World steel industry Industry and competitive analysis April 2009 Renaud Bruyeron Grigory Fedorishin Priyanka Nath Julian ...
Agenda <ul><li>General dynamics of the industry with focus on a value chain </li></ul><ul><li>Developments in the industry...
<ul><li>Mining and primary processing </li></ul><ul><li>Iron ore </li></ul><ul><li>Coal </li></ul>Blast furnace steel maki...
...may be improved through vertical integration  Does vertical integration make sense? Upstream Downstream – service cente...
... and consolidation  <ul><li>Greater negotiation power versus suppliers  </li></ul><ul><li>Better service of global cust...
Chinese steel makers: a big threat? <ul><li>Fostering steel giants with annual production >50 Mt </li></ul><ul><ul><li>Alr...
China’s steel industry threatened itself? <ul><li>Highly fragmented market </li></ul><ul><ul><li>Top 15 accounted for only...
Q&A
Steel making process
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Steel industry overview

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Steel industry, China

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Steel industry overview

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

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