We recently had the pleasure to interview Pietro Spina, Sales Manager of ITA Spa, to analyze the prices, the market and the prospects of a wire drawing company which every day has to mediate between the inputs of the steel mills and the demands of the final clients, more precisely spring factories and rope producers.
You are between the anvil and the hammer.
Exactly! The purchase of wire rod affects between 70 and 80% of the final selling price of our wire. Our possibilities of absorbing potential increases and therefore marginal losses are very limited.
This past year was characterized by strong price increases.
Yes, we are talking about 200/220 euro per ton more than the previous year, we have now reached 700/710 €/ton for a wire rod, listed between 490 and 510 €/ton in 2016. These increases are partly attributable to the price increase of some key components for the production of steel – coking coal, scrap, iron ore. On the other hand some steel mills, which were having a tough time for at least five years, took advantage of the raw materials increases to correct their prices towards acceptable margins.
That move hasn't been appreciated by your final users.
Sure, costumers were used to a continuous price decrease. The stasis of demand in some areas like constructions and offshore – which had almost disappeared – contributed in keeping the prices low, to continue producing and to defend from extra-EU markets. The fact that in 2016 there were announcements of increases that were followed by decreases created a credibility problem. As a consequence in 2017 the increases were not well accepted.
But in 2017 the demand raised.
Yes, fortunately the trend of the year was positive.
Let's talk about ITA Spa, which is part of Steelgroup together with other companies, all connected by steel drawing.
ITA reached last year an historical production record, 50.000 tons all exclusively destined to high quality applications.
And from an economic point of view?
It was not bad, although we lacked of reactivity in totally overturning the increases that we had on our clients.
It clearly is a system issue as well.
We have to confront on the one hand with our competitors, and on the other with the ability of our customers to apply the increases on the final product. In any case, the compression of the margins was offset by the quantities produced. All in all we feel satisfied.
What is this growth of demand due to?
Constructions and automotive sector are once again becoming interesting outlets. For what concerns ITA, 50% of our wire is intended for spring production (40% automotive springs and 60% technical springs) and the other half goes to the rope sector, mostly mining, elevators, conductors, etc. 10% of our rope wire goes to the Oil&Gas industry, a sector that is slowly growing again.
This year’s bet is on this sector, then?
Yes, and on the automotive industry, which is benefiting of a new vitality thanks to the hybrid technology.
Which expectations do you have for the first part of 2018?
As a first quarter, at the production level we are saturated, as well as almost all the wire drawing factories, from what I could perceive.
We expect to receive more price increases and therefore it is likely that we will have to make some corrections between the first and the second quarters.
And then you produce a lot of galvanized wire...
50% of our productive capacity is of galvanized wire. The percentage of zinc in our product is between 4 and 11% depending on the final applications. Zinc has raised in one and a half year from 1,500 dollars to 3,400 dollars per ton, so we are now forced to increase the sale price.
How many of your clients are abroad, how many in Italy, in percentage?
60-65% of our turnover comes from abroad. But we want to maintain and develop our national marketplace. Also for this reason we plan to extend our production capacities. We have purchased a property near our head office, in Calolziocorte (Lecco), and this year we will start working on the new area. We are waiting for a new machine between February and March. In short, the direction is towards growth. The Beri family, today led by Andrea, from the third generation of entrepreneurs in the sector, alongside his father Gianni, has shown remarkable business abilities and a forward-looking and cohesive vision.
The group, which has achieved the remarkable production milestone in the Italian territory of 250,000 tons per year, is betting a lot on the qualitative aspect. We only buy European wire rod, we take from 400 to 500 tests on our products every day... And then there is the internal side: the creation of a corporate environment of co-responsibility and collaboration is a strategy that, in light of the facts, is paying.