The global steel industry must address systemic
overcapacity issues to remain sustainable in the next decade,
according to Sigurd Mareels, a director in the Belgian office
of consultancy McKinsey & Co. Inc.
isnt necessarily going to help, he said. With global
steel consumption expected to rise around 3.1 percent this year
and some 3.3 percent in 2014, according to a forecast by the
World Steel Association (WorldSteel), it will take years before
it makes any dent in the global capacity overhang estimated at
around 300 million tonnes.
"At 3-percent growth,
its not going to happen. We need a lot more," Mareels
told delegates Oct. 7 during WorldSteels annual
conference in São Paulo.
He offered three
solutions aimed at reassessing the way the industry achieves
growth: raising the awareness that the industry cant
continue "bleeding cash;" positive momentum on mill closures
and capacity reduction through increased consolidation; and a
stronger focus on profitable growth.
"You need all three of
these together to make it work. Is it hopeless? I dont
think so. Is it difficult? Absolutely," Mareels said.
"This is no longer an
issue about whats nice to havethis is an issue
about survival of the industry," he said, pointing out that
steelmakers across the board need another $50 per ton in
margins to make the industry more profitable. "That number is
for existing capacity. In the last couple of weeks, I visited a
number of countries where theyre seriously considering
building new steel plants. If you want to build a new steel
plant, the $50 extra margin isnt going to do it. You need
$150 of extra margin for you to justify a new steel plant."
Some 65 percent of
"large" global players have operated with a negative cash flow
over the past two years, which needs to be reversed because
steelmakers are likely to face difficult economic conditions in
the next five to 10 years, Mereels said.