Post on 26-Mar-2018
Global steel industry perspective – synthesis version
Paris, 7 April 2014
Discussion document
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European Steel Technology & Application Days
McKinsey & Company | 1
Synthesis
▪ Steel is by far the largest material in use, with global demand of ~1.5 bn ton in
2013 (~2 trillion USD industry)
▪ Steel demand to grow at 2-4% p.a. for the next decade before leveling out
(demand of ~2 Bn t by 2025-30). Developing regions continue to drive growth
(less China, more other developing regions – Asia, Africa)
▪ Overcapacity likely to stay for the foreseeable future (mainly China, CIS, Europe,
Japan)
▪ Raw materials costs have quadrupled since 2002. Current margins-over-raw
materials are at or even below the levels of before the China boom period
▪ Volatility to stay (demand, prices, margins)
▪ Going forward
– Solve structural overcapacity (globally and by product/region)
– Maximize "resource efficiency": make more products with less resources,
maximize the end application value, help other sectors be more efficient
– Avoid commoditization: create value for users, adapt pricing to real (complexity)
costs and capture application “value in use”
▪ Vision of steel remaining the most important material on the globe – supported
by sound economics, innovation, and resource efficiency
McKinsey & Company | 2
Steel: a 3000-year old story of human development
SOURCE: Global Insight, WSA, McKinsey analysis
-4000 -3500 -3000 -2500 -2000 -1500 -1000 -500 0 500 1000 1500 2000
1,000
1,400
900
800
700
600
500
400
1,300
1,200
1,100
300
200
100
0
Neolithic age: use of stones and bones
Copper age: use of pure copper for ornaments
Bronze age: use of Cu-Sn (weapons, decoration)
Cast iron: Han dynasty, ChinaWootz Steel: India
Steel and iron: gradual development
Crucible steel: Huntsman, 1740
Iron, steel: weapons, armory
Steel age:industrialrevolution
Million tons per year
First iron: Hittites (Anatolia)
First steel: Mesopotamia?
Mass steel: Bessemer, 1855
McKinsey & Company | 3
Steel is by far the largest material in use
0.2
0
1.6
0.8
0.6
0.4
1.4
1.2
1.0
2013e10080604022000 1201 03 05 07 09 11
AluminiumPlastics1Crude steel
SOURCE: WSA, McKinsey Aluminium Demand Model, ICIS ATEC (3rd quarter 2013 update)
1 Incl. ABS, EPS, PE, PA, PC, PET, PMMA, PP, PS, PVC, SAN
Global consumptionBillion metric ton
▪ Steel consumption exceeds plastics and aluminum consumption by a factor 7 and 21 resp.
▪ Given the sheer difference in scale, substitution of large volumes of steel by competing materials are unlikely, even if it were technically feasible
CAGR 2000-13Percent
5.04.0
5.6
McKinsey & Company | 444
1.6
1.4
0.8
0.6
1.2
1.0
0.4
0.2
0
3.1%
2013e20102005200019951991
Global steel demand reached ~1.5 bn ton in 2013,
growing at 3% year-on-year
SOURCE: Worldsteel (WSA); McKinsey
4
DevelopingAsia
5LatinAmerica
5India
5
MENA 7
NorthAmerica
8
DevelopedAsia
9
Europe
9
China
48
CISOther
1
Apparent demand for finished steel productsBillion metric ton
Steel demand by regionPercent, 2013e, total = 1,477 Mt
1.9% p.a.
7.0% p.a.
3.2% p.a.
McKinsey & Company | 5
2,000
1,000
1,800
1,600
2,200
800
1,400
1,200
600
0
Low case
High case
Base case
3.2%
1.2%
7.1%
20302025202020152010200520001995199019851981
Global steel demand is expected to continue to grow
at 2-4% p.a. for the next decade before leveling out
3.5 1.4
2.8 1.0
2.2 0.6
SOURCE: WSA; McKinsey steel demand model
Apparent finished steel demandMillion metric ton
Growth rateCAGR, percent
2013-20 2020-30Historical Outlook
1.2% p.a.
7.1% p.a.
3.2% p.a.
McKinsey & Company | 6
Developing regions will continue to drive steel demand growth,
increasingly away from China and to other developing regions
270 314 346 424 496 548
121160
191589703
741
814
842 764
134
134135
137
139 137
112118
131
143 151
153
140147
167
188 191
94
2020
1,968
2025
1,982
1,793
2015
1,573
85
2013
1,477
74
2010
1,306
65
2.8% p.a.
1.0% p.a.
Other1
India
China
Developed Asia
North America
Europe
2030
SOURCE: World Steel Association (WSA); McKinsey Steel Demand Model
1 Africa, other Asia, CIS, Oceania, MENA, Latin America
0.3
2.2
2.6
7.3
2.1
4.4
0.0
1.5
1.3
4.7
-0.6
2.6
BASE CASE
Apparent finished steel demandMillion metric ton
Regional growthPercent p.a.
2013-20 2020-30
McKinsey & Company | 7
Asian and African countries hold the greatest potential
for steel demand growth
0
50
100
150
200
250
300
350
400
450
500
550
426543210 444332 41403938373635343331302928272625242322212019181716151413121110987
Steel intensity, 2012Kg finished steel per capita
GDP intensityUSD thousands per capita, real 2005, PPP1 adjusted
Peru
Morocco
Canada
Algeria
Poland
Argentina
Ukraine
Colombia
Spain
South Africa
United Kingdom
France
Thailand
Turkey
Iran
Germany
Egypt
Viet Nam
Philippines
Italy
Japan
Russia
Nigeria
Pakistan
Brazil
Indonesia
United States
India
China
Mexico
1 Purchasing power parity
Area of bubble
indicates num-
ber of people
EMEA
Americas
Asia
SOURCE: WSA, Global Insight, McKinsey
McKinsey & Company | 888
Half of the top 25 steelmakers globally, which cover ~55% of supply,
are Chinese
SOURCE: Metal Bulletin Steelmakers Top Steelmakers list, 2013; WSA
21
30313233
38
141515151516161717171819
2324
36
4346
6988
Valin NLMKBenxiSeverstal ThyssenKrupp Evraz Riva HyundaiBohaiMaanshanNucor Gerdau US SteelShandongTata Steel AnshanShougang Jiangsu Shagang JFEWuhanPOSCO Baosteel Nippon/SumitomoHebeiArcelorMittal 1.
2.3.4.5.6.7.8.9.
10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.
2012
Other 54 Othertop 15
Other top 25
10
17
Top five
18
Top 25 crude steel producers, 2012 Million metric ton
Market consolidationPercent, total = 1,547 metric ton
McKinsey & Company | 9
2,000
200
1,600
1,200
1,000
800
2,200
1,800
2,400
0
1,400
600
400
Production @ 85%
capacity utilization
Nominal capacity
20201918171615141312111009080706052004
Global demand
Overcapacity in the steel industry is likely to stay
for the foreseeable future
SOURCE: McKinsey
BASE CASE
Average
utilization83% 85% 71% 79% 77% 76% 79% 81%
Global demand/capacityMillion metric ton, crude steel
Outlook
McKinsey & Company | 10
500
700
400
800
600
0
300
200
Evolution of margin over raw materials
SOURCE: SBB; Tex Report; McKloskey; Press search; acier.org; MEPS; McKinsey analysis
Q0: Deep crisis
Q2: Median
Q4: Best
1110090807060504030201009998
~ 425
~ 285
~ 145
China boomPre - China boom
12
Crisis + recovery
13
Q1: Low ~ 260
Q3: High ~ 335
HRC margin-over-raw material – Europe
USD/metric ton
EXAMPLE
979695
Real '12 currency
Nominal currency
McKinsey & Company | 11
Challenges and opportunities going forward
▪ Solve structural overcapacity (globally and by product/region)
▪ Maximize "resource efficiency": make more products with less
resources, maximize the end application value
– Further improvements in steelmaking processes (energy
efficiency, labor productivity, technological breakthroughs)
– Steel abating its own CO2 and helping other sectors to abate
CO2
– Key role in the "circular" economy: importance of steel
recycling, preparing for a future with a large scrap reserve
– Technology innovation, reducing the needs for capital
– UHSS for more energy-efficient applications
▪ Avoid commoditization: create value for users, adapt pricing to
real (complexity) costs and capture application “value in use”
▪ Vision of steel remaining the most important material on the
globe – supported by sound economics, innovation, and
"resource efficiency"
McKinsey & Company | 12
Baseline GHG emissions of the steel sectorPercent, 2010e
1 Includes mining and beneficiation of iron ore, coal, limestone, and ferro-alloy ores
2 Production of Ni, FeCr, FeSi, FeMn, SiMn and Al consumed during steel production
Direct emissions
Indirect emissions
SOURCE: McKinsey steel CO2 model; Global McKinsey carbon cost curve 2.1
13.3
15.0
6.8
12.13.9
5.0
5.5
5.6
24.4
Agriculture
Forestry
Waste2.9
Building
Transport Other
industry
3.0
Chemicals
Cement
Petroleum
and gas
Steel (mining1
and ferro-alloys2)1.7
Steel (Direct)
Steel (Power)0.7
Power
Global CO2e emissions
100% = 49.4 GtCO2e per year
Steel CO2e emissions
100% = 4.0 GtCO2e per year
17
4
Ferro-alloys2
Mining1
Power 9
Direct70
McKinsey & Company | 131313
1,800 2,000200 2,2002,100400300 600 1,1000 100
100
0
Abatement potentialMtCO2e per year
900800700
150
200
250
500
300
50
1,000
-100
-150
-200
-250
-50
Abatement costEUR per tCO2e
1,3001,200 1,5001,400 1,7001,600 1,900
2007
Close to half of the abatement potential in the steel industry
has a negative abatement cost
CCS attractive
location
CCS unattrac-
tive location
Process change Energy efficiency Credits CCSRaw materials
Top gas recovery
turbine (TRT)
Dry coke
quenching
Increased
use of pellets
SOURCE : McKinsey
▪ Five broad categories of abatement levers
– Energy efficiency (30%)
– Process change (20%)
– Carbon capture and storage (20%)
– Levers around raw materials (15%)
– Credits (15%)
McKinsey & Company | 14
Example material evolution in automotive
SOURCE: McKinsey "Lightweight, heavy impact"; advanced industries perspective 2012
19 20
52
13
15
38
5
12
5
9
Other non-lightweight3
Steel (< 550 MPa)
HSS2
Aluminum
Magnesium
Plastics
Carbon fiber
100%0.5
100%
11.5
Material mix in automotivePercent
67% light-weight
29% share1
lightweight
46
RoW
China
Europe
NorthAmerica
14
-70%
40
11
+273%
Steel demand in automotiveMt
1 HSS, aluminum, magnesium, plastics, carbon fiber
2 High-strength steel (> 550 MPa)
3 Mainly other metals, glass, fluids, interior parts
2010 2030
0
0
2010 2030 2010 2030
Mild steel HSS2
McKinsey & Company | 15
Pass through cost and
balance out volatility
Product
price
Reduce leakage in passing through operational cost
Cost grids
Capture value-in-use opportunities
Pricing by customer group
Reduce discounts
Align internal processes
A
BB
CC
D
Pricing should reflect true costs, segment specificities and
application “value in use”
SOURCE: McKinsey
Cust class
surcharge
Seg. Specific
surcharge
Target
price
Negotiation
Realized
price
Order size
surcharge
Other
services cost
Processing
cost
Freight
cost
Product
price
Margin
Material
cost
Lever Structured price setting
Anticipate the true
margin required – for
handling, working
capital and risk
▪ Correctly capture
complexity costs
▪ Ensure pricing
reflects application
“value in use”
(product and
services)
Careful handling of
discounts required