Disclosure: I am a non-holder. I have been contemplating...

Disclosure: I am a non-holder. I have been contemplating becoming a shareholder of BIS for a while. As part of my due diligence I have been reading their annual reports and in particular going through their ongoing anti-dumping investigation against competitor SSAB. Though my research is not yet complete, what I have found so far has not instilled me with confidence.

I refer specifically to the FOUR customer questionnaires (Items #15, #16, #17, #18) found on https://www.industry.gov.au/regulations-and-standards/anti-dumping-and-countervailing-system/anti-dumping-commission-current-cases/578

TLDR:

IMO there are several deep rooted issues with BIS which need to be rectified before I would consider jumping in:

1. Product features, quality and consistency
2. Lack (or absence) of customer support and service
3. Ability to fulfil industry demand
4. Chasing protectionism via tariffs
5. General negative customer sentiment / CX

It seems many of these issues have been around for a long time and have not been addressed by the company. Additionally, BIS are still focused on reducing competition via tariffs. The consensus from customers is that BIS’s product does not match their requirements in the same way SSAB’s products do, both in terms of quality and quantity. IMO BIS risks off-siding customers by effectively forcing them to pay higher prices for SSAB’s product, instead of winning their business by improving their own products.

There is some mention of increasing customer focus in the latest annual report, but their tariff actions seem to run contrary to this objective. There is also no mention of addressing the quality or fulfilment issues highlighted by their customers (happy to be corrected).

I urge anyone reading this (shareholder or not) to read all four customer questionnaires themselves. I would trust these more than any company’s self appraisal. The tariff decision seems to be due in March 2022, and I will personally be waiting until this time before making a decision. That being said, I don’t like BIS’s chances here.

Long Version:

There are many, many excerpts I can paste here which support my sentiment above. If you intend on reading the four questionnaires yourself, skip everything below.

IMO these together paint a picture that putting tariffs on SSAB will not re-route additional business to BIS but simply serve to anger customers.

Toomey Earthmovers

“Quality Differences: In general we have experienced differences in quality and behaviour from Bisalloy 450 wear plate in both bending and machining. Specifically, with pressing we had a batch of 5 and 6 mm bucket skins to press for a customer and we had many issues with consistency of the material. Our machines are new and have proven to be very repeatable yet we had to spend more time trying to match the templates than with any of our own products cut from Hardox 450. Even with the part resting in the machine and matching the template within a millimeter or two, once removed and rested on a pallet for shipping the parts would either spring open or closed by up to 10mm. This issue was raised with a rep from a Bisalloy Stockist and their response was that Bisalloy have a lot of problems heat treating thin plate and it was most likely Chinese processed material.”

“…I advised the customer that the prices quoted previously I would hold if SSAB materials were supplied but if Bisalloy material was supplied the price would need to be 20% higher to cover the past issues we had with consistency.”

“…our only comment is that several years ago there was a major fire in one or more of SSAB’s processing plants which has a huge impact on supply. When the supply deficit hit Australia and everybody went seeking alternate supply Bisalloy was unable to fill the gap and there were major shortages for months”

“With our own products cut from Hardox or Strenx the colour of the coating gives us a quick visual check to make sure it has not been cut out of the wrong material. This is not possible with Bisalloy.”

“Consistency: Our most important criteria is consistency. Consistency in thickness, flatness, strength, hardness etc […] Its impossible for us to tell but our thoughts have been that when we get consistent Bisalloy parts its most likely they are all from the same plate and when we get inconsistency its likely those parts were cut out of multiple plates.”

“To the end user of our equipment there may be no discernible difference in strength or wear between the plates supplied by SSAB and Bisalloy. But as a manufacturer, the locally made Q&T steel plate and that available from any other country are not directly comparable because of many factors, many which has been previously addressed but I will repeat again now. Costs are incurred in the processing of the plates when there are inconsistencies, primarily in thickness and mechanical properties. These costs are incurred when bending the materials and due to the cost of the equipment to bend the plates, the dollars per hour is high. The cost to bend Bisalloy plates over SSAB plates would be significant.”

“If we were to use Bisalloy plate there would be costs added to the fabrication for cleaning the plate of rust. If the employees weren’t to do that adequately we would have compromised weld joint strength and run the risk of weld failures.”

SHAPECUT

“In our opinion, the range of Q&T plate in the Australian market. Bisalloy for instance seem to have a problem with flatness in their material. This is primarily but not limited to thickness up 12mm. This was confirmed to us by Bisalloy themselves approx. 2.5 years ago. Over the last 10 plus years SSAB plate has not shown to have the same “flatness” issues making it a viable option for our primary customers to whom a reliable supply of flat plate is essential to their manufacturing processes.”

“Shapecut feel the imported goods offer greater purchasing flexibility with alternative size plates available reducing wastage. We feel we cannot interchange locally made plate with imported plate as we have quality concern mentioned previously. Our customers request the alternative due to the flatness issue. We also source unpainted product from SSAB which is our major customers preference.”

“Market preferences have changed considerably over the last five years. SSAB have managed to achieve consistent flatness on thin gauge material whereas Bisalloy have been unable to address this issue”

“Hundreds of people are employed in the steel processing industry, and we are concerned at the potential future damage to our business sector and our company should this action proceed and drive raw material costs even higher enticing more customers to look overseas.”

“Recently, a defence force contractor, had SSAB product approved in the manufacturing process. This was approved due to the quality of the thinner gauge plates compared to Bisalloy.”

“We think it would be detrimental to our business not to have the options we currently have. Shapecut has serious reservations Bisalloy could handle the extra work if this product did not come into Australia. Quality issues with Bisalloy’s thin gauge product regarding material flatness would be a major concern. Bisalloy are currently countering this issue by importing thin gauge material from China. Our customer base is reluctant to use Chinese sourced materials as there is still a general push back by customers when it comes to the use of Chinese materials. This is evidenced by one major customer stating on their purchase orders that Chinese material is not to be supplied unless approved in writing.”

TEI Services

“It is our understanding that Bisalloy Steel are reliant on the Port Kembla facility of Bluescope Steel for their green feed into the Q&T line. It is widely known in the domestic steel industry that the Bluescope facility is struggling to keep up with demand for steel plate material. It is not uncommon for end users like TEi Services to be placed into a que for plate allocations.”

“This leaves industry in a precarious position. On one hand, industry wants to support the use of Australian made materials, but on the other, the market demand for the product is not slowing, but in fact is increasing.”

“Bisalloy Steel targeted steel imports from Sweden, Finland and Japan in their last anti-dumping commission campaign, which saw an absurd tariff placed on imports from these nations.”

“For a current project we have, which has 8mm Bisalloy Wear 500 grate plate specified, with no substitution acceptable, we have seen the buying rate through our distributor rise from $3,080 per tonne in June (when the job was quoted), to a current rate of $3,750 per tonne for materials available in December, and $4,250 per tonne for materials available in January/February. The delivery is out to the end of 2021/start of 2022 as the mill needs to manufacture the plate to order due to insufficient stock availability, but this demonstrates also the incredible level of price increases the Domestic supplier is placing on their product.”

“Bisalloy don’t seem to be competitive against the imported product, but also can’t meet market demand. Applying an anti-dumping tariff on plate importers who’s companies are also leading in R&D towards producing “Green” steel cannot be seen to be in the nations interest.”

“We are firmly of the opinion that SSAB are not dumping quench and tempered plate into the Australian market. And that the complainant is using the anti-dumping commission as a tool to reduce competition, a strategic move.”

Schlam

Goods service/support Bisalloy SSAB Gr500 TUF/PLUS No product available Hardox 500TUF Surface treatment No priming All material primed Technical support No support Major support Marketing and promotion Minor support Major support

“That being said, it is Schlam/s preference to work closely with our vendors, providing them constructive feedback to improve our customer experience with them. Comparing the customer experience between Bisalloy and SSAB, there are certainly differences between the two businesses. (b) On multiple occasions Schlam has met with the senior management team from Bisalloy and Southern Steel. During these meetings we have suggested some improvements to our customer experience which has, as yet, not changed.”

“For other grades of steel, SSAB differentiates its offering from that of Bisalloy on quality and service rather than on price…”

“It is Schlam’s experience with its own purchases of the goods that there is no cost benefit in buying the imported goods versus the Australian goods. The prices are almost the same. The imported material simply offers greater benefits for the same cost.”