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MCN Profile: Flack Global Metals

Banking on Growth

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MCN Editor Dan Markham Flack Global Metals is expanding in all directions, from creation of a metal bank to its first physical location.

In many ways, Flack Global Metals was just a little ahead of the steel distribution industry. 

Founded more than a decade ago by Jeremy Flack, FGM was a nontraditional service center. It was built to bring greater order to the buying and selling of steel through the use of financial tools. FGM didn’t have a physical space, but owned its material all the same. 

For years, founder Flack extolled the virtues of hedging, the forward curve and other financial risk management tools to an audience that was, at best, indifferent to, and at worst, outright hostile to his message. 
But as service centers and OEMs yet again rode the nausea-inducing thrill ride that was the steel pricing cycle, slowly companies came around to Flack’s way of thinking. 

It wasn’t easy, and some skepticism was warranted, he acknowledges. 
“We were out there saying, ‘you should be hedging,’ and people were saying ‘It’s illiquid and I can’t get my trades off,” he recalls. “And for the first seven years we were promoting this, they were right. We were early to this discussion.”

That’s changed, driven not entirely by the day-to-day buyers and sellers of steel for use in manufacturing, but by the financial sector. 

“What we’ve seen in the last three years is a tremendous amount of interest from the hedge fund space and you start to see steel trading in a macro rotation. It’s a useful product for a hedge fund to have in their portfolio; a useful product for a bank to have in their portfolio.

Now that Flack’s vision of a robust, active financial market for flat-rolled steel has emerged, and some supply chain members have begun to appreciate the stability it can bring to their operations, FGM is again pushing forward in new directions. It’s all part of the company’s attitude about what it brings to the industry.
 
“Our mission as a company is to innovate in the steel industry in the United States. That’s our mission, to change some of the paradigms that exist in the market,” he says. “For us to do that, we have to introduce new products and services, and we have to get the market to adopt those services and products. We have to have uptake.”

Thus, the company has introduced its next product to the space. In 2022, Flack Metal Bank was launched, that next innovation from the Arizona-based company. 

Until creating Flack Metal Bank, buyers had to purchase physical inventory from FGM to utilize the company’s risk management services. By separating into two companies, all metals consumers can take advantage of that knowledge without being direct customers of the service center business. 

Flack Metal Bank provides a variety of services for metals consumers, including structured transactions which de-risk OEMs; direct trading of hot-rolled coil futures and options to qualified trading partners; CME market making of ferrous products and options; risk management of FGM physical business; environmental trading desk handling both voluntary and compliance carbon offset credits; hedged repurchase agreements; commodity price risk advisory for OEMS and proprietary research. 

In its year of operation, Flack Metal Bank has exceeded the founder’s expectations for it. “The bank is doing in many ways more than I thought it would or could. We’ve gone from helping FGM hedge our business and helping customers hedge their business into market making on the CME, direct trading with counterparties, direct trading with hedge funds, banks and, at times, competitors. 

To advance the operation, a talented roster of financial players was brought in. CME veteran Sean Kessler came to FMB from the CME, Steven Potter was a one-time options market maker for oil and John Medich is a computational finance specialist. Bradley Clark, who was with Kataman Metals as a vice president of environmental products trading, has created a carbon desk for trading carbon credits. 

To Jeremy Flack, the bank is merely following the path laid out in other mature markets, such as precious metals and energy, where financial intermediaries are created within the industry to facilitate trading. 

“We’re creating a truly diversified financial intermediary for the steel industry to trade,” he explains. “If you buy flat-rolled, there’s a reason to be involved with Metal Bank no matter who you are. If you’re an OEM, a hedge fund, if you’re buying the paper, if you’re buying the physical, whatever it is we have a metal bank product or service built out.

“It’s a merchant bank model; that’s what it is for flat-rolled in the United States,” he says. 

Right now, FGM and FMB handle about 10 percent of the total carbon flat-rolled market, estimated at approximately 10 million tons. He predicts that figure will grow to about 60 million tons over the next nine years, with the hope the company can simply maintain its share of that business. 

Even at 60 million tons, the flat-rolled financial markets would still be smaller than the physical market, which is not the case with some other commodities, such as oil. “It’s got a way to go before it even gets to the equivalent of the flat-rolled market.”

Flack’s expansion into the merchant bank business isn’t the only new direction being undertaken with the company. For the first time in its history, FGM is also moving into the physical space with the launch of its first warehouse facility. 

Sometime this year, FGM will formally open a physical service center location in the Houston market. The 60,000-square-foot facility will be located on the campus of North Shore Steel. 

FGM Houston is installing a Pro Eco slitting line that will handle master coils up to 66 inches wide, 0.012 inches minimum up to 0.135 inches maximum thickness, 60,000- pounds maximum entry and exit coil weight. The operation will stock painted hot-rolled, cold-rolled, galvanized, Galvalume and aluminum, as well as bare and acrylic coated galvanized and Galvalume, bare aluminum and stainless. The site offers indoor and outdoor storage.

The company is currently running testing on coils, with plans for a slow ramp-up over the next six months. 

The launch of a physical location is a departure from the company’s previous “geography agnostic” approach to inventory, but one driven by simple need. 

“What Houston does for us, it allows us to better serve certain customers and bring them a higher service level, especially on the logistics side of things,” Flack explains. “Logistics have been more difficult the last few years than steel processing.”

Without a physical location, FGM had already grown to $520 million revenue in 2021, good for 32nd in Metal Center News’ most recent Top 50 listing. Thus, it certainly wasn’t a necessity to prove the strength of its business model. 

“We’ve built a business without it. We found ourselves over the last several years needing it. Why do it unless you need it?” he asks. 
Still, he recognizes the physical provides value to the organization, in and above the simple ability to serve its customers in the region. For one, it keeps FGM from getting locked out of certain OEM businesses, an issue before Houston. 

Additionally, it puts the still-upstart company on equal footing with its peers in the service center space. 

“Having a physical location brings us closer, makes us more establishment looking. You can buck the establishment. That’s a thing, and we’ve done that,” he says. “But joining the establishment isn’t necessarily a bad thing. Having something people can readily identify with on the OEM side is a good thing.”

But even with the upcoming launch of the physical space, FGM is hardly getting ready to relax. The next step in its unconventional journey through the metals supply chain is to invest downstream, either through the outright purchase of an OEM or some equity partnership. 

The idea behind the move is to apply the financial tools and values it has been extolling to its customers for that same type of operation. 
“We feel strongly about our platforms and now we’re going to put out money where our mouth is in the marketplace by buying an OEM and applying those principles to an OEM,” he says. 

Flack says when he looks at OEMs, he routinely sees companies that are not properly assessing downside risk, looking to gain the extra $20 by trying to beat the market at the expense of a $400-per-ton loss. And he thinks that diving into this side of the business will prove its business model, not just to himself but to the competitors in the space. 

Ultimately, the move downstream should be good for the entire organization, he says. “It’s more volume for the distribution business. It’s more for the Metal Bank. All three legs of the stool work together.”

But the bank is the linchpin making it possible. “But for the Metal Bank we would never do it. With the Metal Bank, we can control the risk, we can smooth out the earnings streams, we can provide the customers with better services and pricing. We can do so much more for that business having control of the input costs, while their competitors in the space will still be on the wild ride of the spot market and CRU indexing,” he says.