World steel industry Industry and competitive analysis April 2009 Renaud Bruyeron Grigory Fedorishin Priyanka Nath Julian Petrescu Quirine Van Voorst Tot Voorst
May 10, 2015
World steel industryIndustry and competitive analysis
April 2009
Renaud BruyeronGrigory FedorishinPriyanka NathJulian PetrescuQuirine Van Voorst Tot Voorst
Agenda• General dynamics of the industry
with focus on a value chain
• Developments in the industry - China
Mining and primary processing
• Iron ore• Coal
Blast furnace steel making Automotives
Construction
Service centres
Electrical Arc Furnace steel making (mini
mills)Scrap production
Threat of new entrants: HIGH
• Fragmented• No significant capital
required
Threats of substitutes: LOW
• Lack of substitutes
Threat of new entrants: MEDIUM
• Moderate capex
Power of suppliers: HIGH
• Consolidation (oligopoly) versus fragmentation of steel
• Threat of downstream integration
• Lack of substitutes
Threats of substitutes: LOW
• Lack of substitutes
Threat of new entrants: LOW
• High fixed investments• Regulation / licensing• Large scale
Power of suppliers: MEDIUM
• Fragmented (-)• Shortage of supply (+)
Threats of substitutes: LOW
• Lack of substitutes
Threats of substitutes: LOW
• Lack of substitutes
Power of buyers: HIGH
• Consolidation vs fragmentation of steel
• Cyclical industries• Undifferentiated
product• Low switching
costs
Threats of substitutes: LOW / MEDIUM
• Lack of substitutes for construction
• Substitutes available for automotives
Threat of new entrants: LOW • High fixed investments• Large scale
HIGH POWER LOW POWER HIGH POWER
Threat of new entrants: LOW• High fixed investments• Large scale
Steelmakers’s low power in the value chain...
...may be improved through vertical integration
UpstreamDownstream – service centers
Downstream – alliances and JVs
Efficiency No NoYes
• Scope economies
Transaction Cost
No No
Yes• Asset specificity• Frequency of
transaction• Knowledge transfer
problem
Market Power (ST vs LT?)
Yes• Power versus
consolidated suppliers
• Entry deterrence
No (steel derivatives?)
Yes• Differentiation
Does vertical integration make sense?
... and consolidation
• Greater negotiation power versus suppliers
• Better service of global customers with more consistent offerings and greater supply chain efficiencies
• Reduction in overcapacity – better discipline and response to demand fluctuations
• Reduction of cyclicality – capacity control and price management
• Exchange of operational knowledge and best practices (learning economies)
• Ability to actively invest in R&D and quality updates
• Better position to attract efficient capital
Most of the scale economies are realised on the level of stand-alone plant, but consolidation brings:
Chinese steel makers: a big threat?
• Fostering steel giants with annual production >50 Mt
• Already 4 players in global top 10
• Encouraging consolidation
• Combine 800 players into 10 global top 25 players
• Imposing import tariffs and export rebates
China is building national winners in steel
While posing restrictions on foreign players
• Requirements for foreign players on minimum production level of specific types of steel
• Types for which China is still a net importer
• Restrictions on foreign majority ownership stakes in Chinese companies
China is the world’s largest consumer and producer of steel
China’s steel industry threatened itself?
• Highly fragmented market
• Top 15 accounted for only 45%
• Advanced productivity next to undeveloped productivity
• Complicates consolidation
• High energy consumption, heavy polluters
Structural challenges Resource restrictions
• High dependence on mineral import
• Shortage of coal, electricity and water resources
• Low railroad conveyance and port load and unload ability
China won’t be the lowest cost nor the highest quality producer Low cost: South America, CIS - High quality: EU & US
Q&A
Steel making process