The development of the steel industry since the end of the Second World War can be seen in three distinct phases.
Lets begin by considering developments over the last 20 years of the last century. This period witnessed a dramatic slowdown in the rate of growth of steel demand following the end of post-war reconstruction in Western Europe and Japan. It was also the period following the second energy price shock of 1979. The beginning of the 90s saw the collapse of the former Soviet Union, a collapse in its economy and a collapse in its internal demand for steel.
This 20-year period was one of rationalisation and reconstruction in the industry. There were closures of many plants in Western Europe and North America. With the introduction of new technology in steelmaking, casting and rolling, there were dramatic increases in labour productivity. Nevertheless, there continued to be excess production and falling prices for steel. Many steel companies suffered considerable losses in this period and unlucky shareholders and owners of steel companies saw destruction in the value of their businesses.
By 2000 the outlook started to change. The increases in efficiency in the industry were passed on to customers and this increased the competitiveness of steel, enabling it to recapture business lost to competing materials. Strong growth in steel demand in China absorbed the excess capacity that had developed in the former Soviet Union.
Governments realised that state aid in propping up inefficient steel companies was counterproductive and there was a move towards privatisation of the industry. This was particularly the case in Latin America, South Africa and Western Europe. In the case of India it took the form of liberalisation of the steel market which enabled a dynamic private sector steel industry to develop alongside the Steel Authority of India.
Lastly and perhaps most important of all, the steel industry realised that its failure to match its production to the real demand for steel and the temptation to chase marginal business at low prices destroyed the business for all.
Today we see a remarkable re-birth of the steel industry. We have seen six years of strong steel growth not just in China but in all parts of the world. The profitability of steel companies is at an acceptable level for the first time in a generation.
The new consensus in the steel industry is recognition that they are now truly a global business. Competition is positive for innovation in the industry and growing the market for steel against competitive materials. In the 21st century, sustainability is the key focus for the industry. Consolidation can help develop a more viable long-term structure for the business.
We believe that steel can and will be profitable over the complete business cycle. We see that demand for steel is growing strongly in both industrialised and developing countries. We know that steel is the most sustainable, recycled and innovative material.
We see steel as providing a safe and highly-skilled workplace for the employees. We see steel striving to minimise its environmental footprint and we believe that state aid is wrong if it distorts fair competition in the markets.
With this vision for industry, what do I believe are the key challenges that all steel companies face around the world today? I have identified six themes. These are: climate change, raw materials, people, capacity investments, growing the market in construction, and the image of steel.
Climate change
Lets start with the issue at the top of political agendas of the G8 countries today and it is climate change. The steel industry accounts for between 5 and 6% of total man-made CO2 emissions. This is less than accounted for by transport or power use by the general public, it does mean that the steel industry is in the frontline in making a contribution to fight global warming. We have seen that policies applied only in the Kyoto countries are not working in terms of making any reduction in total greenhouse gas emissions.
Today we know that China produces over 50% of total CO2 emissions by the steel industry and that this global problem requires a global solution.
How best can the steel industry help reduce CO 2 emissions? First, the industry needs to apply the best available technology everywhere. Whilst many steel plants are close to the limits of what can be achieved with present technology, there are many steel plants where energy efficiency and CO2 emissions fall far below the global best. Therefore the industry needs to either close or replace those plants.
Steel has a major role in the light-weighting of vehicles. With recent developments in ultra-high strength steels, steel provides a much more energy efficient solution than, for instance, aluminium. The sector needs to maximise the recycling of end-of-life steel. Steel is already the most recycled material in the world without government subsidies or intervention. Every ton of steel re-applied makes a big saving in net CO 2 emissions.
Lastly and most importantly, as an industry the sector needs to have the responsibility to undertake longer-term research on new technologies, to radically reduce the CO 2 footprint.
The industry advocates a global approach, but will a global approach work? I think the answer is yes, provided the approach is based on technology and best practice and does not seek to place an absolute cap on emissions for developing countries since the steel industry in these countries wishes to grow to meet the social and economic aspirations of its population.
Do I believe China will participate? Again my answer is yes, since the Chinese authorities know that concentration of steel production in the most efficient steelmaking plants is essential to improve the environment in their country.
Raw materials
The next issue is raw materials. The earth is made of iron. There is no shortage of iron in the longer term. However, today over 70% of the total seaborne trade in iron ore is dominated by just three companies: CVRD, Rio Tinto and BHP Billiton. As a result, the steel industry has seen a dramatic increase in the price of raw materials, including iron ore. It is crucial and important for the sustainable development of the steel industry to break out of the stranglehold that these three companies have on raw material supply. We are confident that this will occur over the next few years and India clearly has an important role to play.
People
The number-one priority for the sector is to create an accident-free workplace. The rate of accidents is falling but the goal is clear and it is zero. The sector should adopt a set of six principles to guide their safety policies.
The six principles are:
- that all injuries and work-related illnesses can and must be prevented
- that management is responsible and accountable for health and safety performance
- that employee engagement and training is essential
- that working safely is a condition of employment for everybody
- that excellence in health and safety supports excellent business results and
- that health and safety must be integrated into all business management processes
The industry ultimately deserves to be judged on how it treats its people. Steel is no longer a dirty and dangerous unskilled work environment. The sector belongs to high-productivity and high-tech industry requiring a highly-skilled workforce. The sector needs to encourage the best young graduates to join the industry.. The legacy of poor financial performance in the last 20 years of the 20th century was that not enough universities around the world were teaching ferrous metallurgy and that needs to change.
Capacity investments
The next issue is capacity. The sector believes that they are all in one business environment. Steel industries that have a comparative advantage and are most efficient in the production of steel should be able to export their products. There is no economic right for a particular country to balance its exports and imports. Having said that, at the present time the sector is concerned that some of the capacity expansions that is happening in China are leading to sharp rises in exports from that country. And all in the industry agrees that there is no fundamental reason why China has a comparative advantage in steelmaking and therefore it is unlikely that a strategy based on investment for net exports of steel is sustainable in the long term.
Growing market in construction
The last two issues are areas where the sector sees great opportunities for the industry, but ones that can only be fully grasped if steel companies work together. The first of these is growing the market for steel in construction. Construction is already the largest single market for steel and the sector have only started to scratch the surface of opportunities available to it.
To penetrate the market for steel in construction, particularly for residential construction the sector needs long-term market development investments by companies working together.
Image of steel
The last and perhaps the most important challenge of all is the image of steel. The industry is proud of the contribution that steel makes to modern society. It is indispensable in the welfare of mankind. However, recent surveys undertaken indicate that most of the population is ignorant of the contribution steel makes and as a result the sector cannot be satisfied with the image of steel in the world today.
A poor image for steel in society ultimately affects the choice of steel in products. A poor image of steel in young people affects their career choice. A poor image of steel in governments affects the choice of policies made on issues which affect the ability to serve society. Lastly, a poor image of steel in the financial community affects the valuation of companies and the availability of investment capital.
For all these reasons we believe a major positive challenge for the industry is to ensure that the image of steel in the general public matches the new vision for steel that the sector hold in the industry.
Lastly the future of the steel industry depends on how successful the industry is in attracting and retaining the highly skilled talent that will be required to keep the industry competitive, productive, and technically competent.
Bibliography:
1. cardiff university : Paper 52 - New Steel Industry Challenges
2. hindu business line: Steel industry facing challenges — `Only fittest will survive'
3. fitch reports: Russian Steel Industry Continues to Face Challenges
4. fitch research: Worldwide Steel Outlook -- Excess Capacity Expected into the Medium Term
5. columbia university: Challenges facing Japanese steel in today's global economy [academic commons]
6. british library direct: Challenges Facing the Steel Industry in Attracting and Retaining Engineers
7. ils steel industry notes: The oulook
8. ils research commons: The sectors we serve
