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December 12, 2017
The Digital Squeeze for Western Steelmakers
By: Dr. Andrew Zoryk

Steel companies in Western economies are facing a distinctly uncomfortable future.

Global overcapacity
On one side, global overcapacity, driven by China, shows no real sign of abating anytime soon. By 2014, China had overtaken Japan as the largest global steel exporting country.1 And, despite policies and regulations being introduced to reduce Chinese steel production by approximately 150 million tonnes,2 there is little evidence to suggest that this is taking place. Indeed, recent signals suggest the contrary.

Consequently, Western steel companies are facing a sustained period of low prices and profitability, with little evidence of a return to growth above 1-2 percent,3 or a cyclical rebound. To combat this, in addition to cost takeout measures, some companies are looking at mergers and acquisitions to find synergies and greater economies of scale.

Innovation and digitalization
On the other side, China and other Asian countries are also rapidly embracing the Fourth Industrial Revolution (Industry 4.0) to drive smart manufacturing through combining the Internet of Things, analytics, big data, artificial intelligence and other digital technologies. In China, clear government policies have been established: “Made in China 2025” and “Internet Plus” are both aimed at putting China into a leading international position with respect to innovation and manufacturing excellence.4

Chinese (and other Asian) steel companies are starting to embrace smart factory and Industry 4.0 concepts as part of their development strategies. Some companies are already leveraging e-commerce platforms as part of steps to digitalize their business and make other automation advances to drive customer centricity, product quality and cost efficiency.

The implications for companies in other parts of the world are clear. They cannot afford to be left behind and need to rapidly adopt their capabilities to embrace the reality of a digital future. Some 15 years ago, Western steel companies were shocked by the explosive growth of China’s steel industry. They need to ensure they are not surprised again.

Future considerations
There are many areas in which digital technologies can be applied as part of an overall integrated business process and IT strategy to transform an existing steel mill into an automated “smart factory,” focused on product quality, efficiency and worker safety improvements. Some examples of this could include:

Clearly changing an existing mill to become a “smart factory” cannot happen overnight. Instead, it requires taking incremental steps as part of a roadmap towards automation and business process integration to gain quick wins and learning.

Some steel companies have already started such journeys, including one that successfully introduced a solution that reduces the deviation of zinc coating weight during continuous galvanizing by using artificial intelligence for automotive steel sheet production.

To avoid being squeezed between global macroeconomic forces on the one side and a lack of competitiveness in a digitally-enabled world on the other, steel companies in the West must think along the lines of “less mass and more value.” Digital, along with a plan to embrace the opportunities presented by Industry X.0—the digital reinvention of industry—must be a key component in realizing this strategy.


Sources:
1 “Indirect Trade in Steel”, World Steel Association, March 2015, https://www.worldsteel.org/publications/bookshop/product-details.~Indirect-trade-in-steel--March-2015-Report~PRODUCT~Indirect-trade-in-steel--March-2015-Report~.html (accessed November 1, 2017).
2 “China's 150 Million Tons of Steel Cuts Seen Too Small, Too Slow,” Bloomberg, February 4, 2016, https://www.bloomberg.com/news/articles/2016-02-05/china-s-150-million-tons-of-steel-cuts-seen-too-small-too-slow (accessed November 1, 2017).
3 Lichtenstein, John. "Steeling for Disruption," Accenture Strategy, 2017, https://www.accenture.com/us-en/insight-steeling-for-disruption (accessed November 1, 2017).
4 “Planning for Innovation: Understanding China’s Plans for Technological, Energy, Industrial, and Defense Development,” U.S.-China Economic and Security Review Commission,” July 28, 2016, https://www.uscc.gov/Research/planning-innovation-understanding-china%E2%80%99s-plans-technological-energy-industrial-and-defense (accessed November 1, 2017).



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