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Innovation, lower costs said key for steel

Jun 18, 2014 | 06:14 PM |

Tags  steel, China, steel capacity, supply glut, Accenture, John Lichtenstein, Severstal, Russia Alexey Kulichenko

NEW YORK — Steelmakers must tighten their belts and continue to innovate in order to stay ahead of the curve in what will remain an oversupplied market in the near term, top international steel executives and experts said during a panel discussion at the Steel Success Strategies XXIX conference in New York sponsored by AMM and World Steel Dynamics Inc.

Chinese overcapacity remains a structural challenge and will continue to lead to excess Chinese steel "sloshing around" the international market and weighing on global prices, according to John Lichtenstein, global managing director of metals for Chicago-based Accenture LLP.

As a result, Russia’s OAO Severstal is "very cautious about a quick recovery (in the steel markets), especially on price," chief financial officer Alexey Kulichenko said.

Market conditions in Russia remain challenging, with steady-but-slow growth forecasts, leading Severstal to look to trim its capital spending and drive cost reductions in order to boost margins, Kulichenko said.

Turkey was a bright spot, with a top executive from Istanbul-based Ereğli Demir ve Çelik Fabrikalari TAS (Erdemir) predicting that Turkish steel demand will grow 6.2 percent year on year in 2014 and Erdemir’s earnings before interest, taxation, depreciation and amortization (Ebitda) margins will exceed 20 percent. "Turkey is one of the fastest-growing economies in the world," said chairman and managing director Ali Pandir.

Meanwhile, the European steel market overall "hit bottom" in the fourth quarter of 2012, making ArcelorMittal SA, Luxembourg, cautiously optimistic about the prospects for the industry going forward, according to Louis L. Schorsch, chief executive officer of ArcelorMittal’s Americas division.

While right-sizing budgets and capital outlays is important, executives cautioned that steelmakers must keep innovating in the face of challenges posed by aluminum.

Also, capital spending cuts should not impact maintenance programs that could lead to operational issues down the road, executives said.

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