Q&A: Kloeckner CEO on steel searching for floor

Kloeckner Metals Americas chief executive John Ganem sat down with Argus Media on 25 July to discuss where the steel market is headed and how, fundamentally, the industry has changed. As a veteran of steel mills, trading companies and service centers, Ganem discussed the mood in the market at a time when pricing has fallen dramatically and more production is coming online. Edited highlights follow.

What do you think the driving force behind forming a price bottom would be?

We have to be careful looking back at historical trends, especially as it relates to raw materials and steel pricing because — let's face it — the cost to produce steel from a labor perspective, logistics perspective, and the cost to be a service center is dramatically different today than what it was just two or three years ago.

If, in the past, we would say a $200/short ton spread over hot rolled was a bottom, that's much, much higher today. The floor is higher, and I think we're close to it. At some point, steelmakers made all these investments [in new capacity] and you're going to have to be able to make money when you're selling steel. They'll get pretty quickly close to that critical point where they can draw a line in the sand at some point on pricing. With imports not really a pressure, now you're just chasing a price to generate orders, and lowering price to create demand has never really worked. There's got to be a reason why the price needs to be lower and we're getting to the point where it doesn't need to be lower.

Do you think consolidation in the steel mill side has led to a fundamental change in the industry?

I think long term you do have a change. We obviously do a lot of business with all four mills you referenced. There'll be a level of discipline in the marketplace that we've probably never seen before, in the long-term. If you want to talk about the short-term dynamics, it's a bit different.

They've all made these massive investments. You build a mill in Sinton, Texas, you've got to get it ramped up and you've got to get it operational and deliver on that investment. You've got Gallatin, you've got Cleveland-Cliffs relining a blast furnace — you don't do that and then don't turn it back on. In the short term, yeah, I think we have some challenges from that standpoint because these guys have got to get this capacity into the market and, unfortunately, the market cycle is such that it's the wrong time.

There are some challenges in the second half of the year because of that, because of the uncertainty that I talked about, so people are going to be pulling back on inventory builds and trying to figure out where this market is going, and then you have some capacity coming on.

Here's the thing — they're really well run mills. They have strong leadership, and they really know what they're doing. I trust this domestic industry much more than I would've trusted the one five or 10 years ago. A lot of different dynamics in play now, and I think they're much better run, more tightly run, more strategic in their approach.

What are some of the biggest challenges facing your company, especially given the Covid-19 pandemic, and what have you done to overcome them?

Operationally, labor is our single biggest challenge. There is a true war for talent, we see it every single day. You're pulling your hair out, you hire people, you lose people. That churn is a real thing, it's happening every single day, and it forces you to change your perspective some.

Now our number one strategy, we moved it up to be our very first pillar, is really people and talent management because at the end of the day if we do not create a high level of employee satisfaction, if we don't enhance the experience that our employees have every day, we will be challenged for the foreseeable future in trying to attract talent.

We're putting such a heavy focus on becoming a much more people-centric organization. Otherwise, all the other stuff doesn't matter.

By Rye Druzin

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