In 2023, market conditions were clearly different from the two prior years, in which the market was characterized by special conditions, such as disruptions in the supply chain, shortages of raw materials, exploding energy prices, geopolitical conditions and sanctions, the corona pandemic and the rising cost of wages. These hectic conditions had largely disappeared by the beginning of 2023. However, other issues began to affect the market, such as the uncertainty of economic conditions, fears of a recession, increasing inflation and rising interest rates. In addition, energy prices continued to be high and there were concerns about geopolitical stability. All of this clearly affected market demand and price trends.
Earlier uncertainties in the supply chain were considerably reduced in 2023. In previous years, many buffer and interim stocks emerged in the market to be able to absorb disruptions in the supply chains. The need for these stocks decreased this year, resulting in decreased demand by our customers since available stocks in the market were used first. The demand patterns in the supply chain, which had shifted during the pandemic, normalized, and the market was increasingly influenced by decreasing investments due to the rising interest rates and uncertain economic developments. Furthermore, in various European countries the increasingly strict regulations pertaining to emissions and the environment had an inhibiting effect, as a result of which large investments were deferred or cancelled altogether.
Industry market
In virtually all European countries, there was a declining demand in Industry markets, particularly in our Mechanical Engineering and Civil Engineering & Construction market segments. A large part of Van Leeuwen’s volume is classified as Distribution business, in other words, primarily based on deliveries from stock. In comparison to previous years, the tonnage delivered in these markets consequently dropped significantly. The drop was gradual in the first half of the year. After the summer holidays, demand decreased considerably, especially in the German and Scandinavian markets, and ultimately in many other European markets as well. As a result of declining prices, particularly for welded pipes, and later in the year for seamless pipes as well, the market adopted a wait-and-see attitude, which in turn had an amplifying effect on the drop in demand.
Decreased market demand virtually always results in increased competition and pressure on prices. A prominent market leader is expected to maintain calm and stability in the market. Price is not the only factor in this respect; service, reliability, product range and the skills and advice provided by our teams are also important for our customers. On this basis and despite declining demand, we were able to maintain our market share, and in a number of markets actually increased it, in 2023. The gross margin on sales was constantly under pressure due to declining prices throughout the year. Compared to last year, virtually everywhere gross margins therefore were significantly lower.
A large part of our volume goes to large end users (OEMs) in the Industry market. For these customers, we often maintain special stocks and perform specific treatments on the basis of long-term contracts and agreements. Similar to the market for daily deliveries from stock, demand in this market also declined. This was especially true for customers supplying consumers, such as the leisure market and the white goods market. For large customers in the Mechanical Engineering segment the market was more stable.
Demand in the agricultural sector, as well as in the hydraulics market, remained well up to par. Demand in the Automotive market also was good. We perform many specific treatments for customers. Van Leeuwen largely performs and manages these treatments in-house in our production centers in Scandinavia, Germany, Switzerland and Central Europe. Our treated materials business volume stayed at a respectable level in 2023.
Energy market
We supply a significant part of our products to customers in the Energy market. Our teams operate in this market from our branches in Europe, North America, Asia, Australia and the Middle East. Because our customers in the Energy market often operate globally, we are able to optimally deploy our global network for them. A few years ago, demand in the global Energy market was moderate. However, market demand already started to improve over the course of 2022, a trend that clearly persisted in 2023. The improvement in demand was the direct result of a sharply increased level of investment by customers in this market. On the one hand, the increase in demand is caused by high energy price increases, as a result of which investments become profitable more quickly. On the other hand, the increase is caused by the need for gas delivery alternatives, now that delivery from Russia is no longer available in many parts of the world due to geopolitical conditions. This, among other things, resulted in enormous investments in LNG terminals in various parts of the world.
From our branch in Houston, Texas, USA, we supplied a large quantity of materials to the Plaquemines project in Louisiana. Aside from an increase in conventional energy investments, alternative or renewable energy investments also increased considerably. Investments in this area are increasing at a rapid pace throughout the world. For example, there are many projects relating to the production and storage of hydrogen and biofuels. In addition, much is being invested in carbon capture facilities and in reducing CO2 emissions. For example, our branch in Beesd, the Netherlands, acquired a key project together with a Dutch customer for the supply of stainless-steel materials for a carbon capture project in the United States. Our branch in Deventer, the Netherlands, supplied materials for the hydraulic stabilizers for a wind farm in Taiwan.
In addition, the level of investment in the chemical sector is increasing in various parts of the world. Our teams are globally well positioned to be able to respond to customer demand, but especially also to changing demand patterns. Our various stock-keeping locations in the world close to petrochemical production sites play a key role in this respect, especially when materials must be available quickly with short delivery lead times. Our special project teams, with extensive knowledge of materials and global sourcing skills, especially make the difference. A good example of this is the order acquired by our Zwijndrecht branch in the Netherlands for supplying the INEOS project, one of the largest CAPEX projects in Europe. This concerns the construction of a very modern cracker plant in the port of Antwerp, Belgium, which has an 80% lower carbon footprint and to which Van Leeuwen will be supplying 17,000 metric tons of materials. In this project we are working together with three different engineering firms and a Dedicated Project Storage Area (DPSA) will be established in Zwijndrecht.
Van Leeuwen Malaysia delivered a project involving more than 100 kilometers of large-diameter line pipe with LPE coating, for gas transport. Pipes were transported from South Korea to a specially created storage site from where the pipes were delivered to two locations. From our office in Essen, Germany, which specializes in Process & Power, we supply much material to renewables markets, including high-quality boiler tubes. Van Leeuwen Singapore entered into a strategic partnership with the South Korean company Samsung Engineering, where Van Leeuwen will assume responsibility for the entire material management process for all Samsung projects in the region. Halmstad, Sweden, acquired a large project for supplying the city of Stockholm with pipes for the city’s drinking water utility.
From the perspective of the year as a whole, total sales from stocks in all markets were lower in comparison to the previous year. However, this was offset by a higher volume of direct deliveries and projects. Combined with an average sales price equal to that of 2022, this produced virtually the same total revenue figure.
Price developments
At year-end 2022, the purchase prices for our pipes were extremely high. This was the result of a number of market developments in the previous period, such as increased energy and raw material prices, disrupted supply chains, geopolitical developments and strong market demand. These unusual conditions somewhat normalized at the beginning of 2023. Combined with weaker demand, especially in the European Industry markets, this resulted in a downward price trend, starting with the welded materials market. Prices there continued to decline up until the summer. As of the summer, the seamless welded pipes market also experienced a downward movement. Prices in the welded materials market stabilized toward the end of 2023, in part due to an increase in coil prices prompted by mills that reduced their capacity. Furthermore, mills also attempted to stabilize prices in the seamless materials markets by reducing their capacity.
On average, prices over all of 2023 were virtually the same as in 2022; with a rising trend in 2022 and a declining trend in 2023, however. At year-end 2023, sales prices were over 15% per metric ton lower than at the beginning of the year. Nevertheless, price levels still are significantly higher than in the years preceding 2021. An underlying factor is that the prices for raw materials, energy and labor have reached considerably higher levels.
Producers are forced to pass on these increases in their final prices. Combined with the enormous investments required to increase the sustainability of the steel production process, this means that a further substantial decrease in price levels is not to be expected.
In 2023, pipe producer Vallourec permanently closed its mills for the production of seamless pipes in Düsseldorf and Mülheim (Germany). The shutdown of these original Mannesmann mills not only marks the end of a 135-year history of producing seamless pipes, but it also means that expertise and knowhow relating to the high-quality production of pipes will be lost to the European manufacturing industry.
The steel industry is increasingly investing in the ability to produce steel with a lower carbon footprint. It is a long-term, complex and capital intensive process that can only succeed if all links in the chain (producer, distributer and buyer) participate and, above all, also invest. In the near future, Van Leeuwen will introduce a separate specification for pipes with a reduced carbon footprint within its product range under its own brand name. In 2023, in close cooperation with suppliers such as ArcelorMittal and Benteler Steel/Tube, the initial dimensions were included in the stocks held by Van Leeuwen. This product range will be quickly expanded to be able to supply the market with pipes with a significantly lower carbon footprint.
The Carbon Border Adjustment Mechanism (CBAM) is currently being implemented in the EU, which will go into effect as of 2026. By creating a level playing field for players within as well as beyond the EU, this measure aims to stimulate the production of cleaner steel in non-EU countries. Through means of this measure the European steel industry will be able to fairly pass on the investments required to produce low-carbon steel to the market. This measure is certain to contribute to making the steel industry more sustainable.
Other developments
In 2023, our commercial teams in many countries and branches again adopted a solution-oriented approach and through their inventiveness managed to find good solutions for our customers under ever-changing market conditions. Solutions covered various areas, such as the daily and timely delivery from stock, jointly with the customer and supplier developing the right solution for the production of a composite pipe and tube product, or the sourcing and possible temporary storage of materials for customer projects. With the collective knowledge and many years of experience of our people, we always manage to find a solution on the basis of our robust network, the product range kept in stock and by using our machines to provide treatments.
Our procurement organization is characterized by a centralized approach with regional hubs, whereby we optimize our procurement strength by using a joint methodology. European procurement managers, other procurement managers and category managers regularly meet to discuss topics, such as the procurement strategy, suppliers and sustainability. Supplier audits are used to select and audit suppliers on an ongoing basis, and we use our Approved Manufacturers List (AML), which only contains suppliers that have been approved by Van Leeuwen following a strict selection process, for all our purchases.
To keep our supply of products and services to various market segments relevant, we constantly work on our level of knowledge and on innovative solutions. For each of the four Industry segments (Mechanical Engineering, Civil Engineering & Construction, Automotive and Hydraulics) we have been working with a Market Acceleration Circle. Each Circle consists of a team of commercial market experts from different European Van Leeuwen branches. Our Global Project Organization team focuses on the two Energy segments Process & Power and Pipelines. The colleagues in each team combine their market knowledge, experience and ideas, and this way develop and implement innovative market initiatives together.
We devote a lot of effort to continuously improving our customer propositions. With special Commercial Excellence teams, we constantly assess how to keep moving forward and to continue innovating to be able to always optimally service our markets. Adding value, or ‘value creation’, is a key concept in this respect. We took further key steps in this area in 2023, for example by making use of artificial intelligence for automated order recognition.
At the beginning of 2023, Van Leeuwen Germany acquired the operations of the firm Allstahl in Bergkirchen in Bavaria. This acquisition significantly broadened the customer base, particularly in the Mechanical Engineering market segment. Allstahl’s activities have since been fully integrated into the Munich branch.
In November, together with our suppliers, customers and personnel, we celebrated the 50th anniversary of our joint venture Polarputki in Helsinki, Finland. During its 50 years of existence, this participating interest developed a leading position in the Finnish market, particularly in the Industry segment.
