The European steel industry faces three major challenges, following the impacts of the COVID-19 global and the 2008-09 financial crisis, management consultancy McKinsey & Company stated.
“European steel producers should consider making a series of short-term operational and medium- to long- term strategic moves to ensure economic and environmental sustainability going forward,”
McKinsey said in its March 15 report, “The future of the European steel industry.”
“These strategic moves could encompass restructuring steps aimed at capacity reduction, steps toward strengthening the position of steel companies by diversifying their capabilities and sustainability moves toward low- and no-carbon steel,” McKinsey added.
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European steel needs to address overcapacity
The first move the sector needs to address is the increase in structural overcapacity. That is particularly true after a demand loss of between 5 million and 10 million metric tons demand loss as a result of the pandemic, the group stated.
“European steel players need to adjust overcapacity to be in sync with next normal steel demand,” McKinsey said.
Adjusting for a greener future
Steelmakers also need a short-term response to compensate for higher costs with profitability improvements and incremental measures that will reduce CO2 emissions. For example, they can do so by increasing the scrap rate, the report added.
Meanwhile, producers need to make investments with a view to medium- and long-term decarbonizing of the steel industry. In short, they should tailor long-term plans and technology choices towards CO2 neutrality, McKinsey noted.