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The Changing Landscape of Steel

Jan. 25, 2021
Steel underpins everything from automobiles to infrastructure, from making machines to constructing high-rise buildings. With this article, IndustryWeek launches a series on the present and future of steel.

U.S. steelmaking has been a hotbed of activity in recent months and years.

In December 2019, for example, iron ore producer Cleveland-Cliffs Inc. announced it would acquire AK Steel in a $1.1 billion deal.  The purchase of the West Chester, Ohio-based steel maker, which produces flat-rolled carbon, stainless and electrical steel products, instantly transformed Cleveland-Cliffs into a vertically integrated producer of iron ore and steel. Just ten months later the Cleveland-based manufacturers was at it again, this time buying up most of ArcelorMittal USA and its subsidiaries for approximately $1.4 billion, again catapulting it up the list of U.S. steel producers.

Then there is U.S. Steel Corp. Earlier this  month the Pittsburgh-based steelmaker completed its acquisition of the remaining equity of Arkansas-based Big River Steel for approximately $774 million. Big River Steel operates what U.S. Steel calls the most advanced flat-rolled mill in North America. In 2017, that electric arc furnace-oriented mill became the only LEED-certified steel production site.

And in October 2020, U.S. Steel reported a successful startup in October 2020 of what it describes as a “technologically advanced” electric arc furnace steelmaking facility at its Fairfield, Alabama, operations.

These announcements barely scratch the surface of what’s going on in U.S. steel manufacturing, as well as in worldwide steelmaking. In addition to mergers and acquisitions and new facilities coming online, the steel industry is facing opportunities and challenges from tariffs, technology, material science, COVID-19, and likely from quarters not yet considered.

Of course, it’s not just the steel industry that faces these challenges. Few other industries, however, intersect with so many other industries as does steel—it underpins everything from automotive to infrastructure, from making machines to constructing high-rise buildings. As a result, impacts on the steel industry have a wide and long ripple effect.

With that in mind, IndustryWeek is launching a steel series, starting with this overview effort. In this first article, we will lay out the steel landscape, outlining some of the major influences shaping the industry. Future articles will focus more specifically on technology, leadership and the steel supply chain, as well as some prognosticating from thought leaders in the industry.  Let’s get started.

Mergers and Acquisitions

We’ve just touched on the biggest recent moves by U.S. steelmakers, and they beg the question: What’s behind the decisions to gobble up bigger pieces of the pie? And are we likely to see more of it?

Vertical integration seems to be a theme, says Jeff Larsen, vice president of natural resources, chemicals and agriculture at Capgemini North America. “Generally, having greater control within an entity across that broader value chain gives an organization greater flexibility,” he says. “I would expect that to continue.”

 Indeed, Cleveland-Cliffs, as an iron ore mining company, had been a major supplier to the steel industry. With its purchase of AK Steel and ArcelorMittal USA, Cleveland-Cliffs snapped up a significant piece of the supply chain it previously fed.

Of course, there’s rarely a single driver of transactions the size of those undertaken by Cleveland-Cliffs and U.S. Steel. “Steelmaking is a business where production volume, operational diversification, dilution of fixed costs and technical expertise matter above all else,” noted Cleveland-Cliffs President and CEO Lourenco Goncalves in a company announcement of the ArcelorMittal USA transaction.

Steelmaking is also a global business. U.S. companies do not own a top spot in terms of production. In 2019, the top steel-producing company, based on crude steel production, was ArcelorMittal with 97.31 million metric tons, according to the World Steel Association. Nucor Corp. led among U.S. steelmakers with output of 23.09 million metric tons.

Which steelmakers will wax or wane in the coming years?

An Excess of Capacity

Here’s how serious the problem of excess steel capacity is--there’s a global forum to address it, and it’s called, quite literally, the Global Forum on Steel Excess Capacity. Membership is open to all countries that make up the G20, a forum for international economic cooperation. Its stated purpose is to discuss and find collective solutions to the global issue of steel overcapacity.

Of course, the top steel-making country in terms of sheer output is missing from the global forum. That would be China, which in 2019 produced 996.3 metric million tons of crude steel, according to the World Steel Organization. Its influence on all things steel is immense. India, which holds the No. 2 spot, produced 111.2 million metric tons. The United States, No. 4 after Japan, produced 87.8 million metric tons.

Not three months ago, a host of steel associations from around the world, including the American Iron and Steel Institute and the Japan Iron and Steel Federation, called on the governments of steel-producing countries to double-down their efforts in the Global Forum on Steel Excess Capacity to address what they called a “growing steel crisis.”

The associations have renewed their appeal for the forum to develop stronger measures regarding subsides and other support measures, uphold trade remedies, and take measures to increase transparency.

The overcapacity issue is a long-standing one. However, after gradual decreases in overcapacity in the past few years, data from the Organization for Economic Co-operation and Development forecast that steel overcapacity could increase to 700 million metric tons in 2020, driven both by COVID-19 production decreases and increases in capacity, most notably in the Middle East and Asia.

Tariffs

In 2018 the Trump administration enacted steel tariffs on imports of foreign raw steel and aluminum, with some exceptions or quotas, under Section 232 of the Trade Expansion Act of 1962. The influx of steel imports threatened domestic industries and therefore constituted a threat to U.S. national security, the administration said. The torrent of production by China is of particular concern. In a November 2020 op-ed in The Wall Street Journal, American Iron and Steel Institute CEO Kevin Dempsey (he was interim at the time of the op-ed) said the tariffs have helped, boosting domestic capacity utilization rates, growing U.S. investment and lowering imports.

 All eyes are now on the Biden administration and its stance on the steel tariffs. The U.S. steel industry is urging the new administration to keep them in place. In a January 11 letter to then-President-elect Biden, four steel organizations, including the AISI and Steel Manufacturers Association, and the United Steelworkers union wrote, “Continuation of the [steel] tariffs and quotas is essential to ensuring the viability of the domestic steel industry in the face of this massive and growing excess steel capacity. Removing or weakening of these measures before major steel producing countries eliminate their overcapacity—and the subsidies and other trade distorting policies that have fueled the steel crisis—will only invite a new surge in imports with devastating effects to domestic steel producers and their workers.”

COVID-19, Infrastructure and More

What else can or will or is changing the steel landscape? One answer is infrastructure, depending on how the Biden administration addresses it. Prior to the election, Biden made promises of large-scale investments in U.S. infrastructure. Should it come to pass, “that’s generally good news for steel,” Capgemini’s Larsen notes.

Larsen also predicts that sustainability will be an increasing theme for steel manufacturers, as well as all industrial producers. Not only is sustainability a growing social objective for companies, but there are financial benefits around energy efficiency and optimization, and life-cycle management. In addition to driving technological changes, sustainability may also be a driver of the greater vertical integration mentioned earlier in this article.  

“[Vertical integration] is a means to control the supply chain,” Larsen notes. By definition, that creates opportunities to optimize processes on a greater scale.

And finally, an overview of any industry can’t conclude without reflecting on COVID-19. Like nearly every industry, the pandemic dampened demand for steel as much of the world came to a standstill.  Through November 2020, U.S. steel mill shipments were down approximately 16% compared with the previous year’s numbers, AISI data show. Capacity utilization has slowly climbed, however. For example, utilization for the week ending January 16 reached 76.7%; for the week ending June 13 it was 54%.

What remains a question and will for some time, is COVID-19’s lasting impact on the world of work, and what that could mean for steel. As Larsen noted, COVID-19 unintentionally “became a giant world experiment” on how people work. Will the virtual work environment move from a pandemic-inspired trend to a permanent measure? And how might that change impact vehicle production, a significant end-user of steel, if it comes to pass?

“There’s no doubt that [corporations] are really looking at and considering how virtual working might have some long-term, lasting benefit,” Larsen says. “If a material part of the workforce isn’t commuting to work and therefore not driving, that’s the macro impact.”

COVID-19 raises a number of interesting questions, and the answers may be a long way away. The concluding article in this steel series, in which we speak to thought leaders about steel’s future, may be the perfect place to raise those questions further. In the meantime, keep your eyes open for the next part in our steel series. It’s an industry that deserves close attention, and IndustryWeek is determined to cover it from all angles.  

Read Part 2 of the steel series: Steel Producers Take Center Stage in Energy Evolution

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