ÔÇÿflipping cargosÔÇÖ) will give way to more value-added endeavors that allow us to reach deeper into both our customersÔÇÖ and suppliersÔÇÖ supply chains.┬á This has been an ongoing concept where ÔÇÿstructured tradeÔÇÖ elements comprised only about five percent of the business in 2005 but grew to 12 percent in 2006 and 24 percent in 2007. ÔÇ£Structured trade is designed to be a broad concept that encompasses certain functions that fall outside the traditional arbitrage; it can range from off balance sheet financing, inventory management, just-in-time or just-in-sequence logistics to select services along the commercial chain, such as importer-of-record or insurance responsibilities.ÔÇØ The business of international steel trade tends to be a high volume, modest margin industry with a myriad of variables and trade risks. Of all the functions and services a steel trading organization has to offer, it all generally boils down to the core elements of financing, logistics and risk management.Foster notes an important offshoot of structured trade called MetalsBridge, which focuses on a continually widening services gap between steel mills and the OEM (original equipment manufacturer) sector. ÔÇ£During the first 16 years of my career, in the domestic steel mill sector, there was significant customer service overlap between the major mills and larger OEMs. Technical and marketing personnel were in the same towns or plants of our largest customers, to service their steel related needs. Recently, however, weÔÇÖve seen the domestic steel industry gravitate toward the ÔÇÿNucor dynamic,ÔÇÖ a reference to one of the most successful steel producers in North AmericaÔÇöconcentrating on what they do best, producing quality and cost efficient steel, but with a preference for passing title and responsibility at the end of their shipping dock.ÔÇØAt the same time the OEM world has also expanded, to streamline and look for more services to be provided. These two overlapping commercial circles have diverged and developed into a services and risk management gap. This creates an opportunity to bridge this gapÔÇöMetalsBridge. ÔÇ£WeÔÇÖve had great success with this already and look forward to expanding its application to other domestic and international producers.ÔÇØSteel trading is founded on trust and reputation, since for many customers, steel accounts for up to 80 percent of their total operating cost. Labor and overhead costs are often comparatively lower, and steel buyers must have confidence in their steel providers. CCC and Ferrostaal have built their success on long term relationships with suppliers and customers, whereas some competitors pursue ÔÇÿspotÔÇÖ business, often on price alone. ÔÇ£We believe in formal alliances which revolve around a set of transparent cost and price transactions (ÔÇÿthe glass pipelineÔÇÖ), where profit sharing or fixed service valuations are agreed on in advance, and may return lower gross margins in some casesÔÇöbut from the traderÔÇÖs perspective, generally encompass expanded risk sharing, offsetting much of the margin compression that often occurs within a traderÔÇÖs commercial string.ÔÇØ Compression items include issues such as material quality claims, energy surcharge variances, freight and material handling adjustments, and market price level dynamics that can change during the course of a 90-120 day gestation period of a typical international steel transaction.ÔÇ£I find the international steel forum a very exciting and challenging business environment, where a close knit network of local people in local markets has consistently served us well over the years by seamlessly translating our core corporate message into local business culture terms. Part of the vision at Coutinho & Ferrostaal is to help expand the scope of the steel trading and steel supply chain industries by a selective and logical blend of further consolidations and/or alliances, along with targeted acquisitions where they bring synergy to our profit oriented growth objectives.ÔÇØ┬á