Asia Steel 2002 Conference- Bangkok
Global and Asian Steel Industry
Overview and Forecast
26 – 28 June 2002
Mike Walsh, Senior Consultant
Hatch Associates - London
Hatch Beddows
GLOBAL AND ASIAN STEEL INDUSTRY OVERVIEW AND FORECAST
Agenda
•
Introduction to Hatch Consulting
•
Some Myths and Realities
•
The Steel Industry Today and Tomorrow
•
What’s Happening in Asia
•
The Shareholder Value Challenge
© Hatch Associates Limited, 2006
2
INTRODUCTION TO HATCH BEDDOWS
AN INTRODUCTION TO HATCH
Hatch is the leading international consulting, engineering, information
systems, project and construction management organisation to the metals and
mining industries
Expertise
Industries
Iron & Steel
Engineering
Project & Construction
Management
Non-Ferrous
Management Consulting
Industrial Minerals
Technologies
Light Metals
Energy and Process
Control
Mining and Mineral
Processing
Systems
Developments
© Hatch Associates Limited, 2006
4
AN INTRODUCTION TO HATCH
Hatch offers a global network of consulting and engineering services to the
metals and mining industries
ISO 90019001-94
• London, England
• Prague, Czech Republic
• Budapest, Hungary
• Krakow, Poland
•
•
•
•
4,500 people
Projects in 80 countries
55 offices, 6 continents
Employee owned
• Shanghai, China
• Beijing, China
• Manila, Philippines
• Dallas, Texas
• Buffalo, New York
• Chicago, Illinois
• Boston, Massachusetts
• Milburn, New Jersey
• Monroeville, Pennsylvania
• New York, New York
• Pittsburgh, Pennsylvania
• Philadelphia, Pennsylvania
• San Francisco, California
• Seattle, Washington
• Antofagasta, Chile
• Santiago, Chile
• Lima, Peru
• Sao Paolo, Brazil
• Singapore
• Calgary, Alberta
• Mississauga, Ontario
• Montreal, Quebec
• Hamilton, Ontario
• Sudbury, Ontario
• Tracy, Quebec
• Vancouver, B.C.
• Brisbane
• Gladstone
• Mackay
• Melbourne
• Newcastle
• Sydney
• Perth
• Townsville
• Wollongong
• Whyalla
• Johannesburg, South Africa
• Richards Bay, South Africa
© Hatch Associates Limited, 2006
5
HATCH CONSULTING
Hatch Consulting is the management consulting division of Hatch
Expertise
Industries
Engineering
Iron & Steel
Project & Construction
Management
Non-Ferrous
Industrial Minerals
Management Consulting
Light Metals
Technologies
Energy and Process
Control
Mining and Mineral
Processing
Systems
Developments
© Hatch Associates Limited, 2006
6
HATCH CONSULTING
Hatch Consulting undertakes work globally from its six principal consulting
offices, supported by Hatch’s industry specialists
Toronto
Pittsburgh
London
Singapore
Brisbane
Johannesburg
Countries where our
consulting teams have
worked since 1998
Principal Consulting Offices
© Hatch Associates Limited, 2006
7
HATCH CONSULTING
Three of our practices provide expert support to help our clients meet those
challenges and achieve superior performance
Hatch Beddows Strategy
Organizational design
¾
E-business
y
¾
¾
¾
High Performance Management
te
g
Strategy development
dd
ow
s
St
ra
Capital allocation decision
support
ch
¾
¾
¾
¾
¾
Operations consulting
Yield/productivity improvement
Merger implementation
De-bottlenecking
Best practice benchmarking
Ha
t
New market product
planning
Be
Mergers and alliances
ce
an
rm nt
rfo me
Pe ge
gh na
Hi M a
¾
¾
Hatch Due Diligence
Hatch Due Diligence
¾
¾
¾
¾
Due diligence review
Feasibility studies
Financing proposals
Asset/technology evaluation
© Hatch Associates Limited, 2006
8
SOME MYTHS AND REALITIES
SOME MYTHS AND REALITIES
Myths or Realities
Steel…..
9 …..
Is a zero or low growth industry
9 …..
Experiences continuous material substitution
9 …..
Is a labour intensive industry
9 …..
Is a capital intensive industry
9 …..
Experiences disabling state interference
9 …..
Suffer from a continuous cost/price squeeze
……. the steel industry holds inhibiting misconceptions about itself
© Hatch Associates Limited, 2006
10
SOME MYTHS AND REALITIES
Steel – a low growth industry?
•
Over the last 30 years
¾ Crude steel growth averaged 0.8% p.a
¾ Finished steel products, 2.35% p.a (2.65% without the FSU)
•
Better yields (eg. 20% improvement in through-product material yields); improved
inventory/WIP management; faster transportation times
•
Finished steel growth similar to world GDP growth level, whereas world vehicles production
growth since 1978 has averaged under 1% p.a
•
Clearly there is a limit eg. yields cannot exceed 100%! …… but still prospects for attractive
finished products growth
© Hatch Associates Limited, 2006
11
SOME MYTHS AND REALITIES
Over 50% of all steel ever made has been produced in the last 25 years
Cumulative World Steel Production - 33 Billion Tonnes
100%
Cumulative
World Steel
Production
50%
0%
1800
1900
1975
2000
How long will it take to double today’s global volumes? Another 25 years @ 2.5%
p.a growth
© Hatch Associates Limited, 2006
12
SOME MYTHS AND REALITIES
Steel Experiences continual material substitution?
•
It has for some applications … but often it shouldn’t have done
•
Comparisons of material prices to the German construction industry show over the last 25
years:
¾ Steel (CRC), virtually no real price increase
¾ Cement, price doubled
¾ Aluminium, 60 – 80% more expensive than steel, since 1990
•
Steel’s functional performance characteristics have improved dramatically …. whereas
cement has hardly changed
……. steel is well placed to defend itself against material substitution
© Hatch Associates Limited, 2006
13
SOME MYTHS AND REALITIES
Steel, a labour intensive industry? It was, but no longer!
Restructuring British Steel
250
Privatisation
1988
Employees
140
Employees (000s)
200
120
100
80
Sales per Employee
100
60
Sales per Employee (£000)
160
40
50
20
0
0
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
•
Huge improvements have resulted from new technologies eg. 12 x rise in labour
productivity over 25 years
•
Legacies of the old situation still exist in China and SAIL, India ….. but changes are
happening ….. and steel is less labour intensive than electronics components
manufacture (on a value-added basis)
Source: Company Reports
© Hatch Associates Limited, 2006
14
SOME MYTHS AND REALITIES
….. It’s not capital intensive either, compared to other major industries
•
Steel’s ratio of fixed assets to sales is 0.45
•
Comparable ratios for other industries are:
¾ Cement 2.0
¾ Power generation 2.5
¾ Water 10.0
•
Bulk petrochemicals and electronic components have similar rates to steel
……. so capital intensity must be a comparable or greater problem for a range of other
industries
© Hatch Associates Limited, 2006
15
SOME MYTHS AND REALITIES
Steel experiences disabling state indifference
•
Two aspects
¾ State ownership of assets
¾ Restrictions on free trade flows
•
State ownership has reduced from 50% of capacity in 1984 under 10% today*
……. but the domino effect of increasing tariffs and trade protectionism is well known
*
some privatization are still not fully completed
© Hatch Associates Limited, 2006
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SOME MYTHS AND REALITIES
Steel suffers a continuous cost/price squeeze?
Real Reduction in
HRC Prices
500
450
400
HRC
Nominal
+ 1.8% CAGR
350
$US/tonne
300
250
200
HRC
Real
- 1.2% CAGR
150
100
50
0
74
76
78
80
82
84
86
88
90
92
94
96
98
00
01
00
Sources: Metal Bulletin, Hatch Consulting
•
Since 1984, HRC prices have declined by 1.2% CAGR in real terms
•
Hatch Beddows analysis has shown that a 3.0 – 3.5% squeeze, occurs between the
speed of such decreases in prices and the speed of decreases in factors costs (industries
typically compensate by cost reductions, rationalizations, product enhancements)
….. but The Economist commodity prices index over 150 years shows real price
reductions averaging 3% p.a CAGR, the same cost/price average as for steel!
© Hatch Associates Limited, 2006
17
THE STEEL INDUSTRY TODAY AND TOMORROW
THE STEEL INDUSTRY TODAY AND TOMORROW
Annual crude steel production will reach 1 billion tonnes by 2010 – a
compound annual growth rate of 1.6% from 2000 - 2010
Global Crude Steel Production by Region
1200
m i l l i o n to n n e s
1000
150 million t/yr
Rest of world
800
China
Rest of Asia
600
CIS/E.Europe
400
EU-15
Other Developed
USA
Japan
200
0
1990
2000
2010
Source: World Steel Dynamics
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
71% of the growth in steel demand from 2000 – 2010 will come from Asia
(including China)
World Steel Product Consumption by Region
m illio n t o n n e s
1000
900
800
700
600
500
400
300
200
100
0
1990
928
775
Rest of world
China
Rest of Asia
CIS/E.Europe
EU-15
Other Developed
USA
Japan
2000
CAGR
2000-10
of 4.3%
CAGR
2000-10
of 2.7%
2010
Source: World Steel Dynamics
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
288 million tonnes of steel were traded in 2000
5 Large s t Ne t Exporte rs , 2000 (m illion tonne s )
30
24.8
25
23.1
20
16.5
15
10.5
10
8.6
5
0
Source: IISI
Rus s ia
Japan
Uk raine
Be l/Lux
Brazil
5 Larges t Ne t Im porters, 2000 (m illion tonne s)
30
28.5
25
20
15
11.2
10
5.3
5.1
4.5
Italy
Taiw an
Thailand
5
0
USA
Source: IISI
China
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
Forecast crude steel capacity growth will be severely constrained in the
developed world
Crude Steel Capacity in EU, USA and Japan, 1977-2010e
m illio n to n n es
190
EU
USA
Japan
160
130
100
70
1977 1980 1985 1990 1995 1998 1999 2000 2001 2002e 2003e 2004e 2005e 2010e
Source: World Steel Dynamics
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
22 US steel producers have filed for chapter 11 bankruptcy, representing 44%
of crude steel capacity
US Steel Companies Chapter 11 Bankruptcy Filings Since December 1997
Company
Calumet Steel
National Steel
Sheffield Steel
Bethlehem Steel
Geneva Steel
Crude Capacity (mt)
0.1
7.1
0.7
12
3.2
Republic Technologies Int’l
Trico Steel
GS Industries Inc
Bankruptcy Filed
March 2002
March 2002
December 2001
October 2001
October 2001
February 1999
July 2001
November 1998
April 2001
March 2001
February 2001
Heartland Steel
CSC Ltd
LTV Corp
Erie Forge & Steel
Northwestern Steel & Wire
Wheeling-Pittsburgh Steel
Vision Metals Inc
Gulf States Steel
J & L Structural Steel
Qualitech Steel SBQ
WorldClass Processing
January 2001
January 2001
December 2000
December 2000
December 2000
November 2000
November 2000
July 2000
June 2000
March 1999
December 1998
1.1
0.5
9.6
0.5
2.4
2.6
na
1.4
na
0.6
0.4
Acme Metals
Al Tech Specialty Steel
September 1998
December 1997
1.2
0.1
Laclede Steel
TOTAL
Source: World Steel Dynamics
0.9
5
2.2
1.7
Status
Shutdown, March 2002
Operating
Shutdown, December 2001
Operating
Refiled October 2001, shutdown since
Emerged from bankruptcy May 2000
Refiled July 2001, shutdown September 2001
Emerged from bankruptcy November 2000
Operating
Shutdown, March 2001
Closed Montana facility (0.75 mt)
others plants still operating
Operating
Shutdown, March 2001
Shutdown December 2001
Operating
Shutdown, May 2001
Operating
Operating
Shutdown, August 2000
Operating
Sold August 1999, shutdown January 2001
Emerged from bankruptcy May 2000
Currently operating
Shutdown, October 2001
Emerged from bankruptcy November 1999
Shutdown, July 2001
53.3
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
The US tariffs will provide a time-window for corporate restructuring
•
Tariffs of up to 30%. Friendly and developing countries exempted
•
Progressively reduced over 3 years
•
Other countries/regions have responded
•
Key issue: How fast will US steel companies move to address the problem?
¾ Consolidations
¾ New investors
¾ Pension funds
¾ Financial restructuring
© Hatch Associates Limited, 2006
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THE STEEL INDUSTRY TODAY AND TOMORROW
Alternative models for the US integrated industry
US Steel (Mark II)
•
Govt. takes on Pension and Health care liabilities
•
Integrated (or most) are consolidated
•
Business model remains the same
•
New labour contract and practices
© Hatch Associates Limited, 2006
25
THE STEEL INDUSTRY TODAY AND TOMORROW
Alternative models for the US integrated industry
Chapter 7
•
Full, liquidated, bankruptcy
•
Liabilities “left behind”
•
New entrepreneurs, new capital
•
New employment possibilities
•
Possibility for a new business model
•
Possibility for foreign involvement
© Hatch Associates Limited, 2006
26
THE STEEL INDUSTRY TODAY AND TOMORROW
Alternative models for the US integrated industry
North American Steel Holdings
•
Companies (2+) convert to holding companies
•
Assets placed in one, or more, jointly owned subsidiaries
•
Liabilities held at the holding level
•
Operating entities can raise new capital and attract new managements
•
Possibility for a new business model (Slab Co., Auto Sheet Co. etc)
•
Possibility for foreign participation
•
Possibility for new labour contract (investor?)
© Hatch Associates Limited, 2006
27
THE STEEL INDUSTRY TODAY AND TOMORROW
Escalating costs are eroding the competitive advantages of former Soviet
Union (FSU) steel producers
•
Currency depreciation has made the costs of FSU producers hard to assess – commodity
product exports have helped depress world steel prices
•
20% p.a rises in energy costs and rapidly rising labour costs are eroding these cost
advantages. Higher tariffs and anti dumping charges are also making exports harder
•
Major companies (Severstal, Magnitogorsk) are integrating downstream, acquiring auto
companies, machinery makers, tube companies – the opposite strategy to those of western
steel companies
© Hatch Associates Limited, 2006
28
THE STEEL INDUSTRY TODAY AND TOMORROW
On a global level, there is industry consolidation via mergers and alliances – a
process likely to continue further
•
Customer driven
¾ Customer globalisation (auto, electrodomestics)
¾ Specifications/quality/service level harmonization
•
Cost driven
¾ R & D pooling
¾ Technology development
¾ Product range simplification
¾ Economies of scale
© Hatch Associates Limited, 2006
29
THE STEEL INDUSTRY TODAY AND TOMORROW
Japan is increasingly recognizing the need for mergers, alliances & further
international collaborations
•
Mainly to serve their automotive clients. The same reason Japan invested in US steel
companies
•
Two emerging Japanese/European groupings:
Aceralia
Thyssen Krupp
• Usinor
• Arbed
• Aceralia
Nippon Steel
Sumitomo Metals
Kobe Steel
Baoshan
Tisco
Posco
JFE
Corus
VA Stahl
© Hatch Associates Limited, 2006
• NKK
• Kawasaki
30
WHAT’S HAPPENING IN ASIA?
™
CHINA
™
ASEAN
WHAT’S HAPPENING IN ASIA?
The China steel market is the world’s largest
mt
Top 5 Ste e l Consuming Nations, 1999-2000
160
China
140
USA
120
Ja pa n
100
South Kore a
80
Ge rma ny
60
40
20
Source: IISI
……. AND GROWING
0
mt
1999
2000
Apparent Consumption of Finished Steel
180
165
160
130.8
140
120
141.2
113.9
105.4
100
97.3
103.5
1996
1997
87.4
80
60
40
20
0
1994
Source: IISI
1995
1998
© Hatch Associates Limited, 2006
1999
2000
2005e
32
WHAT’S HAPPENING IN ASIA?
China remains a net importer of steel, especially of value added and flat
products
mt
25
Total Import and Export of Steel Products
total imports
20.7
total exports
20
16.9
16.3
13.5
15
13
10.5
10
6.9
8.2
5.2
5.4
5
flat product
Net Imports
> 10 mT
0
1996
1997
1998
1999
2000
Source: World Steel Dynamics
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
Planned restructuring/investments will change this ……….
•
Flat product capacity will double by 2005
38.8
40
Capacity Changes 2000/2005
New / renovated plants
m t p er year
35
20
•
•
•
2000
30
25
2005
17.7
16
15
6.83
10
5
2.47
4.1
0
Hot rolled
•
Cold rolled
11 HRC
9 CRC
10 Galv lines
+ increased capacity for
stainless, alloy, pipeline
steels
Galvanized
Industry consolidation will continue
¾
¾
plant closures
3 / 4 world class steel groups by 2005
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
The Chinese steel industry faces some key challenges ……………
•
Reducing long product over capacity
•
Boosting production and quality of value added products
•
Upgrading technology
•
Tackling structural over employment
•
Consolidating steel works to regional production centres
•
Opening the market, post WTO
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
………… which provide opportunities for foreign investors
•
Technology upgrading support
•
Mergers and acquisitions
¾
Foreign JVs
¾
Corporate restructuring
•
Financing support
•
Market entry, post WTO
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
Asean long products capacity exceeds forecast demand. Producer
rationalization should gather pace
•
Commodity long products mainly serve local demand. Construction sectors are depressed
•
Several producers have sub-optional cost structures
¾
¾
¾
•
Scale
Location
Facilities
Capacity rationalization and consolidation has begun:
¾
¾
¾
Perwaja
Malayawata/Anshin
Cementhai/NTS
……. further steps will be needed to restore profitability
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
Asean hot rolled coil demand is forecast to double within 10 years
25.0
Asean HRC Apparent Consumption, 2000-2015f
m illio n t o n n e s
20.0
15.0
10.0
5.0
0.0
2000 2001e 2002f 2003f 2004f 2005f 2006f 2007f 2008f 2009f 2010f 2011f 2012f 2013f 2014f 2015f
Source: SEAISI, Hatch Consulting
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
All Asean countries import significant proportions of their flat product needs
Ratio of Net Imports/Apparent Consumption of Flat Products, 2000
%
100
100
90
80
70
70
60
50
50
36
40
30
30
22
20
10
0
Singapore
Philippines
Malaysia
Thailand
Indonesia
China
Source: SEAISI
© Hatch Associates Limited, 2006
39
WHAT’S HAPPENING IN ASIA?
HRC imports remain high, even though considerable (theoretical) excess
capacity exists within the Asean region
6
Theoretical Capacity, Apparent Consumption and Imports of HRC
in Selected Asean Countries, 2000
Theorectical capacity
Apparent consumption
5
m il tonnes
Imports
4
3
2
1
0
Thailand
Malaysia
Indonesia
Philippines
Source: SEAISI
© Hatch Associates Limited, 2006
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WHAT’S HAPPENING IN ASIA?
Industry/government collaborations could create suitable conditions for
new/re-habilitated Asean HRC producers
•
Industry protection (whilst it lasts) will reduce the threat of cheap (former FSU originating)
imports and support higher prices
•
Technology developments (and management support) should enable progressive
substitution of higher value (Japan originating) HRC
•
Pan-Asean producer discussions should enable an orderly introduction of Asean tariff
reductions in 2003
•
Forecast market growth in user-industries (including investments in CR/galvanizing) will
provide increasing opportunities for HRC suppliers
……. but investors will require more rigorous feasibility assessments than have
(sometimes) been previously undertaken
© Hatch Associates Limited, 2006
41
THE SHAREHOLDER VALUE CHALLENGE
THE SHAREHOLDER VALUE CHALLENGE
Average return on total steel sector assets is 3% between 1974 and 2000, while
consolidated Return on Capital Employed is 6%
Returns on investment (including exceptional items) for
a selection of World Steelmakers 1974-2000
16%
Return on Capital Employed for Consolidated activities
14%
12%
Indicative Cost of Capital
10%
8%
Average = 6%
6%
4%
Average = 3%
2%
0%
Return on Total
Steelmaking assets
-2%
1999
2000
1998
1996
1997
1995
1994
1992
1993
1991
1990
1988
1989
1987
1986
1984
1985
1983
1981
1982
1980
1979
1977
1978
1976
1975
1974
-4%
Notes: Capital and pre-tax income relates to steel operations only and differs from reported consolidated accounts. Regions covered include USA (15
companies), Japan (8 companies), Europe (17 companies), Canada and Australia (5 companies), ‘Developing Western World’ (Latin America, South
Africa, India Taiwan, and South Korea – 9 companies) and China (1 company). Number of companies analysed for each year varies from 42 to 60.
Source: WSD (2001), Hatch Beddows analysis
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
For a cumulative capital outlay of US$325 billion since 1974, steelmakers have
returned a cumulative pre-tax profit of only US$23 billion
Cumulative Capital expenditure and Returns (including exceptional items)
for Steel sector activities for a selection of World Steelmakers 1974-2000
350
300
Nominal US $ Billion
250
200
Cumulative Capital
outlays on steel sector
operations
150
100
50
0
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
-50
Cumulative Pre-tax
Income arising from
steel sector operations
including non-recurring
items
Notes: Capital and pre-tax income relates to steel operations only and differs from reported consolidated accounts. Regions covered include USA (15
companies), Japan (8 companies), Europe (17 companies), Canada and Australia (5 companies), ‘Developing Western World’ (Latin America, South
Africa, India Taiwan, and South Korea – 9 companies) and China (1 company). Number of companies analysed for each year varies from 42 to 60.
Source: WSD (2001), Hatch Consulting analysis
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
Poor delivery performance is a generic problem within the industry
Delivery performance of a European coated flat products producer
100
Prepaint
CR
% Compliance
80
Galv
Tin
60
40
20
0
May
y
y
y
y
Jun
Jul
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Jul
Aug Sep Oct Nov Dec Jan
Targets often 90%
Achievement often only 60%
Achievable (without capex) 95%
Target should be 99%
Source: Hatch Consulting client
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
The number of producers adds to the problem
Aluminium Concentration
Al ingot and HRC compared
Biggest = 16%
100%
Top 3 = 38%
Aluminium
90%
Top 20 = 80%
80%
HRC
Total number of Companies =
78
70%
60%
HRC Concentration
50%
Biggest = 8%
40%
Top 3 = 20%
30%
Top 20 = 52%
20%
Total number of Companies =
150
10%
0%
1
2
3
4
5
6
7
8
9
10
Total
Incremental company
Source: Hatch Beddows analysis
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
There is a correlation between industry concentration and returns
Top 5 Companies Control of Western World Market (2001 E)
100
Platinum
90
Palladium
Concentration (%)
80
Autos
70
Nickel
60
There is as yet no correlation
between steel company size
and return
Iron Ore
50
Copper
Aluminium
Cement
40
30
Paper
Coal
20
Steel
10
0
5
10
15
20
25
30
Operating Profit Margin (%)
Source: Morgan Stanley and Hatch Beddows analysis
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
Complexity drives up costs
The average HRC producer:
•
Serves 50 – 100 customers directly, 10 – 20k industry
•
Produces 100 grades of steel in any quarter
•
Produces 25,000 combinations of grade, width and guage of steel in any quarter
•
Supplies to all industrial sectors
•
Competes against other steel companies and other metals and materials
•
Changes its melt grades by about 70% every 10 years
© Hatch Associates Limited, 2006
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THE SHAREHOLDER VALUE CHALLENGE
The automotive industry thrives on complexity. The European Standard for QT
steels contains over 75 basic grades with the automakers often specifying
bespoke variations in addition to these
Representative sample of European QT grades primarily used in auto applications
EN 10083-1
9
An
enlightened
Euro supplier
satisfies all
customer
demands with
only 10
grades
Germany
Alpha-Numeric Name
Material Number
(Ck 22)
(Cm 22)
Ck 25
Cm 25
Ck 30
Ck 35
Cm 35
Ck 40
Cm 40
Ck 45
Cm 45
Ck 50
Cm 50
Ck 55
Cm 55
Ck 60
Cm 60
28 Mn 6
38 Cr 2
38 CrS 2
46 Cr 2
46 CrS 2
34 Cr 4
34 CrS 4
37 Cr 4
37 CrS 4
41 Cr 4
41 CrS 4
25 CrMo 4
25 CrMoS 4
34 CrMo 4
34 CrMoS 4
42 CrMo 4
42 CrMoS 4
(1.1151)
(1.1149)
1.1158
1.1163
1.1178
1.1181
1.1180
1.1186
1.1189
1.1191
1.1201
1.1206
1.1241
1.1203
1.1209
1.1221
1.1223
1.1170
1.7003
1.7023
1.7006
1.7025
1.7033
1.7037
1.7034
1.7038
1.7035
1.7039
1.7218
1.7213
1.7220
1.7226
1.7225
1.7227
2C22
3C22
2C55
3C25
2C30
2C35
3C35
2C40
3C40
2C45
3C45
2C50
3C50
2C55
3C55
2C60
3C60
28 Mn 6
38 Cr 2
38 CrS 2
46 Cr 2
46 CrS 2
34 Cr 4
34 CrS 4
37 Cr 4
37 CrS 4
41 Cr 4
41 CrS 4
25 CrMo 4
25 CrMoS 4
34 CrMo 4
34 CrMoS 4
42 CrMo 4
42 CrMoS 4
United Kingdom
France
Sweden SS Steel
Spain
(070M20)
(070M26)
(080M30)
(080M36)
(080M40)
(080M46)
(080M50)
(070M55)
(070M60)
(150M19)
(530M32)
(530M36)
(530M40)
(708M25)
(708M32)
(708M40)
-
[XC 18]
[XC 18 u]
[XC 25]
[XC 25u]
[XC 32]
[XC 38 H 1]
[XC 38 H 1 u]
[XC 42 H 1]
[XC 42 H 1 u]
[XC 48 H 1]
[XC 48 H 1 u]
[XC 55 H 1]
[XC 55 H 1 u]
(38 C 2)
(38 C 2 u)
(32 C 4)
(32 C 4u)
(38 C 4 )
(38 C 4 u)
42 C 4
42 C 4 u
25 CD 4
25 CD 4 u
(34 CD 4)
(34 CD 3 u)
42CD 4
42 CD 4 u
1572
1672
1674
2245
2225
2234
2244
-
C25K
C25K-1
C35K
C35K-1
C45K
C45K-1
C55K
C55K-1
38Cr4
38Cr4-1
42Cr4
42CR4-1
40CrMo4
40CrMo4-1
X
Another Euro
supplier
purports to
supply all
these
individual
grades
Source: BSI, Hatch Consulting
© Hatch Associates Limited, 2006
49
REDUCING COMPLEXITY – IN COLLABORATION WITH CUSTOMERS – PRODUCERS TANGIBLE SAVINGS
An organic coating facility substantially enhanced revenue by halving number
of paint changes
With Current Number of Paint
changes
Line
With Half Current Number of Paint
changes
Foregone
Tonnes
Average Price
Foregone
Revenues,
£m
Foregone
Tonnes
Average Price
Foregone
Revenues,
£m
Line 1
40,000
659
26
20,000
659
13
Line 2
25,000
678
17
12,500
678
8
Line A
1,667
695
1
833
695
1
Line B
21,000
695
15
10,500
695
7
Line A1
11,200
687
8
5,600
687
4
Total
98,867
67
49,433
33
With half the current number of paint changes,
there is an incremental revenue opportunity of £34m
Source: Hatch Consulting client study
© Hatch Associates Limited, 2006
50
THE SHAREHOLDER VALUE CHALLENGE
The way forward?
•
Consolidation of major players……. to ensure product specialisation and reduce complexity
¾
¾
•
Internationally
Re-thinking the integrated model – the dilemma of front-end “push” and downstream “pull”
¾
¾
¾
•
nationally
dis-aggregation
Improved customer focus
outsourcing
Better studied investments
¾
rational decisions
¾
prudent investments
© Hatch Associates Limited, 2006
51
Thank you for your time and attention
……. the future can be better for those who face up to
economic realities
© Hatch Associates Limited, 2006
52