What the global steel industry has gone through over the last 18 months is nothing to what it will go through over the next five years. To say the turmoil of the last 18 months has been good for the steel industry sounds ridiculous when the hardships it has created among steel communities and the losses in share values for investors is taken into account, but it has acted as a catalyst to hasten changes that otherwise would have taken the next decade to achieve. Increasingly, steel will only be made in high cost locations like North America or Western Europe by the most efficient of producers. The last 12 months has seen plants that were idled in late 2008 closed permanently by steel companies who have come to the realization that new investment should be focused on where the new demand is coming from. ArcelorMittal, the world’s largest steel producer and arguably one of the most dynamic in terms of its strategic thinking and long term ambitions has just permanently closed plants in Lackawana, N.Y. and Hennepin, IL while shifting investments to Brazil, India and eastern Europe. Arcelor sees growth in the next decade coming from these markets. Demand in India alone is growing at 9%, with the prospect of yet higher growth in the years ahead as long term infrastructure investments are rolled out. The steel company is planning to team up with the iron ore producer Vale in a US$5bn steel mill investment as its sees long term growth in Brazil as a better bet than established western markets. Both Arcelor and the India home grown steel giants like Tata are increasingly focusing investment decisions on the domestic Indian market rather than looking to take on more old world producers. Indeed old world facilities like Corus’ Teeside steel plant in the UK had closed in early December as applications for new plants in India were being submitted.
Not all emerging markets make solid investments though. China has benefited if that is the right word from massive state supported investment in their steel industry during the current decade. Business Standard reported China is now sitting on steel capacity of 610 million tons and will be commissioning another 50 million tons next year. A spokesperson for China Iron & Steel Association said at a recent conference in Beijing that the country would end the year with production of 565 million tons of crude steel. That will be a lot more than China’s domestic requirements, and because of the fragmented nature of China’s steel industry, difficult to control. This and a desire to clean up more polluting and less efficient steel plants is leading to ever more strident attempts by the authorities to effect in China what is happening elsewhere in the world namely the consolidation of production under a small number of ever larger steel companies. The Chinese Ministry of Industry and Information Technology (MIIT) published details of a new scheme this month for the restructuring and upgrading of raw-material industries in central China in the 2010-2011 period. The scheme is to cover nonferrous metals, steel, building materials, coal and chemical industries. The program requires forming several “super-large-scale and “large-scale enterprises in central China through mergers and acquisitions. MIIT is to encourage Wuhan Iron and Steel Corp., the parent company of Wu Steel to acquire the production capacities of smaller rivals in the central areas of China and Ma Steel, Taiyuan Iron & Steel Co., and Hunan VALIN are also encouraged to conduct mergers and to acquire smaller rivals to form one or two super sized steel companies able to operate on the world stage. As with Arcelor’s long term investment plans, the convulsions of the last 12-18 months have driven steel mills everywhere to look much more aggressively at where the growth in the coming decade is going to come from and divert investments to those markets at the expense of the old.