Stemcor’s aim is to become the world’s largest and most profitable trading, distribution and stockholding group in steel and steel-making raw materials.
Our strategy for achieving this aim is to expand Stemcor’s participation at every step in the steel supply chain, growing organically and via acquisition. We will continue to build on our core business - international trading of steel and steel-making raw materials - and find innovative ways to add value as a service provider.
There is still substantial scope for developing the international trading business. Geographically, we are continually extending our infrastructure, particularly in emerging economies. We will look to establish an office in any country where total annual import/export trade flows of steel exceed 2 million tonnes and where there are prospects for sustained growth. Elsewhere we are developing business through dedicated staff who regularly travel to establish and nurture customer relationships. There are also product areas that Stemcor intends to develop further and we are targeting specific industries such as power and utilities, oil & gas and automotive by appointing market sector specialists.
In raw materials we continue to leverage relationships with our steel producing partners, offering a dependable source of raw materials in return for off-take arrangements. We also benefit by gaining knowledge of the input variables that affect steel prices and often derive extra income from structured finance packages. The trading side of the raw materials business can be grown substantially without further investment in fixed assets.
A key part of our strategy is to diversify both up and down the supply chain, broadening our capability in supply chain management and protecting our core trading business from the threat of disintermediation from steel producers.
Continue to build a global network of steel stockholders
Stockholding is the retail end of the industry, supplying small batches of steel for just-in-time delivery to a broad customer base. Steel stockholding and processing are growth industries; with their local presence close to end users, they are far less likely to be cut out as intermediaries. The stronger Stemcor is in stockholding, the more direct placing power our trading and distribution units can offer steel producers. Expansion downstream complements Stemcor’s existing activities, enabling us to use our purchasing power as an international trader to provide competitive advantage both to our own stockholders and to our stockholding customers.
Though we aim to reduce our reliance on third party stockholder customers, we will continue to serve them on an equal basis to our own stockholding outlets. Many of our future stockholding investments will be of a ‘virtual’ nature, whereby warehousing and transportation are outsourced to skilled specialists, allowing us to concentrate on our core competencies and keep capital expenditure low.
Increase distribution activities to end-users
Historically, Stemcor’s domestic distribution business has offered an essential feeder service to third party stockholder customers, bringing steel from anywhere within our international network. Our focus is now shifting towards large global end users, typically firms serving the construction industry with building components and sub-structures, the white and yellow goods industries and the automotive trade.
Such relationships with end users help drive regular demand for steel through Stemcor’s core international trading business. Many end-user customers enter into an annual framework agreement with Stemcor, which is then renewed every year. End users consistently demand just-in-time delivery to their premises and do not hold large amounts of unsold stocks like stockholders. Furthermore, whilst stockholders tend to focus mostly on price, end users place a higher value on the quality of material and reliability of service. Consequently end users bring more regular demand and stable margins.
Further develop Stemcor’s finance activities
In recent years, structured trade finance has supported the growth of Stemcor’s international trading activities and has demonstrated a strong track record of repayment and recoveries. Finance will continue to be an integral part of Stemcor’s strategy. Stemcor does not aspire to act as an arranger or lender for its own sake. Our motivation is simply to secure sources of supply or preferential sales relationships.
The credit crisis has made it difficult for top tier producers to attract finance from international banks. In this environment, Stemcor is well positioned to take advantage of the continuing need for such producers to raise working capital.
Furthermore, Stemcor intends to grow our strategic alliances with Deutsche Bank and other partners to take advantage of the numerous opportunities in the newly established steel derivatives market.
Secure a supply of raw materials for trading via mining investments
A key part of Stemcor’s strategy is to invest in mining and related assets in order to secure the supply of raw materials to feed our international trading activities. We are currently completing the construction of our upstream investments in India. Once completed, Stemcor may sell these assets to a third party or float them, retaining a substantial shareholding and locking in off-take arrangements. This allows us to continue to benefit from the original investment while limiting the proportion of fixed assets on our balance sheet.
Although Stemcor is focused on garnering and reinvesting profits from these Indian investments, we will consider other investments if opportunities arise, particularly iron ore and coal mining, coke production facilities and physical operations in scrap processing and handling.
