SteelOrbis Brescia discusses how the Italian pipe industry is dealing with a variety of concerns-namely overcapacity-with Luigi Rapullino,Managing Director of pipe producer Sideralba.
Could you briefly describe Sideralba's core business?
LR:Sideralba is a pipe producer and a flat steel service center.We try to operate our business at 360 degrees,with 85 percent of the turnover coming from the pipe business and the remaining from the sale of steel strips,flattened plates and corrugated steel plates.At one time,the service ceter business represented about 50 percent of total turnover,but now it is at 15 percent and its share is likely to reduce further.As far as pipe and tube production is concerned,we are increasingly enlarging our market share both in Italy and in Europe.Our typical buyers are medium-to large-sized traders,as they ensure the most reliability on the financial side compared to small-sized operations(an issue magnified by the credit difficulties reported in 2009).We are going through a phase of great expansion as dictated by our 2008-2013 development plan,which has targeted the doubling of our facility size to about 60,000 square meters(646,000 square feet)and the achievement of an installed yearly production capacity of 225,000 mt of welded pipes and tubes.
How many local competitors do you have to cope with?Do imports have a large market share?
LR:There are just over 20 Italian welded pipe producers,and all of them are capable of producing small diameter and thin-walled pipes,but as the diameter increases,the number of producers inversely decreases;there are only thee to four producers of longitudinally-welded pipe of large diameters(up to 8")in Italy.However,imports cover a very low share of local demand,close to zero percent.Basically,because Italian welded pipe quotations are currently equal or even lower than flat steel prices,I'm not sure which foreign company would want to come to Italy to commit"commercial suicide."
What are the major challenges that the Italian welded pipe sector is facing?
LR:In the Italian welded pipe market,overcapacity is an unfortunate fact.Italian production is almost double compared to domestic consumption,and opening up new markets-without reducing output-is the only way forward.Large producers capable of organizing aggressive commercial policies in foreign markets can especially reduce the weight of oversupply in the domestic market.Additionally,more and more often some of our coil suppliers turn out to be our competitors even in the welded pipe market-until a few years ago such policy could be accepted,but no longer.In this precarious situation,each company should do its job.For instance,Sideralba has chosen to sell to big traders instead of small subjects,for a matter of commercial respect toward our main customers.This policy should be implemented at the top of the production chain,i.e.steel mills.They must understand that it is not possible to earn three times more selling coils,stripes and pipes:according to corporate strategy,it is necessary to focus only on one phase of the production chain,thus allowing gains at every level of the supply chain.
How does Sideralba respond to this harsh competition?
LR:Given the local overcapacity,the most natural answers are minimizing production costs and reaching foreign countries.In 2008,just at the dawn of the crisis,we launched an ambitious five-year industrial plan which included the replacement of outdated production capacities and the installation of new systems in Sideralba's plant,and this has lead to a strong increase in productivity.Thanks to investments,we have sold six outdated production lines and replaced them with three new generation lines,which has produced a 30 percent increase in capacity.We did this while maintaining our workforce,with obvious benefits on the cost of production.In the next five years the target will concern the internationalization of our business:we will open new commercial offices(one in North Africa)and will start a production unit in Brazil,if our assessments lead to positive outcomes as they seem to.As for the local market,the real challenge is the willingness to meet customer needs.Sideralba produces about 200 types of pipes of different sizes which,multiplied by the specifications and thicknesses,bring the total offer to over 1,000 products.Not having found a particular concentration of demand for a certain product,we have to be able to offer the maximum availability of products in stock,with all the difficulties involving scheduling the work and having a well-stocked warehouse(including raw materials).In the niche market of tubes for the furniture industry,we also have the possibility to maximize customer loyalty by offering products with particular sections,tailored to the client's needs.Customers will likely show up again with new orders because of the collaborative relationship started with the pipemaker of reference.
According to the latest figures,Italy is struggling to recover from the global crisis.What are the future prospects in terms of macroeconomic growth?
LR:When the crisis began in September 2009,an analyst stated at a conference that returning to pre-crisis figures would take 10 years.There was a roar in the audience and the most optimistic argued that in 2010 the recovery would have already been strong.We are in 2011 now and the year is going to draw to a close in an even worse position compared to last year.Italy is well-known as a country which is very good at holding its head up again after hitting rock bottom,but the real fear is that the worst is yet to come.At this critical juncture the political class is not demonstrating the necessary commitment to develop long-term industrial plans aimed at encouraging private activities.
What effect did the global crisis have on your input buying policies?
LR:The global crisis produced a sort of"comeback"to local supplies.Before 2008,we were comfortable with Chinese supplies despite the long lead time(about three months),because the most dangerous risk was receiving the order when market quotations had already reached the buying price.Today everything has changed;due to raw material price volatility and currency fluctuation,the company's booking program must embrace a shorter perdiod.Actually,Italian-produced coils make up the largest share of our input(about 60 percent),with foreign coils(mainly Russian,Indian,Chinese and Turkish products)making up the remainder.Of all the dynamics we must evaluate while choosing our supplier,a primary issue is the euro-dollar exchange rate-in many cases foreign flat products,such as Turkish,are not competitive with Italian local products(although their quality is now equal to European standards)because of currency fluctuations.In fact,even when their quotations are lower than for Italian coils,it is by a mere 2-3 percent,which is not enough to interrupt the confident partnership gained over the years with Italian steel mills and even to wait the lead time necessary for overseas supplies.
Which foreign markets are potentially strong outlets for Italian and European welded pipes?
LR:Sideralba,also considering its strategic location close to the port of Naples and just a few hours sailing from the North African coast,has already started delivering to North African customers.Due to the recent political instability in the region,activities have suffered a dramatic collapse after years of Sideralba and other European competitors acheiving good results in terms of profitability and delivered volumes.I think in the next year these markets can come back to stability(except for Egypt,where the situation is already normalizing)and will be able to absorb large volumes of steel(especially hollow sections),as each war is followed by reconstruction.The Brazilian market is under the spotlight as well.This is a country with a stable government and a large population headed toward a robust lifestyle,which in the coming years will require ambitious construction projects(including millions of new households).Also thanks to major sporting events,such as the 2016 Olympic Games in Rio de Janeiro and the 2014 FIFA World Cup,Brazil will be more and more hungry for steel used for new infrastructure.Meanwhile,the country is a target of giant multinational companies in several industries at high steel consumption,led by automotive,whose investments will also contribute to the soaring steel demand in sectors other than construction.
