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A New Model Needed in the Steel Industry

March 16, 2009

Steel prices have been wild this past year - from record highs in mid-July to the current barely-breakeven lows. Steelmakers have seen a dramatic decline in demand, with global output sinking about 25% in January and North American output down 50%, according to Reuters. The unprecedented volatility has left many people related to the steel industry wondering where things might go next.
While no one knows that answer, what they can do is prepare for the new economic reality that will come out of this global financial and economic crisis. This was the message presented by Pierre Mangers of PricewaterhouseCoopers Luxembourg at the Handelsblatt Stahlmarkt conference in Germany earlier this month.
Mangers told attendees that the steel industry needs a new business model with a focus on environmental challenges if it hopes to survive in the 21st Century, reports Steel Business Briefing. At the same time, the industry needs to focus on appropriate return-on-capital-employed targets" rather than the "unreasonable" targets of 20% or more that have been chased to this point.
Mangers recommends aiming for 5% to 7% returns instead, and redefining success to include contributions to society. This will help attract shareholders with long-term interests rather than investors trying to make a quick buck. Conventional cost-cutting measures in the steel industry just aren't enough anymore, he says.
While Mangers' comments were directed at the European steel industry, the global nature of the marketplace means that steelmakers in other parts of the world might want to pay attention, as well."

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