Steel and Metals

Although the sector has been strongly hit by the COVID-19 crisis, it is now in the slow process of recovery. However, it will still take time to return to pre-crisis level of production across the sector. The journey is further complicated by the more structural issues of overcapacity in the industry that has persisted for many years. Additionally, the sector strong dependency on a relatively small number of destination industries, that have also been adversely impacted by the downturn, has amplified the negative impact of the reduced level of demand due to COVID-19.  The most important lesson learned to go forward will be to focus on the right portfolio management, develop sustainable strategies to answer the need for decarbonization of steel production, and to make use of the opportunities offered by digital ways of working and I4.0 concepts.

The sector is currently in the phase of recovery. The COVID-19 crisis hit the sector particularly hard, effectively shutting down most of the industrial supply chains around the world for a number of months, resulting in sharp declines in demand and a forced stop of production. This process is now reversing, but the pre-crisis level of production will take additional time to achieve. The steel industry is heavily reliant on a small number of destination industries for its products, take for example the automotive sector. The speed of recovery in this and other key markets for steel will determine the speed of recovery in production.

The crisis is likely to particularly test the more exposed manufacturers. The industry is endemically in a state of overcapacity and in need of rationalization. A focus on portfolio management will be a priority for the sector in the foreseeable future. We have already seen that some of these signs of distress have turned into unfortunate corporate failure, however the Metals sector remains a very strategic industry and a significant employer in many developed and emerging economie. We should not be surprised, therefore, to see some focused support,  from governments, being directed towards the industry.  Efforts to reduce capital expenditure and operational working capital while managing headcounts will continue to remain a priority. Demand and production in and from China and India will also play a continued key role in the sector market dynamics.

Finally, the issue of decarbonization will continue to be of fundamental importance to the future of the industry.  Manufacturers who do not place this at the top of the list or prioritize will struggle to attract investments going forward. Decarbonizing the industry will encompass both a radical change in products and production methodologies. The industry will also have to invest in the creation of new energy sources as coal becomes less viable going forward.