Market Overview

4 Changes That Could Save The Steel Industry

4 Changes That Could Save The Steel Industry
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In a new report, EY analyst Anjani Agrawal discusses the struggling global steel industry.

The Market Vectors Steel ETF (NYSE: SLX) has fallen 45.1 percent in the past year, and steel stocks Unites States Steel Corporation (NYSE: X), AK Steel Holding Corporation (NYSE: AKS) and Cliffs Natural Resources Inc (NYSE: CLF) are all down between 40 and 85 percent during the current commodities slump.

With the industry searching for solutions during the persistent weak pricing environment, Agrawal lists four transformations that steel producers must make to survive in the long term.

1. Rationalize Excess Capacity

According to Agrawal, steel-producing countries are no longer isolated domestic markets, and excess capacity in one country now displaces production or sales in other countries.

Governments need to get away from using stop-gap solutions such as subsidies or temporary trade barriers and focus on encouraging steel companies to become globally competitive.

2. Increase Market And Product Concentration

Agrawal points out the fragmented nature of the global steel industry, with the top 10 producers only accounting for 28 percent of the world’s market share. The synergistic benefits of consolidation drove the industry through an intense consolidation period from 1995 to 2015 during a similar prolonged downturn.

3. Increase Market Competitiveness

Agrawal calls for the steel industry to become “more competitive, agile and innovative while maintaining cost competitiveness.” One way the industry has approached this process is by “developing premium, value-added, niche downstream products” for very specialized applications.

4. Embrace Digital

Agrawal mentions forecasting future supply and demand, targeting new markets and meeting dynamic customer demands as three critical ways that modern digital analytics can help save the steel industry.

In addition, automation and information technology can be used to help streamline the different facets of the steel industry and increase the efficiency of the business.

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