Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
Steel is a very important material used in everything from construction to machines, automobiles, appliances and even weapons. Steel has laid the foundation for modern civilization and it played a crucial part in the development of industries all over the world. Essentially it is an alloy with a major content of iron and the rest carbon varying anywhere between 0.2 percentage and 2.1 percentage. Steel itself has been in existence over many hundreds of years but the process of making it has evolved as years progressed along with technology. Steel distinguishes itself from other metals and alloys based on rust resistance, recyclability and weld ability.
The advancement of the steel industry is often linked to the economic development as it played a crucial role in it. Around 1.3 billion tonnes of steel was produced in 2007. And according to reports it is expected to grow by more than 10 % in 2010. (Peter Marsh, 2009)
Mittal steel acquired Arcelor in June 2006 to become the world’s largest steel producer. With operations in more than 60 countries it has its industries rooted in more than 20 countries over four continents. Arcelor based in Luxemburg was the biggest steel producer in Europe when Mittal acquired it after a dramatic five month long takeover battle. Currently Mr.Lakshmi Mittal is the Chairman and main owner of ArcelorMittal.
According to ArcelorMittal, it had a crude steel production of 73.2 tonnes which is approximately 8 percentage of the total steel production in the world. It had revenue of $65.1 billion. Listed in stock exchanges of New York, Amsterdam, Paris, Luxemburg, Brussels and Spain it is a global industrial force to be reckoned with (ArcelorMittal, 2010).
Major Competitors in the Steel Industry
After the acquisition of Arcelor, ArcelorMittal firmly established itself as the leading steel producer in the world. According to the World Steel Association in 2008, the top 5 players in steel the industry were:
Hebei Steel Group
Amount of Production
(Million Metric Tonnes)
Hebei Steel Group
(World Steel Association, 2008)
The steel industry focuses on core competency factors such as:
advanced technology for example use of advanced laser cutting tools during the production stage
environment sustainability by ensuring no damage or pollution to nature
employee enrichment example good training and technological exposure
effective management of competition with superior technology with constant research and development
responsibility to shareholders
ArcelorMittal claims the entire above core competencies required in the industry. It has developed a robust corporate social responsibility strategy with the four key points of focus:
making steel more sustainable by making steel production greener and environmental friendly
transparent governance by careful study of impacts and risks and improvement in quality of disclosure to stakeholders
enriching communities by engaging them and progressing with partnerships and open communication
investing in people by ensuring safe and healthy work environments which is also innovative
These four key strategies form their core competency strategy and were formed soon after the merger of Arcelor and Mittal by careful research and studies into other major players in the industry (ArcelorMittal, 2010).
The steel industry depends on all or most of the following key resources for its sustainability and growth:
Research and development resources
(Steel University, 2002)
Growth rate and Profitability of the Steel Industry
According to the World Steel Association, the major steel production over the world has increased as compared to the previous year. The production in 2009 November was 107.5 million metric tonnes (mmt) which was 24.2 % more than in November 2008. They claim that a month on month comparison with the previous year production definitely shows more production in 2009 as compared to 2008.
(World Steel Association, 2010)
In terms of profitability, steel prices have had a steady rise helping many companies like Fosun in China to move up in the list from fifteenth to sixth position. Reports clam that it had revenue of $5.7 billion last year. Price of steel has increased over the last year by 35 % and is currently at $ 230 per tonne (Michael Sainsbury, 2010). Many steelmakers in Europe and U.S are investing more in the industry indicating a possible increase in profitability (Alex MacDonald & Alexander Kolyandr, 2010).
Even though ArcelorMittal is the leading producer of steel in the world and even with the increase in production the same cannot be said of its profits. ArcelorMittal is said to make a net loss of $792 million. Mr Mittal expressed his opinion that the growth in profits would be slow and progressive over time. Mostly the low profits registered were due to efforts of the company to change its debt structure and bring it down from the current $ 22 million. ArcelorMittal is planning to invest around 4 billion in capital expenditure (Alex MacDonald & Alexander Kolyandr, 2010).
Using Porter’s five forces framework examining Arcelor Mittal’s competitive forces we get the following results:
Threat of entry: The steel industry has low potential threats in the form of new entrants in the market due to the heavy investment required. Even then new entrants such as Sererstal and Evraz in Russia pose considerable threat to existing steel producers.
Rivalry among existing players: While new entrants maybe rare existing competition poses the largest threat to Arcelor Mittal. Close competition in mainly from China, Nippon. Analysts predict the steel industry growth is going to be concentrated in Asia in the future. Other competitors like Tata Steel, Baosteel and POSCO also have to be fought off from eating up profits.
Power of buyers: The bargaining powers of buyers are not to be underestimated. Even with growing production the steel industry has not been able to show growth in profitability in the same light due to falling prices. Competition has also led to this state of economic crisis.
Power of suppliers: The major suppliers where ArcelorMittal is considered are the iron ore suppliers. Main ore suppliers in the market like Vale, Rio Tinto, BHP and Gloucester were accused by major steel industries of raising ore prices and shifting bargaining power in their favour (Sarah, 2010). ArcelorMittal even raised concerns about possible joint venture by BHP and Rio stating that they were already in power were prices were concerned and this venture could affect the steel industry adversely. (Alex, 2010)
Substitutes: Many substitutes to steel such as aluminium pose competition in areas like automobile and aircraft manufacturing.
Opportunity or Threat?
Entrants: Entrants into the industry are definitely a threat to ArcelorMittal as it would swallow profits and take up part of their space in the global market. The threat that exists may be more of a local nature for example when new entrants come at national level inside a country. Threat of new entrants are however a minor possibility and a rare occurrence and hence not much cause for concern.
Existing players: Existing players pose more of a threat than new entrants as they are a force to be reckoned with. They pose a threat in terms of price. ArcelorMittal is the biggest steel producer in volume but not the most profitable. Low prices offered by other existing companies lure away customers and result in lower profits for ArcelorMittal.
Power of Buyers: This could be more of an opportunity for ArcelorMittal in the sense that having the biggest resources in their hand they may be able to easily attract buyers. ArcelorMittal has modern technology which is a major attractive feature to potential buyers.
Power of suppliers: This is the largest threat so far to the industry. They are hard to deal with. Price bargaining power seems to be concentrated on the part of suppliers and have negatively affected ArcelorMittal and the steel industry as a whole. Joint venture between Rio and BHP is most certainly an offensive strategy.
Substitutes: Substitutes do pose a certain amount of threat. But it also holds an opportunity for the industry to research and develop more and more uses for steel and also make advancements in the production processes. As it is technology has enabled steel to be manufactured more thinly than ever before. Experiments in alloy compositions have resulted in more products and discovery of their applications.
As far as ArcelorMittal is concerned it strongly suggests that the steel industry is a developing industry with a lot of potential. Many of the risky decisions taken by the company were its strong belief in this industry. ArcelorMittal has not broken its stride in its development since it began. New acquisitions and entry into new markets have only confirmed this. ArcelorMittal plans on staying in this market and even acquired Uttam Galva Steels Ltd in India predicting that the next big steel consumer would be India with its rising population and automobile industry (ArcelorMittal, 2010). Mr Mittal also predicted a 10 % growth in the industry in 2010.
Combatting Industrial Threats
The steel industries face various industrial threats and have to be ready to overcome these threats and still stay in the game. Some examples are as below:
Iron ore price: Suppliers are mostly in control of iron ore pricing and these are directly responsible for steel industry profitability. Recently Rio one of the largest suppliers in this market took a decision to price the iron ore on a quarterly basis changing the annual pricing standard. This is was a major setback for the steel industry. The World Steel Association was in negotiation with the iron ore suppliers to change this norm as the steel industries were still recovering from global recessions (James Regan, 2010). A good industrial relation would help overcome this problem. If the whole steel industry disagreed on this and refused to buy on this pricing norm, a change could be brought about. Also it is important to keep communication open between the suppliers and the market and make it clear that their survival depends on the growth of the industry and such decisions could be a setback affecting both the buyer and supplier in one way or the other.
European Emissions Trading System: Many companies in the steel industry like ArcelorMittal and Lafarge faced heavy charges based on the carbon emissions according to the EU trading scheme. They were able to combat this problem by lobbying together and convincing the European Union that they deserved considerable reductions in this or they would be forced to shift location of their plants to more profitable nations. This would be an economic downfall or the EU and hence they succumbed to the threat (The Ecologist, 2010).
Economic Recession: This is the most dangerous threat of all to the steel industry. In countries like Russia, an entire city depends on a steel plant for its livelihood and in times of recession these places are hit hard and employment rates soar. In such times the government adopts strict measures and sometimes even offer ultimatum to steel companies to improve performance or leave. During this global recession, Siberian government threatened to seize the assets of ArcelorMittal if they failed to increase coal production in their mines. Such situations call for a contingency plan. Companies must be ready for worst case scenarios instead of always looking at a brighter prospect (Stratfor, 2009).
Competing firms can combine and combat threat in the industry through organizations like World Steel Association. A strong stand on any issue facing the industry would help to resolve the problem.
Recent trends in the industry indicate a higher volume of steel consumption especially in the Asian region and companies are all set to take advantage of this situation by concentrating their efforts in this region.
ArcelorMittal hopes to take advantage of this situation and have already set this in motion by purchasing Uttam Steel in India. They are all set to harness the high revenue automobile market by doing so.
ArcelorMittal plans on staying in the leadership position by having a strong consistent management strategy. ArcelorMittal states that they lay special emphasis on “product diversity, geographic reach, vertical integration – both into raw material production, designed to minimize risk caused by economic cycles, and downstream distribution, providing value added and customised steel solutions through further processing to meet customer specific requirements” .According to them customers form the core of their business. They also give prime importance to “transferring tomorrow” with “Sustainability, Quality and Leadership” (ArcelorMittal, 2010).
Top Players in the Steel Industry
The top ten players in the steel industry are as follows:
Heibei Steel Group
Wuhan I & S
According to news reports, the Chinese are overtaking steel production. More than half the top ten steel producers in the world are from China.
(China Tells, 2009)
ArcelorMittal is the largest producer and will remain to be so due to its highly competitive investment strategy. Another fast growing company is Tata Steel with its acquisition of Corus, the second largest steel producer in Europe, it poses considerable competition to ArcelorMittal.
Positioning of Players in the Industry
The major players in the industry are positioning themselves based on the following factors:
Environment: With the growing competition and supplier power, the major steel players are trying to find a balance between growth and profitability. Many reforms in the industrial laws and globalisation trends have proved to be both good and bad for the industry. The economic trends have been particularly bad for the industry over the past few years. But this is expected to change and growth in industry and profitability is expected in the next few years.
Capability: Each player in the industry is vying for the top technological advancements and is investing heavily in their capital infrastructure as well as in research and development. It has become a highly competitive market.
Purpose: The major steel companies are also turning more and more to corporate social responsibility and are taking efforts to implement an environmental friendly production plant and processes.
(Johnson, Scholes and Whittington 2008)
Role of Distribution and Logistics
While the Chinese steel manufacturers are advancing they still lag behind in terms of distribution and logistics as compared to the developed countries. The Chinese government has however taken more interest in this after its entry in the World Trade Organization and are planning to invest more in this sector (China International Steel Distribution and Logistics Conference, 2007).
Distribution and logistics play a crucial role especially in the case of automobile industry where new vehicles have a fluctuating demand for materials. ArcelorMittal stayed on top of the game by finding solutions for failings on of the buyer in terms of wrong order, changing order etc. In fact ArcelorMittal won the “Logistics” award from PSA Peugeot Citroen in March 2010 (Vincent Daenen, 2010).
Acquisitions and Mergers and Ownership Patterns
Acquisitions and mergers in the industry have definitely changed the ownership patterns in the global steel industry. The biggest change in the history of the steel industry was the acquisition of Arcelor by Mittal steel to form ArcelorMittal. This resulted in the company becoming the world’s top producer of steel. Acquisitions also have helped the companies to penetrate some markets. For example the Tata acquiring Concur resulted in its entry into European markets and Arcelor acquiring Uttam Steel in India also helped it enter a fast developing market. In this industry strategic alliances may not be always possible as it is a highly competitive industry with each player vying for more market share. In such a scenario spin offs or creating of new entity may be the solution. This would help create synergy by combining resources and moving in towards the same goals.
Environmental Changes and Constraints Affecting the Industry
The changes in the business environment in terms of technological, political, social , etc have a deep impact on the steel industry. Some examples are as follows:
Economic changes: the global recession hit the steel industry hard. Profitability went down considerable and even the major players like ArcelorMittal faced threats of shutting down of some of their operations. This has also made them aware of their need to change their debt capital infrastructure after the recession receded.
Climatic changes: the Emissions Trading directive has had a direct impact on the three main emissions in the industry which are the coke oven gas, blast furnace gas and basic oxygen furnace gas (EUROFER, 2010). Many of the steel producers have to ask for special treatment or risk change of plant locations.
Technological changes: technological diffusion is called for in countries especially China who is expected to lead in the greenhouse gas emissions by early next century owing to its high economic growth rate and also its use of coal (Fisher-Vanden, Karen, 2010).
Social changes: Social changes as in the treatment of employees have evolved with the advancement in the steel industries. ArcelorMittal is a company that invests heavily in manpower, its safety and development in its company (ArcelorMittal, 2010)
Changes in Customer Demand Patterns
The customer demand has been on a rise
Financial Strategies in the Industry
Cite This Work
To export a reference to this article please select a referencing stye below:
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please.