While excess capacity and price volatility are among the key challenges faced by the steel industry, digital is shaping the future of metals in a complex business environment, said the managing director of Accenture metals.
John Lichtenstein shared his passion for steel and how the industry can address growth challenges in an interview published by Accenture, a multinational management consulting, technology services, and outsourcing company.
What are some of key challenges steel companies are facing?
There are three major challenges. The first is slow market growth in most regions—not only in mature economies, but now in China and several other emerging markets.
The second is excess capacity, particularly in China, where massive capacity has been added in anticipation of continued growth.
The third challenge is volatility. Due to the global nature of the industry, local or regional disturbances can quickly cascade through to the whole industry and impact pricing in particular.
How should steel companies respond?
Essentially, they should optimize their business models along three dimensions—commercial, operations and supply chain.
In the commercial area, it’s about gaining deeper insights into and making stronger connections with customers, shaping value propositions that can increase share of customer wallet and expanding total demand for steel and services that can be provided by producers.
In operations, it’s about optimizing equipment availability through leading maintenance practices and increasing throughput with advanced scheduling techniques to increase returns on assets and returns per machine hour.
And significant improvements can also be made all along the supply chain, where we see impacts of volatility not only in upstream with raw material pricing, but also downstream in material movements and in changes in logistics and carrier costs.
What role does digital play in addressing challenges?
The key is for companies to begin taking advantage of the capabilities digital technologies can bring to the industry across the three dimensions I mentioned.
In the customer area, this means using analytics and mobility to help build the right customer base and to achieve superior customer engagement.
In operations, the concepts of predictive maintenance and dynamic scheduling, among others, are not new to the steel industry as many companies have spent years working to implement them.
What is new and exciting is that technologies and analytics power now exist to more fully realize the value of these concepts. This is also happening along the supply chain, where a combination of analytics around market movements and digital tools can help enhance decision making.
Do you expect the global industry slowdown to continue?
In the final decades of this past century, there was a marked slowdown in steel consumption in mature economies, while emerging markets had not yet ignited as demand centers. Starting in 2001, China’s consumption and production of steel took off, growing at double digits for most of the decade.
This growth drove China’s share of global output from less than 15 percent to around 50 percent today and, in the process, helping drive global growth rates above long-term norms.
However, as the Chinese economy is now slowing and the country is shifting its growth model away from infrastructure building and manufacturing export toward more services and higher tech, steel demand growth has slowed dramatically. Consequently, as steel demand growth in most other regions remains subdued, the foreseeable outlook is for global growth to revert to the long-term norm of 2 to 3 percent per year, and not even reaching that level in some years.
So where will future growth come from?
Given macroeconomic and political challenges in Brazil and Russia, there’s a lot of expectation for India to become “the next China.” While similar in population to China, India only has about 10 percent of comparable steel production.
The significant change in India’s government toward more business and reform could help create conditions for stronger growth. However, even at a healthy rate, India won’t be able to compensate for the slowdown in China, and certainly not in the short term.
India has the advantage of having iron ore and coal and other raw materials, and now it appears governmental changes will make the landscape more agreeable for industry growth. I visited there recently, and there is a lot of cautious optimism and enthusiasm that the promise of India’s steel potential will become a reality.
We’re also seeing strong growth in the Middle East, but from very small base.
Why are you passionate about the metals industry?
Steel is an industry that is part of a nation’s psyche. It starts as a key driver and symbol of economic growth and industrialization. It continues, even in regions where its direct economic impact is diminished, to have an outsized visibility in policy debates around international trade, environmental protection, employment and so on. One of the first things emerging economies often do is to try and create a steel industry. So from global economic and political policy standpoints, it’s fascinating.
And then you weave in the amazing physical process of steel production. I never tire of spending time in a steel mill—the scale of it, the forces at work, the energy used and the heat of the furnaces and the speed of the rolling mills—it’s a massively complex set of operations and extremely exciting to see take shape.
What’s one thing most people might not know about you?
I live in rural New Hampshire where there’s not a steel mill for miles. My wife and I enjoy being outdoors. There’s an Audubon refuge and state park adjacent to our house, and we like to spend a lot of time in the quiet, away from all the noise and activity. – TradeArabia News Service
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