Highly topical – Evgeniya’s Eye
Steel industry facing the turbulence of the large emerging economies
Evgeniya Weibel-Zimmer is the Consultant in charge of the Industrial Practice at Essential Values Executive Search
Why should we focus on the modern steel market challenges in the first edition of our newsletter industry section?
First, being the 2nd biggest industry after oil and gas, the steel manufacturing remains in the heart of the global economy supplying the downstream activities like transport, energy, construction, electronics... The steel sector is one of the pacemakers of the European, and particularly Luxembourgish real economy, with major companies like ArcelorMittal (the first global steelmaker as well as the largest national employer), Aperam or Paul Wurth.
Second, the slowdown of the large emerging countries represents nowadays one of the major concerns for the global economy. A weaker economic performance of China, dragged primarily by the slowing infrastructure investments and the re-orientation of the government policy from export to domestic market, had a destabilizing effect on the global markets by handicapping the demand on the basic resources and pulling down the raw material prices. Needless to say that it has been a severe blow for Brazil and Russia, essentially focused on raw materials exports and already suffering from other headwinds like low oil prices, sanctions, political inconsistency or national monetary problems.
These recent tendencies hit even sharper in the steel sector where China currently holds a leadership role with almost half of the global production and global demand for steel. The slowing growth of this giant was translated into the declining demand for the steel products and related raw materials and at the same time contributed to the continuing plunge of their prices. The slowdown highlighted another problem: the overcapacity of the Chinese steel industry. Coping with around 40% surplus in the national steel production (which is roughly equivalent to 2 years of the European consumption), China started literally dumping its steel products on export markets in 2015.
The governments of the advanced economies have therefore had to undertake special protective measures to face this disloyal practice. Both the EU Commission and the US Department of Commerce have already introduced anti-dumping procedures against several Chinese steel products.
Most European steel representatives consider the above measures insufficient, as there are still serious doubts on China’s will to adequately align output and capacity with declining demand levels. Thus, ArcelorMittal has been standing for reinforcing the protection of the EU steel production to preserve the investments in the modernisation of the local capacities. Though progressively reducing its debt and continuing the optimisation programs, the group is struggling in the complex economic context: the past year was marked by one of the biggest losses in their history.
As for Aperam, the ex-ArcelorMittal stainless steel division and nowadays an independent international group in this sector, net result increased significantly in 2015. One of the main reasons for this remarkable performance is their traditional strong positioning on such markets as Europe or Brazil known to be highly protective for the domestic stainless steel production. The group’s efficiency improvement, cost reduction and centralization initiatives are also an important factor to compensate the negative affect of the volatile steel and nickel prices.
The related-to-the-steel industry companies are trying to find their own remedies to the crisis. Paul Wurth, one of the world’s leading engineering companies in the steel making sector, has chosen to focus on modernisation and performance improvement services and also tackle India, the only BRIC economy to have a positive short-term forecast. This strategy has already been proven by recently concluded cooperation agreements. One of the future targets might also be Iran, a new emerging country progressively opening to foreign business further to the international sanctions removal.
Even if the Chinese dominance in the steel industry is expected to decline in years to come, China will still play a crucial role in the global supply-demand balance. In order to preserve competitive advantages in this context, it is vital to continue investments in modernization, R&D, innovation and in key highly-skilled human resources – all main factors that has been standing for success and will continue to ensure sustainable growth for the European and respectively Luxembourgish steel industry.