Steelmakers will need to focus on restoring and maintaining value to survive 2013 and position for growth in the future, according to a new Ernst & Young report,Global steel: A new world, a new strategy.
The annual report, says excess steelmaking capacity globally will remain the biggest issue for the sector this year – but the operating environment should improve from 2014.
Mike Elliott, Ernst & Young’s Global Mining & Metals Leader, says steelmakers will need to focus on strategic cost reductions and assess optimal capital structure. The report also questions the assumption that vertical integration in the sector adds value.
- The big challenge for steelmakers in 2013 is how to be cost competitive while maintaining enterprise value, Elliott says.
Despite increased demand for steel and the removal of some older steelmaking capacity in 2012, the level of excess capacity is greater now than it was 12 months ago, due to the continued growth in new steelmaking facilities.
Capacity utilization rates in the sector remain below 80%, rising to more sustainable levels from 2014.
- Global steel demand is unlikely to improve sufficiently in 2013 to exceed the committed new capacity. This, combined with ongoing volatility in raw materials costs will challenge the sustainability of high cost producers, says Elliott.
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