As a young man growing up in a very small town in the United
States in the 1970s, Jeremy Flack developed his first interest
in business despite there being few local role-models to draw
on. "There were few businesspeople around me. I was fascinated
by it, but I didn’t know what it was," he
said.
That early fascination led to him study finance in
college – he is a cum laude graduate of Miami
University with a bachelor’s degree in finance,
and he holds an MBA from Cleveland State University, awarded in
1998.
Some early turns in his career saw it become
interwoven with the steel industry. "When I started working at
PNC Bank [in 1992] after college, I was an analyst," he said.
"They gave us a project, which was to study this thing called a
mini-mill: What is it? What is the effect going to be on the
integrated steel manufacturers in the US?"
The long-established Pittsburgh bank lent money to
traditional steel manufacturers. Flack recalls that, back then,
they really were not sure what mini-mills, championed by steel
producers such as Nucor, were about.
"We did the study and report, and gave that to the
credit committee at the bank. So, I learnt a little about the
landscape and history of the steel industry in the US," Flack
recalled. Living in the famous US steelmaking city of
Pittsburgh gave him a further framework for his growing early
interest in the industry.
"We are all products of our environments, to some
degree," he said. "My environment early on exposed me to the
steel industry. Otherwise, I didn’t even know that
it existed. How would I have ever known?"
The next project saw him assigned to the real estate
division of the bank, where he was a young commercial lender
from 1992 to 1995.
"The Chicago Board of Trade wanted to build a new
trading floor in Chicago. It was going to be a very expensive
project with a suspended floor between two buildings, over a
city street, and they wanted to borrow the money to do it,"
Flack said.
To make the loan, the bank had to understand the
credit profile of the Board of Trade, and how it made money,
including earnings and cash flows.
"I veered off in wanting to understand the history of
the Board of Trade, and then I wanted to understand what
futures and options are. So I took a detour on my own and
started learning about what they are, just out of curiosity,"
Flack recalled. That knowledge was to take center stage
later in his career.
He left the bank and became chief financial officer
and treasurer of Encore Manufacturing in Cleveland for a couple
of years, before he entered the steel industry in 1998 by
joining Lawson Steel, a small distributor.
"I was looking around, and there was no hedging, and
the mini-mills had pretty well taken over the industry at that
point, and had made a big dent in integrated steel production.
They had really catalysed change," he recalled.
"I got into the steel industry, and I thought, 'Oh my
gosh, here is this massive commodity business, that has seen
enormous change and there is no hedging’." That
was a realization Flack sees as a key part of the later
founding of FGM.
"I walked into this industry and thought it was so
wasteful – there was no business certainty here, there
was no predictability. And there also wasn’t
nearly as much volatility then."
Looking back, he questions whether the steel industry
actually needed to hedge in the late 1990s. "Things moved
around so slowly. It probably wasn’t a primary
necessity back then. But that is where the beginnings of the
FGM business model started."
He said the realization that the steel industry did
not hedge "was a huge lightbulb moment for me," adding that:
"It is not really a commodity, but it prices itself like a
commodity."
China changed everything
The next big revelation was China. "When the Chinese
market got big enough and influential enough in the steel
industry to really start driving the global discussion, that
was an incredible lightbulb moment," Flack said.
China’s growing involvement in
international steel markets would fuel the biggest volatility
that had been seen in steel since the 1970s, he recalled, and
it would be a point at which all the rules were going to
change.
"The market wasn’t going to revolve
around the US any more. The market was going to revolve around
Asia, and this was going to drive volatility because the US was
steel-short," he said.
He remembered thinking: "I have been working for a
distributor in an industry that is dependent on foreign steel
because there is not enough domestic production to make enough
for all our flat-rolled consumption here in the US.
"Now I’m five or six years into my
career, when all this massive volatility comes from China, and
it just doesn’t end. It continues forward through
the early 2000s. Of course, we ride the financial crisis, there
is enormous volatility in commodities business, no hedge exists
yet, and there is lots of pain and destruction in that
period."
The idea thus grew for Flack of creating a steel
distribution company that would be out-front on the risk
management side of the business and combine the physical with
the financial.
Not everyone agreed with the merits of the idea at the
time. Naysayers posed difficult questions: "Who in their right
minds would start another service center in 2010? Why do
that?"
Flack recalled that at the time there were plenty of
conventional distributors. "More distributors than anybody
needed," he added. "Fighting tooth and nail is a cliché,
but [they were] chewing each other to pieces in trying to get
business because there was too much supply and not enough
demand."
Further headwinds were pointed out to him: "'You are
starting a business in a recession. You are starting a business
in an oversupplied industry. You’ll never make
money, and you’ll never succeed. This will never
work.’ That was the feedback I got from banks and
counterparties in the industry. Just about everyone gave me
feedback that this was a bad idea," he said.
"But we tried it anyway. Because fundamentally it made
sense that hedging and steel should be linked, and that that
linkage would occur, and I had discussions with the [London
Metal Exchange] and Nymex in the early 2000s. I knew that hedge
development was being rolled out in late 2008-09 during the
recession."
By the time Flack decided to launch FGM in 2010, he
had become co-owner, president and treasurer of Lawson Steel,
but he divested his interests in Lawson to establish Flack
Steel. "I became an accidental, reluctant entrepreneur," he
recalled.
He pointed out that the big personal decision to back
his own instinct is an illustration of his own character, but
one that he doesn’t see as unique.
"I think that is a familiar story in the US. I
don’t think it’s an unfamiliar one.
You have an idea. You think it can work. I am a natural
risk-taker. I have a very high tolerance to risk and pain. I
can handle it and I thought that if I didn’t try
it – I was 39 years old – I’d
have been okay to have made a little bit of money.
"But for me to bob along wasn’t an
acceptable outcome for me, personally. I needed to make a mark.
I wanted to be respected in the industry someday. I wanted to
be someone who contributes to the industry, not just someone
bobbing along in it."
Structure and strategy
"Our business case is about protecting capital. About
risk management – commodity price risk management.
Look at the FGM business model, and the guts underneath it, not
necessarily on the exterior but on the interior, it is about
protecting capital."
That comes against a backdrop of a steel industry
where there has been a lot of waste, he added.
"It lends itself to consolidation. I
don’t know if that has contributed to the
volatility, but I think, structurally, if you look at the
business in the US, the industry is the most volatile steel
market in the world statistically. And it is also the only
first-world, or G7, economy to be 70% [electric-arc furnace]
production of flat-rolled [steel], heading toward 80% of
production of flat-rolled."
He added that while Europe and China also have
mini-mills, integrated steelmaking is still dominant in both
locations.
"There will be more mini-mills, but the US is way out
in front of other developed economies with EAF-based steel
manufacture," he said.
Flack said that steel price volatility in the US makes
the case for FGM’s business model.
"We are all about hedging out that volatility and
creating durable earnings predictability," he said. "These
structural changes point to greater volatility, not less. Some
might say, 'Well there is consolidation so there should be less
volatility,’ but I don’t know that
the two meet each other. I think consolidation is a result of
mismanaged businesses; why combine if you’re doing
great?"
Flack noted that there were about 25 steel-production
companies in the US when he started more than 20 years ago, and
now there are six.
"A lot of that consolidation came from companies that
were not doing well. They were not financially [healthy]," he
recalled. "And now you have a financially sound mill business
in the US, which you didn’t have 25 years ago. So,
the steel mills have managed to create a structure in a market
where they are financially sound."
He said that a variable overhead manufacturing
structure within the mini-mill business contributes to that
structure.
"If [the price of] scrap goes to $200 dollars [per
ton], you can sell [steel coil products] for $500. If scrap
goes to $1,000, you’re selling coils for $1,600
[per ton]. So they can move with the input and protect their
business," he said.
While, 30 years ago, the US steel sector had a
fixed-cost business, now it is a variable-cost business, Flack
added.
"You can make steel in the US as efficiently as
anywhere in the world and, because we are surrounded by water
and we have great waterways internally, logistics are very
good. So it is a great place to make steel."
He said the natural hedgers are the steel mills, the
distributors and the OEMs.
"The steel mills have said they are not that
interested in it, so that leaves the OEMs and the service
centers, for which we are in front of that discussion. We
have the most sophisticated capital markets desk in ferrous in
the US," he said. "It is all designed to deal with this
volatility that we believe is embedded now in this
market.
"Look at the trends, look at the demographics, look at
the industry and how it is setting itself up and we have lined
ourselves up with," he added. "At this point, our strategy is
to follow along because this market is going to go on some wild
rides, and it is going to change minds."
He said that global events over the past two years,
including the Covid-19 pandemic and the war in Ukraine, recent
thoughts that raw material supply chains around the world will
be forever altered, and the idea of the nationalization of
commodities, all change the game: "It creates more volatility,
not less."
He added that FGM’s strategy is to look
around and support the market.
"We want to support our customers. We want to support
the growth of the futures and options markets in steel and the
ferrous complex… What we’re really trying
to do is change buyer behaviour, and have an option for them to
express risk management ideas and easy access and conduit to
the marketplace."
He said FGM believes that global macro trends will
"[bring] the community down to a belief that everyone should be
engaging in price risk management in their supply chain.
Everyone should be taking that price risk and minimizing it. We
build a supply chain and we do price risk management, so for us
it’s, 'Let’s just follow along,
let’s incrementally create products and services
that will support the community as it gravitates towards this
inevitability,’ which is that CEOs and CFOs of
companies don’t like it when their raw material
price whips all over the place and they cannot plan their
business.
"This is going to create a positive environment for
change, and we want to be part of that," he said.
New products and services
When Flack spoke with Metal Market Magazine in
November last year about FGM winning the award for Ferrous
Futures Trading Company of the Year in the Fastmarkets Global
Awards for Steel Excellence, he mentioned that two of the
company’s priorities for 2022 are to launch Metal
Bank Structured Transactions and to build its hot-rolled coil
market-making desk, and market-making book. A carbon trading
desk is a third priority.
"When we introduced the concept [of the Metal Bank
Structured Transactions], we weren’t ready to hit
the market yet. We hadn’t finished the term sheets
and all the legal [aspects] behind everything. That has now
been completed. So we are in a good solid position to go
forward," Flack said.
FGM has hired Keith Shuttlesworth, who was formerly
the chief commercial officer for Big River Steel, as executive
vice president of FGM’s Metal Bank.
"We’ve now brought Keith in to run the
Metal Bank Structured Transactions products," Flack said,
noting that FGM is in discussion with several potential
customers for the product.
Flack said that it is a challenge to roll a new
product into the market and that a particular challenge for FGM
is that some OEMs see FGM as a steel distributor, and not a
financial services company.
"So the tendency is for us to get into the supply
chain people and not into the C-suites. Really this Metal Bank
product is a C-suite product to be consumed by the C-suite.
Certainly, the supply chain people need to be involved, but you
need to have both there," he said – interlocking his
fingers to stress the importance of their combined input
– "One cannot do without the other."
He said that FGM is getting a quick education in
rolling out a financial services product as a physical
player.
"That is why we created the Metal Bank moniker, so
that we can try to connect with the financial people inside
OEMs and have them see us for a financial services company.
Yes, we have a distributor arm and we do supply physical
– but we want to put forward this idea that as much as
we are a physical distributor, we are a financial services
provider as well."
FGM is hiring another expert for the market-making
desk and is bringing additional talent onboard to launch its
environmental desk starting in April, trading both the
voluntary and compliance carbon markets.
"We are also going to wrap carbon offsets into our
steel and aluminium products in order to help our customers
offset the carbon footprint, et.," Flack added.
He said that FGM continues to work on the physical
side of the business, because the company is still a physical
distributor.
"We are working on developing a service center in
Houston [in the US state of Texas]. So I would say that we are
80% along the way with having a physical presence in Houston,
which we hope to announce officially later on into April,"
Flack said.
FGM announced last November that it had become a
member firm of the CME Group. Flack said the benefits of
membership are working very well for the business.
"We have been a vocal proponent of the CME and of HRC
futures for 12 years, so to be a part of the CME Group, a
participant member, it drives collegial [support] and bonding
to the market and gets us closer to the market than our
competitors," he said.
Entrepreneurial spirit
Asked what advice he would give a young recruit about
how to succeed as an entrepreneur, Flack initially said,
smiling: "I think we all sometimes wonder how did I get here or
what am I doing!" But he followed up with clear views on the
ambition, drive, determination, persistence, resilience, and
willingness to take risks and work long hours, that are needed
to achieve success.
"I’ve been willing to do things that
others aren’t. I’ve been willing to
get to the office as a young person in the business two hours
before everyone was there, and two hours after everyone left
– week in, week out; month-in, month-out; year-in,
year-out," he said. "I have also aligned myself with
like-minded entrepreneurs, like Ben Bucci, FGM’s
president, who joined FGM when Flack Steel and GlobeNet Metals
merged in 2013. Since then, Ben and I have made all our
decisions for this business together.
"I think that if you really want success beyond
general career growth, and something big, it takes way more
than eight hours a day, five days a week. It takes dogged
determination, and I think you do have to have an appetite for
risk. You have to have an appetite to take a chance to fail,
and to learn from your failure, and you need people around you
who share this affinity for risk. You’ve got to
have an outlook on failure that says, 'I’m
learning from this. Yes, it’s horrible, but
I’m going to learn from this and work my way out
of it’."
Like many businesses, he said that FGM has faced
challenges over the past 12 years that he and his team have had
to work through.
"So, learning from those experiences and realizing
that it is okay and that there is usually a way forward, and
being willing to put in whatever time it takes to be good at
something," he added.
He said the Japanese say that it takes 30 years to
become a master, going through various levels of
mastery.
"If you are going to commit to an industry or to a
business and you really want to make an impact, you need to be
willing to do more than everyone else around you," he
said.
"I see a lot of hard-working people in the world. But
you have to be a bit obsessed – and I
don’t know if that’s healthy," he
smiled. "But if you’re asking me what it
takes… I have been dedicated to my work and it has been
the most important thing to me – sometimes more
important than my family."
He realizes the gravity of such dedication to work and
added: "I’d say you look around you, make sure you
have support around you and that you have family support. Make
sure that if you want to be an entrepreneur, you have a partner
or a spouse, or mother or father, or children who understand
that is how it is going to be."
He also said that if it were not for the unwavering
support he has had from Bucci and others at FGM (many of whom
have been with the company for 10 of the company’s
12 years in operation), he probably would not have made some of
the bolder moves he has made over the years. "I do nothing and
have done nothing alone," Flack said.
He recognized that not being home from work at the
same time every night, or not always being available to play
with your children, is not acceptable to many people, "but you
have got to ask those questions if you get into
entrepreneurship, because entrepreneurship is all-consuming if
you’re going to be successful," he
repeated.
Flack pointed to the unwavering support of his second
wife. "I would not be on this conversation with you if it were
not for the support of my wife – there’s
no way. There’s no way I do what I do without her
– absolutely no way. She is not making any decisions
about the business. She’s not helping me plan the
business. She is not involved in the company. What I mean is
the support I get at home is unwavering, it is complete, and
she is willing to sacrifice for this to work. And she knows
that her support ends up helping everyone here as
well."
Flack added that he thinks a lot of people dip in to
trying to be an entrepreneur and then think: "'Oh my god, I
never thought it would be this hard,’ and then
it’s a problem, because when it gets hard, you
have to work harder and when it gets even tougher, you have to
dig even deeper."
In his view, successful entrepreneurs often do not get
the credit they deserve because people look at some of the
wealthiest and think they now have it easy, while forgetting or
being unaware of the time, effort and determination they put
into achieving success.
"Look at the result and we either revere it or we hate
it… But what these people had to do to get where they
got to, those are the forgotten stories that are not really
told, and I think that there are a lot of heroes in this
country who are entrepreneurs. They are heroes because they
create places where people can come… Things are
changing. People look at their job and their workplace and this
is really where they find community and find one another
– I know we have this at FGM.
"Entrepreneurs – not all of them are good and
not all of them are bad – do in this country create a
place and create a positive movement, for careers, for growth,
for personal growth, for values. I think the entrepreneurs in
this country are great unsung heroes," he added.
Flack also said that the opportunities he has had to
progress have been nurtured by the US democratic system, spirit
and way. "The more that I think about the world that we live in
globally, the more respect and admiration I have for the system
we have in the United States. The American Dream is not dead,"
he said.
He noted that some people in America talk the country
down and say that the opportunities are no longer there, or
that capitalism is bad, "but I think one of the principal
reasons that I’m here is that, as a child, I heard
about this thing called the American Dream."
If you are willing to take the risk, the system works,
he said. "If you are a little lucky and are very good and very
dedicated and have the right mixture of things, you can get it
done in the United States. The path has been available to me
because of the country I live in.
"So we’re here and we are successful. We
have 60 professionals that make a nice living, support their
families and grow their lives and do their thing in the United
States. I think that the biggest reason that we are here is
that it allows for us to be here."
FGM’s mission
Flack is aware that some steel industry participants
have a residual fear of, or dislike, the influence that trading
steel on futures and options markets may have on the physical
supply of steel. He is also aware of the broader general
concerns that some have about innovative
'disruptive’ enterprises squeezing out smaller
players in other business sectors.
FGM has its roots in both the physical and financial
worlds and Flack is keen to reassure them about his
firm’s mission.
"We’re trying with this company to
support the industry. The industry has been treating itself as
a zero-sum game, but it’s not. With our
leadership, help or involvement – whatever it is
– we’re searching for all ships to rise
on the tide. 'Everybody wins’ outcome," he said.
"And we want to be part of the solution. We are not disrupting
the market. We are not a disruptor. We’re not
looking to change it in a way where we are looking to vanquish
all competitors. We are really trying to be the next
evolutionary step in the way that the industry deals with risk
and with the supply chain."
He said that he stresses those points because he
thinks that Flack Global Metals’ mission has been
misperceived by some in the steel trade and industry, when in
fact he says that: "It is to provide certainty –
that’s what the business is here for. That is the
model. That is everything we do, whether we’re
supplying the physical steel or simply helping you hedge your
risks out. Whatever entry point we have with a vendor or a
customer, it’s all positive."
He thinks there are still some people in the industry
who are sceptical and scared. "I get that, but really
it’s a movement for good, a force for good and a
force for stability. And when you talk about business and
business valuation, it sustains a business’s
life.
"Many are searching for stability and certainty and
that is what this business is designed to do," he stressed. "We
just have that as a primary activity. I’m really
becoming sensitive to this fear that is out there.
"It is not really founded in anything.
It’s really, 'If I don’t understand
something then I am going to fear it.’ And we have
a lot of happy customers who come back again and again, because
we are seeing good results."