Steel producer Hadeed’s plant in Saudi Arabia

Steel producer Hadeed’s plant in Saudi Arabia

Digital the way to counter tough times

Grappling with a complicated situation in such a key industry as steel may not be easy but perhaps some comfort can be had from a high-tech approach

September 2015

Digital technologies can help the steel industry optimise in the face of tough challenges it is facing, says a top official of Accenture Metals.

John Lichtenstein, managing director, said excess capacity and price volatility are among the key challenges faced by the steel in-dustry and that in the complex business environment digital is shaping the future of metals.

As spelled out by Lichtenstein, the first of the key challenges is slow market growth in most regions—not only in mature econo-mies, 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 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.

In an interview published by Accenture, a multinational management, consulting, technology services and outsourcing company, he said steel companies should optimise 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 optimising 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 up-stream with raw material pricing, but also downstream in material movements and in changes in logistics and carrier costs,” Lich-tenstein stated.

The key is for companies to begin taking advantage of the capabilities digital technologies can bring to the industry across the three dimensions mentioned.

Lichtenstein: spelling out a viable approach to current issues

Lichtenstein: spelling out a viable approach to current issues

“In the customer area, this means using analytics and mobility to help build the right customer base and to achieve superior cus-tomer 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 realise 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.”


About whether the global slowdown would continue, Lichtenstein stated: “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. Start-ing 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 per cent to around 50 per cent today and, in the process, help-ing 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 per cent 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 ex-pectation for India to become the next China,” said Lichtenstein, while noting that while similar in population to China, India only has about 10 per cent 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,” he observed.

“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 a very small base.”

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