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Global steel - 2011 trends 2012 outlook - Caution ahead - how can steelmakers compete for growth - EY - Global

Global steel - 2011 trends, 2012 outlook

Caution ahead - how can steelmakers compete for growth?

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Developed markets - growth in steel consumption compared to economic outlook

Developed markets - growth in steel consumption compared to economic outlook

Source: Short-range outlook, World Steel Association; World Economic Outlook, IMF, September 2011



“With an uncertain economic outlook, finding a framework that can aid steelmakers in dealing with volatility, manage risk and increase overall cost competitiveness is increasingly important.” Angie Beifus
Senior Mining & Metals Analyst,
EY

The 2012 outlook for steel demand is cautious due to the markets continued financial uncertainty and volatility. The global steel sector is expected to grow, although at a lower rate.

A cautious outlook in 2012

Growth will be seen in two different speeds, with emerging economies expected to perform much better than developed countries. The sector is only expected to grow by 2.5% in Europe and around 5.0% in the North America Free Trade Agreement region.

Chinese steel production and consumption will continue to outperform the rest of the world. The steel sectors in other emerging countries, such as India, Russia, Brazil and South Korea, will continue to grow, although the uncertain economic outlook may have some effect on these economies. In India, however, demand for steel from the domestic sector is creating a positive outlook as India is expected to perform better than most.

Over-capacity will continue to be an issue with increased capacity in the rapidly developing economies coming online. With government rationalization unlikely to occur in the short term, successful steelmakers will need to become more nimble in their approach to changing market conditions. This will occur with improved technologies, lower cost structures, more vertical integration and greater partnering with key customers.

How can steelmakers compete for growth?

To deal with these challenges and attain success in the new economy, we recommend a focus on the following four areas:

Economic uncertainty combined with poor demand outlook means that steelmakers are looking for new ways to accelerate their earning potential. To maximize potential, some key focus areas include broadening product service offerings, focusing on more profitable segments and prioritizing markets in which to compete. With the rise of the rapid-growth emerging markets, it is still important to focus on existing clients.

Within the past two years, reducing costs has been a constant focus of management around the world. To keep their companies competitive, steelmakers are adopting a number of different strategies such as vertical integration, passing on the cost pressure, use of steel derivatives, optimization of capital and strategic cost reduction.

Operational agility

The potential opportunity of a steelmaker is determined by the market it can reach, while its growth is determined by its ability to produce and deploy products or services into the market more effectively than its competitors. The speed at which a steelmaker can respond to changes in the market is a challenge for the supply chain to attain operational agility. To do so, steelmakers need to focus on improving the flexibility of their supply chains, as well as effectively managing capacity utilization.

Stakeholder confidence

The economic downturn has increased the perception of risk, and trust has become an issue both internally and externally. During the economic crisis, many risk management systems failed, so now it is more important than ever to regain stakeholder confidence and for companies to put in place new processes to better explain the risks they are facing. Risks to be identified and explained to stakeholders in the steel sector could include political risk, market risk (e.g., price volatility and cyclicality of demand), operational risks and financial risks.



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