The steel industry holds ample promising prospects for growth and profit. However, it cannot entirely be labeled as a sector that is devoid of threats and challenges. Currently, trade and overcapacity are some of the dominant issues for steel manufacturers.
But the list, unfortunately, doesn’t end there; there are still several issues that steel manufacturers need to address to ensure that they function smoothly in the long run. Furthermore, the increasingly competitive environment is putting pressure on global steel companies to search for better ways to gain a competitive advantage in the market. We examine some of the key challenges that steel manufacturers need to tackle for hindrance-free long-term sustainability in the market.
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Challenges faced by steel companies
Solid waste management
Steel manufacturing involves the production of large amounts of solid wastes while processing materials through various processes. But what steel manufacturers often overlook is the fact that these solid wastes contain several valuable products which can be reused if recovered economically. Players in the steel industry need to figure out ways by which they can make the best out of solid waste and reduce wastage of useful resources.
The problem of excess capacity
Despite growth rates for steel production being tapered globally since 2008, China continues to produce more steel every year. Consequently, almost half of the world’s steel is now manufactured in China. The high rates of overproduction, combined with volatile raw material prices add to the struggle of steelmakers to make good profit margins. Therefore, before there can be any long-term structural growth in the steel industry, the amount of excess and less-efficient capacity needs to be shut down.
However, factors such as labor laws, environmental costs, and permanent loss of the optionality value of the plants are curbing steel manufacturers from shutting down steel capacity permanently. Additionally, government intervention in the steel industry provides an additional political incentive to keep employing workers regardless of profitability.
Growth in demand
With the increasing focus on infrastructure and development, global steel use is expected to rise in the years to come. However, there are some uncertainties in the rate of growth in emerging economies due to unresolved structural issues, political instability, and volatile financial markets.
The majority of the rise in demand will be met by primary raw materials (coal and iron ore). In years to come, increasing urbanization in emerging markets and the renewal of infrastructure in developed markets should mean that steel consumption will continue to grow steadily. The big question for steel manufacturers is whether they would be able to meet the growing demand, especially from emerging economies in the long run.
Price volatility of raw materials
The constantly fluctuating price of raw materials and weak steel prices have put significant pressure on steel margins.
However, steel manufacturers have been working hard to become competitive in other ways. They have been taking several steps to gain more control of their raw material pricing, while cost-cutting has led to production cuts in some regions. Several steel manufacturers are also investing a considerable amount of money into R&D for differentiating their products from other players in the market.
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