The better the question. The better the answer. The better the world works. У вас есть вопрос? У нас есть ответ. Решая сложные задачи бизнеса, мы улучшаем мир. У вас є запитання? У нас є відповідь. Вирішуючи складні завдання бізнесу, ми змінюємо світ на краще. Meilleure la question, meilleure la réponse. Pour un monde meilleur. 問題越好。答案越好。商業世界越美好。 问题越好。答案越好。商业世界越美好。


Volatile times call for bold decisions by steelmakers.

The steel industry must embrace the challenge and transform itself for success.”– Anjani Agrawal, EY Global Steel Leader

The steel sector is undergoing a transformation as globalization defines the business landscape. Companies need to understand the trends and refine their strategies, business models and portfolios according to a truly global mindset. Their long-term success depends on it.

Steel deals 2008-1H 2017


activity is up substantially in the first half of 2017 on the completion of two major deals in China. These were domestic deals aimed at reducing domestic competition, improving profitability and optimizing asset portfolios. Total deal value was up from US$3b in 1H 2016 to US$10.6b in 1H 2017.

EY - Steel deals 2008-1H 2017

Working capital – a billion dollar opportunity for global steel companies

Steelmakers face intense global and regional competition in the face of large amounts of excess capacity, in an environment of increased trade and protectionism measures. In these challenging market conditions, steelmakers have been focusing on cash, cost and capital discipline.

EY - Working capital

To release additional cash flow, companies are looking at working capital (WC) performance management. WC performance has fluctuated over the last five years due to market volatility, ongoing transformation and the relative success and failure of companies to deliver efficiencies.

Our analysis of 50 of the largest global steel companies reveals aggregate levels of gross working capital (defined as sum of trade receivables, inventory and accounts payable) amounts at around US$245b. In addition, we found that there is a US$35.7b WC improvement opportunity between current (2016/7) WC performance of the top 50 steelmakers versus their historical best performance.

Despite recent initiatives to improve WC performance, we believe there remains significant opportunities for further improvement. Potentially - steelmakers could release additional cash flows of billions of dollars.

Major factors influencing changes in WC for steelmakers:

  • Pricing practices for supply contracts have changed and a larger proportion of steel is negotiated on the spot market
  • Raw material prices have been particularly volatile in the last year
  • Declining capital expenditure

Overall steel companies need to drive continuous operational and structural improvements to manage WC more effectively. WC needs to be viewed as a strategic initiative, with the whole business engaged and incentivized to drive improvement. It could be achieved by:

  • Building increased responsiveness to change
  • Deploying lean and agile manufacturing and supply solutions for different products
  • Making greater use of cross-functional cooperation and effective collaboration between participants in the value chain

Steel prices

EY - Steel deals

Steel mid-year update

  • Despite significant reduction of capacity in China, domestic steel production is trending higher in the first half: China has removed an additional 42.4 million tonnes (mt) of steel production capacity by the end of May. This is in addition to 65mt eliminated in 2016. China has achieved almost all of its five-year capacity reduction target in the first two years. In the first half, steel production in China rose 4.6% y-o-y to 420mt, pushing global steel production up by 4.4% y-o-y. Infrastructure spending, improving macroeconomic conditions and rising steel demand is pushing steel prices up and therefore it’s likely that steel production will continue to increase in the second half of 2017.1
  • Consolidation anticipated as China pushes through policy changes and elsewhere distressed assets go up for sale: The Chinese Government is encouraging both domestic and cross-border mergers to accelerate consolidation and eliminate loss-making capacity. The sale of distressed steel assets in other regions could result in consolidation but may also fragment the industry further if acquired by financial investors.
  • Chinese steel exports have declined more than expected: Increased Chinese steel demand and restrictive import duties across various regions led to a sharp decline in Chinese exports, down 28% y-o-y to 41mt in the first half. Stronger steel demand from real estate and machinery has underpinned better supply and demand fundamentals in China. There are, however, some indications that this higher domestic demand will not be sustainable in the second half. Unless China adjusts production to match domestic demand, there will be an uptick in Chinese steel exports.
  • Moderate demand growth on the back of steady economic recovery in several markets. The World Steel Association forecast a 1.3% y-o-y demand growth in 2017 which may be revised upwards as Chinese apparent demand was up by 9% in the first half.2 Fiscal stimuli and rising infrastructure spending will drive higher steel demand in most major economies.
  • Trade protectionism will continue to remain at the forefront as steelmakers seek to restrict imports into domestic markets: The continued imposition of trade protection measures such as import and anti-dumping duties is expected for the foreseeable future. While the delay in the outcome of the US ‘section 232’ investigation is concerning some US steelmakers, the declining spread between US-China HRC prices has taken some of the pressure off. Overall, however there does seem to be a growing recognition that improving competitiveness is a better long-term defence than trade measures.
  • The extent of profitability will depend on the sustainability of higher raw material prices and how much of the gains in steel prices producers can sustain: China has been driving much of the increase in raw material and steel prices. However, unless this surge in Chinese demand is indicative of a fundamental recovery, it is likely that that higher prices may not be sustainable over the next few quarters.

Creating the right scale between globalization and customization

Steel companies that embrace globalization (in their strategy, supply chains, knowledge and information, processes, talent and financial flows) while balancing it with customization (their products, marketing, stakeholder relationships) will emerge as sector leaders in the long term.

Drivers of globalization

Steel companies that will ride the next wave of growth will be those that understand globalization and tailor their strategies based on that understanding. They will explore new markets and establish well-rounded global business portfolios.

Steel sector under pressure to globalize

Acelerated knowledge exchange through technology and social media

Global regulation is increasing carbon, environmental and safety

Global capital more interchangeable and free flowing across borders

Currency realignment

Continuous shifts in manufacturing competitiveness

Increasing global trade

Multi-speed regional growth

Capital investors more sector or region agnostic

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