Steel Buyers Basics: Conflict Materials Update

This law is affecting everyone who makes something, including everyone in the steel industry. The SEC has given large firms until 2015 to comply and smaller firms until 2017 to comply. The SEC has outlined three steps required to comply with the law. (The exception to these requirements are for firms that reprocess scrap, they are exempt.)

In step 1, the company must find out if any of these conflict minerals are used in the manufacture of their product. If not, no action is required, but if so, step 2 is required.  

In step 2, companies that use any of these four minerals must conduct a “reasonable country of origin inquiry.” If the country of origin is not from the area of the DRC, then a report is filed with the SEC briefly describing the “reasonable inquiry.”  If the minerals do come from the DRC region, then step 3 is required.

In step 3 the firm must undertake a “chain of custody” investigation of the conflict minerals it uses, submit a report to the SEC and have their investigation audited.  

No publicly traded firm wants to have any conflict minerals in their supply chain. However it is not so easy to honestly report that no supplier, sub-supplier or sub-sub-supplier uses conflict minerals. Just because the law only applies to publicly traded companies does not mean private companies are exempt from its affects. Anyone selling to a public firm will be asked to state that their supply chain is conflict free. Once the question is asked of a supplier then each sub-supplier will be asked the same question — even the smallest local supplier can be affected by this law.

For firms buying and selling only steel from domestic sources there should be no issues. All the US mills have issued statements that they do not use conflict minerals and so have most of the foreign mills. However firms that buy and sell steel often sell lots of other things. In my former business we resold motorized doors, how could we know if tantalum in the motor capacitor or gold coating on connectors might have come from Africa?

By now I suspect that everyone affected by this issue has looked at their supply chain and has at least some paperwork from their suppliers to keep them out of trouble on this issue. What’s new to me is that in 2016 companies that are publicly traded will have outside auditors evaluating the results of their supply chain audit.

So given that you have done your audit, I suggest that you revisit it before 2016 and make sure your paperwork is clean. Further, anytime you pick up a new supplier make sure that one of the forms they sign is a statement that their products are conflict mineral free and keep that on record.

As I said in my first article, the bottom line is that no one can ignore this law. If you don’t act you might find that your largest customer suddenly can’t do business with you.

Written by: Mario Briccetti of Briccetti & Associates and an instructor for Steel Market Update (Steel 101 & Sales Training workshops). He can be reached at: Mario@mbriccetti.com.