Gamechanger carbon footprint

In an interview with stahl., Dr Sebastian Kreft, co-founder of the software provider Metalshub, provides exciting insights into the world of online trading in metallic raw materials. And he explains how the carbon footprint is now increasingly impacting the price of raw materials and fuelling the trade in scrap.

stahl.: With Metalshub, you are responsible for optimising the raw material purchasing of your mostly steel-producing customers with a digital software solution and the best possible provision of up-to-date trading information. Why are you focussing on this area in particular?

Dr Kreft: The issue of raw materials is extremely important for steel producers, but also for everything that follows in the value chain. This is because 60 to 70 per cent of the costs are raw material costs, plus energy and then the costs for the people who work in the plants. Although the issue of raw material procurement should actually be the core competence of steel producers, the topic is often not at the top of the agenda.

stahl: Although everyone knows that most of the money is traditionally earned in purchasing. In addition to the price, the PCF, the product carbon footprint of raw materials, is now increasingly at the top of the agenda when purchasing raw materials due to the growing CO2 tax burden.

Dr Kreft: And rightly so, because Nickel accounts for an average of around 40 per cent of the carbon footprint of the end products of a classic stainless steel producer.

steel: Do other alloy components also have such a high CO2 co-poison?

Dr Kreft: In the case of stainless steels, the three most important alloying additions are nickel, chromium and molybdenum. Depending on their origin, there can be relatively large differences in the PCF of these raw materials when they are purchased. Our task is to provide this information about the differences at the point of purchase. Our customers can use our platform to compare not only price and quality, but also the PCF in their dashboard, and ultimately our software shows how the different PCF affects the price in terms of taxes. In this way, I can significantly reduce my Scope 3 by choosing the right supplier.

stahl: As the CO2 footprint of steel products becomes increasingly important, the recycling of these materials should also become much more attractive.

Dr Kreft: Yes, as a steel producer this is another way of reducing the PCF on my decarbonisation journey. Swiss Steel, for example, is taking this approach and is now increasingly entering the recycling business itself, for example to produce molybdenum, one of the ferro-alloys, itself in this way.

stahl: But that also means that anyone who wants to sell commodities is increasingly losing out if their PCF is worse than average.

Dr Kreft: I would put it like this: The fact is that all commodity suppliers have recognised the problem of having to say something about the PCF, but regardless of this, they are often reluctant to share this information. Some traders in particular do not want to disclose their sources. But I think for certain industries it has become essential to do just that. If I want to do business with the automotive industry, this is now the entry ticket or a mandatory requirement. The same applies to public tenders, for example for railway tracks. The EU taxonomy already applies here.

stahl: How do you prevent yourself from being taken in by fake supplier information?

Dr Kreft: On the one hand, we cooperate with the London Metal Exchange, which has its own team that deals with these standards and with trustworthiness, as they say, i.e. which standards are accepted and trustworthy - and which are not. However, this only applies to brands that are listed on the London Metal Exchange. We also work with Minviro from the UK, a company that specialises in life cycle assessments and the calculation and auditing of PCFs.

steel: In the same way, it is also important to scrutinise the process of pricing raw materials in general, isn't it?

Dr Kreft: Without a doubt. This is best illustrated by the example of chromium. There are two companies in Europe that negotiate the price benchmark. And then the rest of the industry takes over for each quarter. However, this is not a truly transparent process. Or, if we look at molybdenum: In most cases, an annual contract is negotiated here. However, as the price is volatile - at the beginning of the year, for example, it rose from 50 to 100 dollars per kilogramme within a month, then three weeks later we were back at 50 dollars per kilogramme - an index is used as a price basis. This index is compiled by so-called "Price Reporting Agencies" based on calls and surveys of market participants, traders and buyers. It is clear that manipulation can occur here. At this point, we are trying to ensure greater transparency and objectivity in pricing by including our transaction database.

stahl: That means?

Dr Kreft: Transactions are actually processed on our platform. This data can be anonymised and included in the index calculation. In other words, we provide our customers with anonymised transaction-based price indices. These indices are normalised, as we call it. This means that they are based on a sophisticated algorithm that has been agreed with the industry and takes into account the different contractual conditions and product qualities. For example, I can only compare transactions with 30 and 90-day payment terms to a limited extent.

steel: How important are these indices for decision-makers in the steel industry?

Dr Kreft: They are very important - and not only in raw material purchasing. For example, many steel contracts have a so-called alloy tag, with which alloy costs are passed on to the end consumer. And here you should be as close as possible to the actual market price.

steel: Your users currently trade 200 products. Which is the most important?

Dr Kreft: Our most important product at the moment is scrap. Why is that? If you look at the raw material mix of companies that produce steel using electric arc furnaces, scrap accounts for around 80 per cent of raw material purchasing costs. This is by far the most important raw material for these companies. The other 20 per cent are alloying elements, additives, slag formers and the like. Logically, we have far less scrap for blast furnace producers. But since it is the declared political will that the blast furnaces should now disappear step by step, the trend here will also be towards electric arc furnaces or smelting reduction furnaces. This means that competition - and therefore the demand for scrap - will increase. Initially moderately, but then towards 2030 demand will increase dramatically according to our forecast. And then the crucial question will be: how can I secure my scrap supply, i.e. how can I ensure that I will continue to get enough scrap for my production in the future?

stahl.: Is that already happening?

Dr Kreft: Yes, for example Aperam, one of the largest stainless steel manufacturers in Europe, has bought one of the three largest stainless steel scrap dealers in the world, ELG. Another trend that will intensify over the next few years: In future, anyone selling steel will be assured that they will get back any scrap generated during production. This will also happen: Scrap is also a huge logistics business. To be successful, we therefore believe that digital skills, processes and algorithms will be increasingly important here too in the future.

stahl: Like the Neuss-based start-up ScrapBees is doing?

Dr Kreft: Exactly, it starts at the very beginning, with someone like ScrapBees, who drive to tradespeople with their own vehicles and collect, consolidate and classify the smallest quantities. It then continues at the steelworks itself, where in future the optimum composition of the scrap will be controlled much more precisely with software support using different scrap qualities: What is the ideal scrap recipe, so to speak? Also, and above all, taking into account the current prices. This means that purchasers and melting foremen determine the economically optimal melting recipe for the steel to be produced in dialogue and with the help of specialised software.

steel: What is the order of magnitude in euros of the economic optimisation we are talking about here?

Dr Kreft: We're talking about a lot of money. ArcelorMittal in Hamburg, for example, which works in this way, saves 5 per cent scrap in this way. That's a huge lever for a steelworks. We're talking about millions of euros per year.

steel: If the savings are so immense, why isn't everyone already doing it?

Dr Kreft: The main reason is that companies don't have any structured data. This means that a lot of information, for example in scrap purchasing, on price, quality and specification, is not available in a structured form. This is where we come in with Metalshub. We provide purchasing departments with permanently available, auditable and processable structured data. Last year, we painstakingly developed a very detailed system for the classification of scrap in particular, which categorises the scrap qualities very broadly and also makes very fine distinctions in complaints management. After all, around 25 per cent of scrap deliveries result in complaints from the purchasing department. In other words, digitalising the processes for purchasing and sales makes a lot of sense.

steel: After scrap, what are the most important raw materials that you trade?

Dr Kreft: Then come nickel, chromium and molybdenum. The blast furnace operators also need a lot of manganese metal, for example.

stahl: However, what you are demonstrating with raw materials obviously cannot be easily transferred to the classic steel trade. Because there is still no platform comparable to Amazon. Why is that?

Dr Kreft: Nobody has really managed to digitalise the steel trade comprehensively yet. Initially, there was the pioneer Klöckner. They have reached a completely new level of digitalisation with XOM. However, this was not able to establish itself as a cross-manufacturer platform. In my opinion, it is ultimately down to the stubbornness of steel buyers, who often still want to conduct their business traditionally. These traditional structures are slow to change.

steel: How important is the "digital auction trading" tool for you?

Dr Kreft: In our commodities market, around 20 per cent of companies use digital auctions. 80 per cent of companies use a tendering mechanism.

steel: What is the advantage of auctions?

Dr Kreft: Auctions are very standardised and efficient. This is good for standard products and wherever there is a supply surplus. However, wherever there is a shortage of supply or complex products with possible substitutes, tendering procedures are often the better solution. Which procedure our customers ultimately choose is up to them. We only provide the toolbox for this.

steel.: Where does Metalshub stand in what is now the seventh year since it was founded?

Dr Kreft: We started out as a procurement solution provider for companies that purchase raw materials. We have now come a long way in this area, especially in Europe and the western world. If we look at the stainless steel sector, for example, it is a remarkable development that we have undergone: 45 per cent of all raw materials that go to the western stainless steel industry are processed using our software. We are not yet quite as strong in the carbon steel sector, except in Europe, but have now set ourselves the goal of growing significantly more outside Europe this year. We have already acquired customers in Singapore and Brazil. The USA is also increasingly becoming a very exciting market for us. But the logic is always the same, no matter where: the software works equally well anywhere in the world. But people just don't know us outside Europe yet.

stahl.: With such a strong increase in importance as software, the temptation to use transaction fees as a broker to increase economic success is great. Why haven't you been doing this for a long time?

Dr Kreft: We learned very early on that the potential in our market is very limited. We therefore don't see ourselves as brokers, but as software providers. You have to licence or rent the software if you want to use it. We also don't take a commission; we are not a party to the transactions that are conducted via our platform. Our business model is software-as-a-service. That is our entire focus. We have around 25 programmers on board and currently release a new version every fortnight. But we also have a relatively large team for the Customer Success Service, for example.

steel: What exactly does that mean?

Dr Kreft: When we acquire new customers, we take great care when onboarding these new customers to provide them with the best possible training in using Metalshub. The satisfaction of our customers is our most important asset. We normally get the customer up and running with our software in a maximum of three months - but usually after just four to six weeks - so that it is operationally useful and profitable. Metalshub is not software that grows into a huge software project for the customer. All we have to do is train the relevant people at the customer's premises and then the customer is ready to go. Many IT projects always take much longer than planned, are much more expensive than planned and often do not achieve the return on investment. At Metalshub, we guarantee the exact opposite on all three counts.

stahl: Thank you for the interview.