Paolo Rocca at worldsteel in Monterry: Overcapacity, environment and digitalization among main challenges facing steel industry

Friday, 18 October 2019 12:08:43 (GMT+3)   |   Istanbul
       

In one of the keynote speeches at the 53rd annual meeting of worldsteel (World Steel Association) held this week in Monterrey, Mexico, Paolo Rocca, CEO of Italian-Argentine conglomerate Techint Group, parent company of steelmakers Ternium and Tenaris and also of equipment supplier Tenova, shared some of his concerns and reflections about the current state of the steel industry.

He remarked that, in the last 10 years since the great recession, though the market and demand for steel has grown by around 50 percent, the actual market value of steel companies has declined by between 60 percent and 80 percent, while in the meantime the Dow Jones Index has risen by 100 percent. “We are losing value. The industry has been under stress and this is very challenging from my point of view because in the end we need to be able to attract shareholders and financial support from our lenders and, this, in an industry that is losing value, becomes more difficult,” he warned.

The Techint CEO went on to state that steelmakers are introducing innovation in what they are doing, are taking great steps in transforming their companies. He noted a perception problem though - “Sometimes when I visit a university trying to explain what we are doing to young people, I have the perception that some of them look at us as dinosaurs waiting for an asteroid coming from somewhere.” Such perceptions, he commented, can make it more difficult for the industry to attract the best talent. Nevertheless, he affirmed his conviction that the industry has a strong future, that steel is essential for the future, for the transformation of infrastructure, for all of many of the consumer goods which are in demand and will be in demand increasingly in the world.

He stated that the steel industry needs to understand what it is facing and how it can react, singling out overcapacity as an issue that has been cyclically affecting the industry. At present, he noted, excess capacity is in the range of 400 million mt amid global demand of close to 1.8 billion mt. He commended the very active participation of the steel industry in the global forum on excess capacity within the OECD. It is very important for the industry, he said, to preserve this forum and to act with governments to control overcapacity which is a factor determining the industry’s financial performance and its financial sustainability.

Furthermore, Mr. Rocca pointed to the shift in the steel industry away from globalism to greater regionalism. The share of the international steel trade has shrunk from 36 percent 10 years ago to around 26 percent now, he noted, adding that there has been not only regionalization of the steel trade, but also regionalization of the supply chain. There has also been a shift from globalism to a more unilateral approach to policy making. “It’s a very unstable and volatile world. But in today’s world, I think this is the new normal,” he commented.

Turning to the environment, Mr. Rocca recalled that, following the Kyoto Protocol, in 1998 worldsteel’s predecessor the International Iron and Steel Institute (IISI) had issued a very good document identifying all the main aspects of CO2 emissions control, including the shift from the blast furnace route to electrical furnaces, the direct reduction method, the use of hydrogen as a way of decarbonizing the production process, etc. Since then, however, he stressed, global production of steel has tripled, but the intensity of CO2 production has not declined in any way. The industry’s CO2 emissions have tripled also. “20 years passed. All the issues were identified. We were all aware of this... We can not in the future maintain this inertia. We need to address it,” he stated. He added that, in the absence of voluntary decisions by companies, policy action, specifically carbon pricing, will be needed to force companies to change. “In my view, it is... rational that, if the world wants to reduce CO2 emissions and decarbonize the economy then there is the need to price carbon. At some moment, we need to expect this. We need a carbon price. And the carbon price will be high, because if it wants to be effective, it will have to be substantial.” He also said that the industry is going in the direction of carbon taxes at borders in order to tackle carbon pollution. Staying on the theme of the environment, he stressed the responsibility of steelmaker to the local communities where they are located, “They are close to us and we must be close to them.”

He pointed to positive developments since the publication of the IISI document in 1998, citing a circular economy approach which is generating more availability of scrap, thereby increasing the possibilities for electric arc furnaces compared to what was imagined previously. Another factor, he said, is the availability of the direct reduction iron (DRI) process based on natural gas, of which supplies are far greater than what was considered in 1998. The scope for the use of solar power has also increased. “I see the solution more on the part of decarbonizing production than on the side of absorbing carbon,” he stated.  

Finally, the Techint CEO turned to the question of digitalization, indicating that, while the industry had made great progress in the automation of production, it is lagging behind in terms of digitalization of its supply chain, compared to other industrial supply chains.  Digitalization of the entire supply chain, he said, would lead to a reduction in lead times, a substantial reduction in stocks and in capital tied up in stocks, while he noted that inventories in many segments of the business can amount to up to four to five months of production. Digitalization, therefore, “could free a huge volume of capital and make more efficient the use of capital,” he added.

In his concluding remarks, Rocca stressed the importance of preserving coordination and dialogue between the different regional steel industry associations given the greater role of the regions in establishing regulations. He expressed his confidence that steel would have a growing role to play in the future, but stressed that it would need to ensure its sustainability in terms of finance and the environment, that it would need to fight on these issues and break the inertia it has sometimes shown in the past.


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