Steel stockist: profit that will not refill the yard

“Thirty years in steel, and only now do I see that the profit report answers a question I never asked”

Stepan Haiduk's yard has stood in Kryvyi Rih since ninety-seven. The crane is older than half the staff. The rebar sits in the racking it sat in twenty years ago, and the books still live in the spreadsheet his sister's bookkeeper built.

The spreadsheet works. It shows what was paid, what was taken, and what stayed in between. In thirty years it never lied — it just answered a different question from the one Stepan needed to ask.

Last spring he counted another way for the first time. Not because he wanted to. The bank asked him to explain why the working capital facility had to be extended every quarter while profit grew. It sounded like a formality. The answer took two weeks and changed how he looks at his own yard.

What a steel stockist really sells

It looks as if a steel stockist sells steel. True in the way a bakery sells flour. Flour you can buy yourself, much cheaper.

What it really sells is availability. The customer wants six tonnes of rebar today, not in three weeks from the mill, and he pays because it is already lying there. The gap in price is a fee for somebody else's time and somebody else's risk.

And for it to lie there, somebody had to buy it. In advance, with his own money or borrowed, not knowing the price on the day of sale.

That is where the economics of this business hides.

Stepan had always known it, but sideways — the way you know a winter will be cold. When steel went up, his stock went up with it, and that felt like luck. When it fell, he blamed the market and waited.

Three lines in the yard

Stepan carries about forty lines; three of them make two thirds of turnover. Rebar, sheet steel and hollow section. The other thirty-seven had to wait, and they are waiting still.

The batches were bought in different months. Rebar in January, sheet in March, hollow section in April. All three sold in May, inside one week, because a large contract for warehouse frames came in.

Revenue on the three lines came to 10 785 000 ₴. They had been bought for 9 915 000 ₴. The difference the spreadsheet calls gross profit: 870 000 ₴.

Stepan looked at that table for some fifteen years and saw in it everything he wanted to see.

All three in the black, hollow section best, rebar worst. The conclusion suggested itself: buy more hollow section. He tried it — ordered twice his usual volume, and two thirds sat there until the autumn, because hollow section needs a different customer.

What lying still costs

The first correction he made himself, without the bank. Steel does not just lie there. It takes space, the crane lifts it, guards watch it at night, and the money in it was borrowed at interest. All of that costs every month, whether the steel sells or not.

Stepan rolled the lot into one number: 95 ₴ per tonne per month.

• Yard rent and depreciation of the racking
• Crane, slinger, fuel
• Security and insurance
• Interest on the working capital facility

After that it is simple. Rebar sat four months — 380 ₴ a tonne. Sheet two — 190 ₴. Hollow section one — 95 ₴. The longer a line waits for its buyer, the more it costs before anyone looks at the margin.

Across the three batches: 79 800 ₴. Against 870 000 ₴ of gross that is small change, and that is why nobody counted it for twenty years.

Small change on three batches, though. Forty lines stand in the yard at any moment, and most turn more slowly than hollow section.

“Ninety-five hryvnia a tonne. Small change. Then I multiplied it by everything that sits with us permanently, and I stopped calling it small change”

The margin the report shows

After storage, 790 200 ₴ is left. Minus fixed costs — wages, office, bookkeeping, taxes on them — another 420 000 ₴.

Net profit: 370 200 ₴.

That is 3.4% of revenue. Normal for steel trading, even respectable, and Stepan never had reason to doubt it.

The question Stepan never asked

The bank put it differently from the way a finance man would. The credit officer did not ask about profit. He asked why turnover was slowing if the business was earning. The question came out casually, between two signatures, and Stepan had nothing to say.

He went off to count and caught himself not knowing the answer.

There is profit. It is even growing. And every time the credit line has to be bigger, to buy what he bought last year — the same tonnes, the same range, the same trucks in the yard.

The answer was in the supplier's price list, not in the report.

Stepan opened the mill's May price list and put January next to it. Everything fell into place in ten minutes, and he later called them the most expensive ten minutes of his life — in the good sense.

“I am not a finance man. For thirty years I bought cheaper and sold dearer, and it seemed to me that was a complete model of a business”

Replacement cost

While the rebar sat four months, the mill raised its price twice. In January a tonne cost 29 000 ₴. By May, 31 200 ₴.

Stepan sold his own at 30 500 ₴ and wrote 1 500 ₴ of margin a tonne. All honest: bought at twenty-nine, sold at thirty and a half. No auditor would have found fault.

The question is what comes next. The deal is closed, the money is in the account, the customer is happy — and that is where what the spreadsheet does not show begins.

For the customer to come for rebar tomorrow too, it has to be bought again. At 31 200 ₴. That is 700 ₴ more than Stepan got for it.

A stockholder's profit exists exactly as long as it covers refilling the yard.

What happened to the rebar

Stepan counted it on his fingers, and he did not like the result.

One hundred and fifty tonnes went out for 4 575 000 ₴. At the new price that money buys 146.6 tonnes. The rest is topped up from other lines, or borrowed.

Three and a half tonnes are gone. Not stolen, not written off, not spoiled — the yard simply got smaller, and the report still shows a profit.

Repeat it four times a year and the yard is fourteen tonnes lighter. Repeat it for years, closing the hole with credit, and you get the picture Stepan brought into the bank: profit grows, the line grows faster.

150 tonnes and 146.6 tonnes

The numbers are almost the same. The meaning is opposite: the first is how much there was, the second how much comes back for the money received.

Two tables, the same tonnes

Then Stepan rewrote the same table with one column replaced. Instead of the price he once paid, the price he will have to pay again.

The rebar went into the red. Not slightly, not borderline — an honest minus of seven hundred hryvnia on every tonne just sold at a profit.

Sheet and hollow section survived: they sat less, and their prices barely moved. But the whole picture changed enough that Stepan read the table three times.

The strange part is that no figure in the first table was wrong. The rebar really was bought at 29 000 ₴ and sold at 30 500 ₴. The first table described a deal that had ended; the second, a business that has to keep going.

Why the gap is that size

Gross profit at replacement is 363 000 ₴ instead of 870 000 ₴. Less than half, on the same tonnes and the same invoices.

The difference is 507 000 ₴. Not an accounting error, not a hidden cost: it is what Stepan earned by his own stock going up in price while it sat, not by trading.

The money is real. But it comes once, and it repeats only if steel keeps getting dearer.

Betting a business on raw material getting dearer is not trading. That is a position in a market. Stepan never opened such a position deliberately and learned about it from his own report.

“So half my profit last year was made by the mill when it raised its price list, not by me. I am not thrilled to know it, but better to know”

Both margins are right

The paper one answers “how much did I make on this batch”. The replacement one answers “can I go on working the same way”.

Different questions, and confusing them is expensive.

When profit becomes a loss

Stepan took the calculation to the end, and the end was unpleasant.

From 363 000 ₴ he still had to subtract the same 79 800 ₴ of storage and the same 420 000 ₴ of fixed costs. Neither had gone anywhere.

That gives minus 136 800 ₴. Stepan recounted twice, asked the bookkeeper to recount, then counted once more himself.

The same company, the same quarter, the same entries. The first count shows a profit of 370 200 ₴, the second a loss.

Stepan sat over the two numbers all evening. They do not argue. The first says the quarter closed decently; the second says that on another quarter like it the business starts eating itself. Both have to be known, and at the same time.

“The worst would have been to find out two years later, with the yard half its size and me still reporting a profit”

Speed beats margin

The second discovery was stock turns, and it cheered him more than the first.

Rebar turns three times a year, sheet six, hollow section twelve. Multiply the replacement margin by the turns and you see what a tonne of yard space earns in a year. Not a batch any more. A square metre of yard.

Hollow section gives four times what sheet gives.

Not because the margin is twice as high — because of speed. The same space earns twelve times instead of six, and that weighs more than the price difference.

It turned over how Stepan looks at buying. He used to ask the supplier about margin. Now he asks what he will sell it for and when — a line with half the margin and four times the speed brings in more.

95 hryvnia and 90 tonnes

Side by side in the text stand 95 ₴ of storage per tonne-month and 90 tonnes of sheet. Similar numbers of different nature: one a rate, the other a volume.

First move: a second column

Stepan changed no accounting and hired nobody. He added one column — the current purchase price from the supplier's list. The list came every week anyway; it was only opened before a purchase.

A manager updates it once a week. Five minutes of work and no new software.

Now two margins stand next to every line, and the manager sees both when he quotes.

The first week was odd. The lads were used to one figure on the card, and two side by side confused them. By the second week they were asking whether the list was updated, because otherwise they could not tell how much to give away as discount.

“I was afraid the lads would argue. They were pleased instead — before, they were told „hold the margin“ and nobody explained which one”

Second move: the talk with the bank

Stepan went back to the bank with a different conversation.

He used to bring a profit report and could not explain why the need for working capital grew faster than profit. Now it fits in one sentence: part of the profit is the stock going up in price, and the stock has to be replaced at the new price.

The credit officer nodded for the first time and reached for a different form.

The line was extended, and for the first time in years without extra questions.

Stepan joked afterwards that the cheapest way to agree with a bank is to walk in with the question the bank was about to ask.

“Eight years they asked me the same thing, and eight years I answered something else. It turns out they were asking about the yard and I was talking about revenue”

The bank counts the same way

For a lender, stock turns and the need to refill are ordinary arithmetic. The unusual part is a borrower who brings it himself, without waiting to be asked.

Third move: what to do about rebar

Rebar was the hardest, and Stepan found no easy answer. He looked for a month.

It gives a minus at replacement, and minus 2 100 ₴ per tonne of space a year. By pure arithmetic it should leave the range. Stepan even worked out what space would be freed and what would fill it.

But rebar is what the customer comes for. On the back of it he takes sheet and hollow section, where Stepan actually earns.

Dropping rebar would mean dropping the reason to drive over.

This is the classic trap of pure arithmetic. The figure says a line does not earn, and the temptation to drop it is huge — until you count what leaves with it. Stepan would have lost his two biggest customers, who take rebar by the tonne and sheet and hollow section on the same trips.

• Rebar on its own gives a minus at replacement
• But the customer comes for it, not for hollow section
• On the same trip he takes sheet and hollow section, where the margin is real
• Without rebar the trip may not happen at all

What this figure does not decide

Stepan kept the rebar. What changed is the label: it stopped being profitable and became the cost of winning a customer. Advertising is counted the same way — not by what it earns alone, but by whom it brings through the gate.

He cut purchase volume by a quarter and shortened the holding time, so it would not sit four months. Deliveries got more frequent and smaller, and logistics got dearer. But the steel stopped ageing in the yard, and that proved cheaper.

The decision stayed the same. The ground under it became honest.

The difference looks formal until it comes to negotiating. When a supplier offers a big discounted batch of rebar, Stepan now counts the months it will sit, not the margin, and asks whether the discount pays for the space.

A line that does not earn can still be needed. But knowing what it costs is not optional.

A minus at replacement is not a verdict

It is a signal: the line sits too long, or was bought at the wrong time, or really does work as bait. Three diagnoses out of one number.

What to do on Monday

Stepan boiled it down to three actions, and none needs a new system.

• Add the current purchase price to the stock card, next to the price it was bought at
• Multiply the replacement margin by the turns a year — that shows what the space brings in, not the batch
• Before every extension of the credit line, check whether the revenue covers the refill

The first two are done once and then update themselves. The third is a question you put to yourself, because the bank will put it later and in a worse form.

None of the three changes the range, the yard, or how the managers work. They change what the owner looks at when he decides — and half a year later the credit line stopped growing faster than turnover for the first time.

• The current purchase price — next to the price it was bought at
• The replacement margin, multiplied by stock turns
• A check before credit: does the revenue cover the refill

When steel gets cheaper

The mirror case happens too. Then the replacement margin beats the paper one, and that is no cause for celebration: the stock already lying in the yard is losing value.

The money does not vanish — you simply do not see it

Nothing has changed in Stepan's yard. The same crane, the same racking, the same forty lines, the same spreadsheet his sister's bookkeeper built.

One column appeared in the spreadsheet.

One column, five minutes a week, no new software and no finance man on the payroll.

Through it the working capital facility, the talk with the bank, the decisions about range and the very nature of what used to be called profit all look different. The steel is the same. The question is different.

How to see this at your own yard

Everything above rests on one column: not the margin over what you paid, but the margin over what it will cost to buy again. As long as cost is counted from the past purchase, you see neither that rebar gives minus 700 ₴ a tonne, nor that the revenue from 150 tonnes buys back only 146.6. When the same data is collected automatically, it becomes visible whether the revenue covers the refill — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture rather than reconstruct it from memory.

Read also

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Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It