Demand for Clean Scrap Will Rise Sharply

Beschaffung aktuell: Mr. Kreft, what anomalies and trends have you noticed in recent months?

Dr. Sebastian Kreft: I'll start with a look back at 2022: the year was characterised by the nickel crisis on the London Metal Exchange, which has already been widely reported. At our Metalshub Summit in September 2023, the CEO of the LME, Matthew Chamberlain, spoke about measures that have been taken since then, such as the introduction of a daily limit on how much the price can rise or fall in one day and the obligation to report positions in the over-the-counter market to the LME on a daily basis. The meteoric rise and then fall in the price of ferromolybdenum was most spectacular in 2023. The price was around 50 $/kg at the beginning of December 2022. By February 2023, it had risen to 98 $/kg, only to fall back below 50 $/kg in April. The price is currently (November 2023; editor's note) hovering between 45 $/kg and 55 $/kg without too much volatility. As for Metalshub itself, despite the economic downturn, we were able to record strong growth rates and, as a technology company, buck the negative trend of mass layoffs in the software industry. We have created new jobs and want to grow our team further.

Beschaffung aktuell: What is the main focus of transactions on Metalshub, and what is purchased most frequently?

Dr. Sebastian Kreft: In terms of the number of transactions, ferroalloys such as ferromolybdenum and ferrosilicon are in the lead. In terms of the number of tons purchased, it is iron and steel scrap and coke.

Beschaffung aktuell: Are the major players involved in buying and selling? And who are they?

Dr. Sebastian Kreft: We started in 2016 with the Procurement Solution for companies that purchase raw materials, primarily steel mills and steel foundries. Customers include Outokumpu, Saarstahl, the Georgsmarienhütte Group, Benteler, Schmidt + Clemens, Friedrich Lohmann, Metso, MAT Foundry Group, Natsteel in Singapore, and many others. The companies then invite their respective supplier networks to Metalshub. Other users include leading raw material producers such as Vale, Elkem, Finnfjord, CBMM, Rio Tinto, and Molymet. L&M, Trafigura, and TSR are also active as commodity traders. In 2022, we developed the Sales Solution, which is used by leading mining companies such as Anglo American. To date, around 1,600 companies worldwide have carried out over 7,700 transactions worth more than 2.9 billion euros via Metalshub.

Beschaffung aktuell: What is the geographical focus?

Dr. Sebastian Kreft: Up to now, that has been Europe; this region recently accounted for over 80 percent of sales. Since 2023, we have been expanding into Asia and South America. We are currently active in 130 countries. The software is currently available in seven different languages.

Beschaffung aktuell: Which processes do you cover?

Dr. Sebastian Kreft: On the procurement side, we cover the source-to-contract process and supplier management. With the Sales Solution, we offer a combination of CRM and CPQ. CPQ - i.e., product configuration, price calculation, quotation preparation - is about the systematic recording of all inquiries and support with pricing and creating offers. The Metalshub Intelligence Service - Metis - provides price indices and market information. Our price indices are based on real transactions and bid/ask prices concluded via Metalshub. In addition, transactions can be processed from A to Z, including insurance, transportation, financing, etc. In summary, we enable customers on the purchasing side to make even better decisions based on centralised data and a transparent process. Customers are more likely to achieve significant savings despite volatile market prices. On the selling side, compared to conventional CRM solutions, we help to connect the areas that are so important in the industry, such as logistics, warehousing, and sales.

Beschaffung aktuell: Your data evaluation and data selection are based on algorithms. All data points are collected automatically. Were you an AI pioneer?

Dr. Sebastian Kreft: We have been developing various AI-supported functions and functionalities for some time now. The creation of the Metis price indices is not one of them. Our indices are created based on rules; there are algorithms that we have written with the involvement of experts from the industry.

Beschaffung aktuell: What will AI be able to do in the future - and what are you currently working on as a service provider?

Dr. Sebastian Kreft: We are currently working on various exciting use cases for the application of AI. One example is the automatic structuring of unstructured data, which is often found in emails. It will soon be possible to analyse thousands of emails in seconds. ArcelorMittal and our partner company, Foresight Data Machines, presented a very interesting AI use case at our Metalshub Summit. It involved the use of AI for determining the "ingredients", i.e. optimising the mixture of different types of scrap for the production of a specific steel recipe.

Beschaffung aktuell: Are there any market participants who still "manage" their business in analog form? How much longer will that last?

Dr. Sebastian Kreft: No one in the metal industry works completely analog anymore. But there is still a big range. Some companies handle all pre-trade processes, such as source-to-contract, i.e. everything that happens before the contract is signed, exclusively by telephone and email. Many companies, especially larger ones, have long been using modern software for these processes.

Beschaffung aktuell: Keyword risk management: What role does Metalshub play for market participants?

Dr. Sebastian Kreft: Software offered by Metalshub can help to minimise risks. For example, Metalshub carries out continuous know-your-counterparty checks. The aim is to ensure that sanctioned or insolvent companies are not admitted to trading. In one case, we were even able to uncover an attempt at fraud: a company tried to scam metal using a false identity. Digital supply chain softwares should also enable the process of building trust between buyers and sellers to be accelerated. To this end, we have a transparent rating system that allows buyers and sellers to rate each other after a transaction has been completed.

Beschaffung aktuell: Can such software be connected to risk systems in companies? What are the requirements for the interfaces?

Dr. Sebastian Kreft: Yes, it can be connected. The big ERP providers always want to sell all solutions for everything, but this is rarely the best way. IT experts such as Gartner now agree that there has to be a leading system. Special systems for different tasks and processes are then connected to this via APIs. Together with our customers, we develop an API interface to the ERP system used in a four to six-week project. This ensures that data is transferred seamlessly and no more tedious manual double data entry is required. Motto: "Clean data is the new gold".

Beschaffung aktuell: How quickly do natural disasters such as floods or fires show their impact on supply chain software like Metalshub?

Dr. Sebastian Kreft: That depends. Events that significantly impact supply and demand affect the physical markets within hours. One example is the start of the war in Ukraine, which also triggered the LME nickel crisis. With other events, it is often not immediately clear how strong the impact will be and how long it will last. Examples of this are the coup in Niger in August with regard to manganese exports and the earthquake in Turkey with regard to chrome ore and ferrochrome exports. For traders, such events often offer great opportunities to make high profits, provided they act quickly and position themselves correctly. Our technology offers the opportunity to gain better market intelligence. Market intelligence is a great advantage, especially in times of crisis.

Beschaffung aktuell: What have been the most intense events that have been reflected on Metalshub since it was founded?

Dr. Sebastian Kreft: That was the start of the coronavirus pandemic. There was a lot of uncertainty in April 2020. Our monthly active users fell by 20 percent compared to February 2020. We usually only see such drops between Christmas and New Year. The number of inquiries from end customers was very low from April to July and the offer rate, i.e. the average number of offers per inquiry, reached an all-time high in June 2020 - a record that still stands today. 2021 was a year characterised by supply chain and logistics problems, which reversed the trend. Demand rose and the supply rate fell continuously from November 2020 to July 2021 to an all-time low. However, the consequences of the outbreak of war were also still strongly reflected on Metalshub in 2022. Demand was still relatively normal in March. Then the number of inquiries on Metalshub fell sharply in April, May and June 2022, which corresponded to a 35% drop. At the same time, the supply rate skyrocketed.

Beschaffung aktuell: What forecasts can you make for the near future? What do customers want?

Dr. Sebastian Kreft: Our forecast is that the demand for clean scrap will rise sharply. Many companies that rely on sufficient clean scrap will need to act quickly. The topic of AI is currently an absolute hype topic that many of our customers are grappling with. Sustainability is also at the top of the agenda. For example, how can we establish clean and trustworthy CO2 reporting? Overall, "digital transformation" is the second highest priority on the Chief Procurement Officer's agenda after "reducing costs".

Interview conducted in German language by Sabine Ursel, Beschaffung aktuell,