global steel industry perspective – synthesis · pdf file · 2014-04-15global...

Global steel industry perspective – synthesis version

Paris, 7 April 2014

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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


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


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


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.


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.


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


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


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


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


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


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"


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


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%)


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


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

P037978

Zone de texte

For further information, please contact Frank Bekaert Director, McKinsey&Company M: +32 477 536 730 [email protected]

global steel industry perspective – synthesis · pdf file · 2014-04-15global...

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