Steel, aluminium and the carbon targets 2010—2050
The structure of the steel industry
The steel industry consists of a large number of producers with an international reach. In 2007, 1.34 bn t of steel were produced which, together with iron, accounted for 65% of the $1,594 billion global metals and mining market.
Iron Ore Mining Industry
Coke Direct Reduced Iron Pig Iron
Project finance, brokers, traders & exchanges Steel Industry Secondary steel production EAF
Primary steel production BOF
Standardised steel products
Construction Industry Automotive Industry Railway Industry Shipbuilding Industry Chemical and Petroleum Plants Other
Specialist steel products
Finished products and equipment
B Equipment, transport Recycling Industry & support services
1 2 2 3 3
Figure 1 The steel supply chain
Since the invention of the Bessemer process in 1856, steel has become a choice building material across the globe, sought after for its advantageous qualities ‐ hardness, ductility, durability and tensile strength. As a result, demand for steel has became synonymous with industrial development, not least today, when the growth of the so‐called BRIC countries (Brazil, Russia, India and China) is by far the greatest influence on the market. particulars of the production process. Both steel and its majority input, iron ore, are produced in a highly capital‐intensive manner. Their production involves long lead times and increasingly continuous processes. The resultant rigidity in steel supply, coupled with the highly cyclical nature of steel demand, have meant that certain key decisions within the industry are made by coordinated, administrative processes as opposed to pure market forces. For example, iron ore prices are negotiated annually at meetings between the steel and the iron ore industry. Future demand is also discussed at these meetings with a view to avoiding situations of
The steel industry is often referred to as a “key” or “strategic” industry. This is not only because of its importance for development and because of the Julian M Allwood, firstname.lastname@example.org Department of Engineering, Trumpinton St, Cambridge CB2 1PZ
over/under supply. The need to improve the steel industry’s bargaining power at these meetings is part of the motivation for increased consolidation in the sector since the mid 90s (2). Another example of coordination is the European Coal and Steel Community, a precursor to the EU and operational for the 50 years from 1952. As well as acting to prevent protectionism, this body received information and offered comment and advice on all sizeable investments made by the sector within the Community (3). Full scale centralised planning of the steel sector occurred in China until the 1970s and the state has continued to have a significant influence on the industry since piecewise privatisation has been encouraged (4).
their earnings, capitalise on cheap production capacity and take advantage of economies of scale (2) . The need to secure access to input markets and the availability of cheap credit (while it lasted) have also been key influences on M&A activity. Whilst most of these motivations have waned in the face of the global financial crisis, pressures from the Chinese government will likely see further consolidation in the industry (4). Despite this trend towards globalisation and consolidation, the industry remains fairly fragmented, with a large number of producers operating with an international reach. The top 10 global steel producers together account for 27% of production, with the single largest producer – the recently formed ArcelorMittal ‐ accounting for 8% of production. The fragmented nature of the industry increases competition for inputs and ...