The Ups and Downs of Steel

Between industry consolidation and soaring materials requirements from China, steel has had a major impact on the global economy. Steel prices continue to fluctuate, steel shortages are becoming more common and, in some instances, allocation has occurred. As a result, several industries have taken steps to adjust to the new reality. Among these are the steel industry itself, electric motor manufacturers and carmakers. The three differing situations provide interesting examples of the changes that are occurring.

Steel Futures

In July 2006, U.S. steel mills shipped a 15.9 percent increase over July 2005, but a 7.5 percent decrease from the previous month. As recently as the week ending October 7, 2006, raw steel capability utilization rate was 83.2 percent compared to the week ending October 7, 2005, when the capability utilization was 89.3 percent. However, two years ago, the global steel industry was operating at about 97 percent capacity. To provide risk management in the steel market, the London Metal Exchange (LME), selected Platts, a division of The McGraw-Hill Companies and a leading provider of energy and commodity information, as a partner for developing steel market price assessments. Platts will implement assessment processes for steel pricing similar to those widely accepted in the oil industry and increasingly popular in the petrochemicals markets. The finished, semi-finished and raw material products used in steel making are likely candidates for steel related products pricing, however, the stated focus is on ‘flats’ and ‘longs’, and, specifically, hot rolled coil and rebar. Initial target market focus will be on Europe and North America, with regional location preferences such as Midwest U.S. or Northern Europe.

Brushless DC Motors

In the electric motor industry, permanent magnet, brushless dc (BLDC) motors have received a boost from increased steel prices. In this case, a combination of factors has lead to change: increasing energy costs and decreasing magnet costs as well as increasing steel and copper prices. Induction motors use more copper and steel than a BLDC motor, so the added cost of magnets has become far less of a factor. As a result, the BLDC technology, which uses electronics to provide increased efficiency compared to the inductive motor, is increasingly being used in energy-sensitive applications.

Cars and Steel

Even carmakers are losing clout against big steel. The more expensive sheet metal for body panels has encountered price increases that exceed 10 percent. As a result, carmakers have banded together to oppose continuing the penalty tariffs on corrosion-resistant carbon flat steel products in the U.S. As could be expected, the steel industry strongly opposes this move by the car industry. In this case, the business strategy is not technical but does reflect the positioning and actions required for future success.

Strategies for the Future

These three cases demonstrate leadership examples of seeking alternatives to achieve an optimum operating point. Other steel industry stakeholders need to evaluate their options and make appropriate decisions to avoid being blindsided by changing paradigms in the rapidly changing global economy of the 21^st century.

// Web Resources:

London Metal Exchange
http://www.lme.co.uk/4570.asp

London Metal Exchange- Frequently Asked Questions
http://www.lme.co.uk/steel-faqs.asp

World Steel Dynamics organization
http://www.worldsteeldynamics.com/

American Metal Market
http://www.amm.com/