Steel merchant Macsteel has been re-evaluating its business strategy, owing to a steady decline in steel consumption over the past five years, with 2019 being a “new low” and the start of 2020 faring just as poorly – a situation that has been exacerbated by the lockdown because of Covid-19.

“Macsteel’s attention has been to prime our business on becoming a centralised distribution-type business, where we focus on how we move steel to customers as effectively and efficiently as possible,” Macsteel CEO Mike Benfield tells Engineering News.

He adds that it is difficult to gauge what new demand looks like while trying to understand what the market’s trajectory is going be in future.

“Therefore, our strategy is to continue pushing the accelerator pedal to get to the level where we are distributing our steel from fewer distribution centres nationally and not viewing our branch network as a key component of that network.”

Another challenge faced by Macsteel is that of fluctuating steel prices.

As a stockist and intermediary, Macsteel has inventory on its floor at “old” prices, which means that the business’ profitability is negatively affected when steel prices decrease because customers want to buy at the lower price.

Benfield explains that, from a sector and customer perspective, the optimal position is one where the steel price remains stable for a period.

“Customers are getting quotes on steel to submit their own tenders. However, price volatility and the risk associated with this will potentially make them uncompetitive. We need customers to be profitable, and price stability helps in achieving this.”

Macsteel depends on the sustainability of its customer base, which needs to be competitive locally and internationally.

When the domestic economy is floundering, customers rely on a healthy export environment to remain competitive, which makes the price of input steel very important – especially when competing outside of South Africa. The rand’s volatility also has a direct impact on the profitability of Macsteel’s customer base.

“We want price stability. We shouldn’t be making higher profit margins out of price volatility. We rather want to be selling steel at a competitive price, making a competitive margin and differentiating ourselves strategically,” Benfield states.

He would rather that Macsteel builds its market share through strong, well-established and sustainable relationships with customers.

Further, as a steel merchant, Macsteel acts as a buffer in the supply chain.

“We are focused on ensuring that the market is running efficiently and that there is constant supply. We want to eliminate that risk of the local steel supply falling over,” Benfield says.

He notes that it is important to have a clear view of future demand, which can help the company import and order stock with certainty that it can be sold.

Covid-19 Effect

With almost no business and turnover throughout the economy in April, a number of Macsteel customers were unable to settle their accounts.

“We were concerned about the impact that no trade in April and May had on our customer base and we looked at what we needed to do to support them. We are fully reliant on our customer to be able to trade,” says Benfield.

If a struggling customer has a sustainable business and has been running it responsibly, but has been struggling with a cashflow crunch because of the lockdown, then Macsteel will support it through further credit extensions, he adds.

“That’s one of Macsteel’s key differentiators – being able to provide credit for our customers, as well as to budding entrepreneurs, to assist in managing business challenges, even amid the current economic climate.”

Way Forward

Benfield believes that government needs to clearly lay out how construction and steel need to work in the future: “Even if government can’t fund much, it needs to create an environment conducive for investors take the risk and start.”

With the reinvigoration of the steel sector in mind, the labour environment is of key concern to Benfield.

“In our current economic landscape, the creation or the protection of jobs is possibly the most important aspect. The labour sector should take on a more partnering philosophy, rather than a combative one.”

Despite the view that government needs to pave the way, Benfield believes that all stakeholders need to partner to restart the economy, saying that it is “up to all businesses to partner up and work towards creating the change we all want to see”.

He refers to an approach proposed by government entity Productivity SA, which focuses on an integrated training and skills development ecosystem, as well as strategies and programmes to encourage lifelong earning.

Benfield says this programme will call for the strengthening of South Africa's human capital, which can help guide public- and private-sector organisations to create retraining engines to allow for lifelong learning.

“It’s this type of initiative that business needs to get involved in, support and help drive,” Benfield concludes.