Insight

A review and preview of the global fastener industry

A wide cross section of global fastener business leaders have contributed their retrospective of 2015 and thoughts on the prospects and challenges for 2016. We asked them to consider not just economic and financial issues but also technology drivers for the fastener industry and to identify priorities for the upcoming year. Here is Brighton-Best International's article:

Brighton-Best International
Jun Xu, president

Today we are at a crossroad in the economy. To the right is growth. To the left is a recession. There is no stay the course road to prosperity. The cause of this divergence is a fundamental difference in confidence between consumers and businesses.

While consumer spending has held strong with the help of lower gas prices and more disposable income, businesses confidence has been ravaged by a steady decline of commodity prices. Copper, aluminium, nickel, corn, oil, almost all commodities are at or below 2009 levels when we had our global financial crisis. Businesses are holding less inventory today because of the concern that their inventory will devalue tomorrow. In the long-term, consumer and business confidence moves in parallel. Consumers buy more, businesses make more, creating more jobs, thereby enriching consumers. However, the opposite can happen where businesses begin to cut back on spending and investments and reduce costs, ultimately hurting the employees who are the consumers.

And then there is steel, which today is 40% under the 2009 financial crisis levels. I believe there has been a structural shift in the steel industry. Since August 2011, steel prices have been in a general decline, and I believe today we are in a negative feedback loop. Miners and steel mills can’t generate enough from their operations to cover their costs, but unfortunately any cash is better than no cash, so companies continue to mine and continue to produce. It is a classical prisoner’s dilemma, where each individual knows what’s best for the group is to reduce production, however each individual has concerns to service their fixed and operating costs, so each continue to produce to the maximum levels. Is there a way to stop this negative feedback loop – yes, but in a painful and involuntary process. At some point, the cash generated will be insufficient to service their debt, and either governments or banks will need to get involved to shutter capacity to stabilise pricing.

We expect 2016 to be a difficult year for industrial fastener suppliers. To combat this, Brighton Best (BBI) is diversifying into new product categories. While we will continue to deepen and widen our fastener inventory, 2016 will be a year of diversification into new industrial supply products such as hand tools and consumables. We are confident in investing into these new categories because no matter how the economy performs, we are a tiny part of a very large market. Furthermore, such products allow BBI to gain greater efficiencies as any other industrial supply product is selling at a higher price per kilo than fasteners these days.

In 2011, I commented in a similar editorial for the Fastener + Fixing Magazine. Back then, I wrote that: “The companies that will survive this economic crisis will be the ones that know their true value in the market place. If you do not know your value, you will be taken advantage of as companies become more aggressive in pushing their supply chain…when everyone is watching their bottom lines so closely, you don’t want others defining yours.” I believe that knowing your value is more important than ever as a company. At BBI, our value is our ability to develop strong supply relationships and have the capital to purchase inventory to bring in high-quality products at competitive prices. That we sell fasteners does not define who we are. We are defined by the opportunities that we bring to our distributors and our ability to strengthen our distribution channel. Our confidence to invest comes from our confidence in our value, and I truly believe that the most diversified and well capitalised companies will come out of this economy stronger than they went in.