steel industry overview
DESCRIPTION
Steel industry, ChinaTRANSCRIPT
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World steel industryIndustry and competitive analysis
April 2009
Renaud BruyeronGrigory FedorishinPriyanka NathJulian PetrescuQuirine Van Voorst Tot Voorst
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Agenda• General dynamics of the industry
with focus on a value chain
• Developments in the industry - China
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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...
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...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?
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... 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:
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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
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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
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Q&A
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Steel making process