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Argentina's high freight costs impacting distributors' mill purchases: sources

Time:2017-06-14
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Argentina's high freight costs are impacting domestic distributors' purchases from mills, market sources said Tuesday.

"Lots of distributors are waiting to buy a specific quantity of the material to avoid paying freight costs twice, and that is making inventory levels low depending on the product," a local distributor said.

Logistics costs are turning into a very important issue depending a distributor's location. Most distributors are where the mills are located -- Buenos Aires region and Santa Fe state. In that case, most of the orders are negotiated delivered, when the mill deals with freight costs.

However, if distributors or industry players are located outside that central area, costs can be very expensive.

"From Cordoba -- in the center of the country -- to the capital Buenos Aires -- around 700 km -- it could cost up to $1,200 for a truck," the distributor said.

One logistics source said a huge problem is the "Argentine Cost," in which domestic freight can be very expensive.

Mendoza, located in the west of the country, is about 1,100 km from the Buenos Aires region and costs can be extremely high.

"Due to the proximity with Chile, around 350 km, it is easier and cheaper to import than to buy domestically," one source said.

"Freight costs compromise the purchase depending on the basis of the deal. If it is delivered, OK, because the mill is payment for the costs, and it also has to put it in the final steel price, but if it is buyer's payment, then it could go very high for the deal," one market player said.

Sources said domestic freight, depending on the distance, can be more expensive than importing from China.

"Costs have increased significantly in years due to the inflation," a source said.

According to one freight player, logistics wasn't a problem a couple of years ago, but it has become very important for all sectors, especially for steel products.

"Distributors are dealing with very low margins for steel products, and the higher freight costs [are] ... mills will pass [on] the price for us, or distributors to the end user," he said.


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