Steel industry

Résumé du document

Steel has become a big part of our life like sleeping or eating because it composes a major part of items that bind them. Therefore, the steel market saw a lot of variation during History. Steel demand shows growth periods such as the beginning of the 20th century with the Industrial Revolution or after the Second World War for the reconstruction. Nevertheless, steel demand also saw a huge decrease since the 80's and the oil shocks: protectionist policies, energy costs influenced the steel market (-17.6% only for EU between 1974 and 1985). However the production has increased since the beginning of the XXIst century, as the demand of developing countries like China increased too (+6.9 % between 2000 and 2005). There are two different ways to produce steel. These two ways use a lot of energy (40% of total price in specific countries) and raw materials: iron and carbon. The steel industry experienced a huge increase at the end of the Second World War due to the reconstruction; follow by a growth phase: the Glorious Thirties. This development continued, encouraged by the fixed minimum prices of governments. The economic crisis of 1974/75 broke this impulse as well as much of the world demands. The next period until the 90's completely changed the steel industry and the strategies of steel producers.

Extraits

[...] Steel companies have a lot of opportunities in each sector. Steel sector seems more concentrated which reduce the negotiation power of clients. For example, automotive sector is atomized but tends to become more and more concentrated, and thus acquires more power in negotiations. There are leaders in each sector, which make their negotiation power bigger compared to steel industry. Ability to substitute: This ability is important for construction and public work's industry, automotive industry and packaging. Mechanical construction (needs of resistant steel), oil and gas industry (needs of special stainless steels), shipyard (needs of special steels) and railway industry (needs have adapted specific products), the ability to substitute (for clients) is low, which make more difficult in their negotiations. [...]

[...] Steel companies have two options to stock up on raw materials and metal ores: External suppliers: Principal mining companies (BHP Billiton, Rio Tinto, Xstrata): important volumes, worldwide implantation Various mining companies more specialized in a kind of resources (CVRD or Falconbridge), Long-term procurement contracts enable steel companies to secure necessary quantities and to obtain more advantageous tariffs, Steel manufacturers can also procure the missing quantities on the iron and coke spot markets (LME, NYMEX). The steel producing companies have also the possibility of integrating mining companies by buying out operational mines or by equipping themselves with a mining exploration permit. This access is hard and expensive. Steel production requires also a lot of energy: electricity. Suppliers are powerful companies such as EDF, British energy, EON, Endesa or Enel. Generally, long-term contracts are signed. [...]

[...] It requires the mastering of major industrial installation. In order to reduce the unit cost, companies has to achieve high level of productivity. Economy of scale: In order to enter in this market, this one requires investing in much expensive equipment. A product is profitable, if it is produced in big quantities. Important fidelity of customers: Customers are already loyal to big companies such as Arcelor Mittal. Brand image comes from their global leader position and they propose a large range of products. [...]

[...] Then the packaging sectors remain fragmented. The Shipyards This industry requires a lot of steel due to the size of ships. With the explosion of container transport, the demand has increased until 2008. The railway Industry This industry is an historical market for steel producers. Products are essentially long products like cables, railway track material but also for cars and wagons. The market is relatively saturated and the demand is mostly replacement oriented. Nevertheless the development of high speed lines and more environment oriented politics have increased the demand in this sector. [...]

[...] -With steelmaking capacity having outstripped the growth of steel consumption in recent years, and as steel demand is now contracting due to the global economic downturn, it appears that the global steel industry is facing a situation of overcapacity -The rise in global steel intensity expected to slow significantly due to structural change in steel-using industries -The steel industry is highly dependent of its client which are themselves, highly dependent of the general economy (crisis has shown this phenomenon) -The steel industry has to face with the emergence of new materials (composite, aluminum, plastic ) Porter's five forces Threat of New Entry Concerning threats, we can consider that there are not new potential entries. Threats are medium. Steel production requires the mastering of a long and complex industrial process. As regards the industrial process (upstream and downstream), it demands major industrial installation, which constitute an obstruction for potential newcomers. [...]