one to ONE Holdings’ Shinichiro Nakamura explores why global collaboration will be key for the steel industry to successfully navigate ambitious construction projects, market disruptions and urgent sustainability initiatives.
It’s no secret that the steel industry has been undergoing seismic shifts in the past few years. It is arguably at a pivotal moment marked by market disruptions, ambitious projects, and pressing sustainability demands.
Moreover, the convergence of multiple challenges, such as China’s oversupply of cheap steel and climate change, means that pressure is only mounting for manufacturers to adapt their strategies to survive.
Let’s dive into what’s happening on the world stage and how cross-collaboration and investment in technology are paramount to manufacturers navigating the turbulent times ahead.
Key challenges
One of the biggest international challenges threatening the global steel industry is China’s oversupply. Its surplus of steel means that it can set prices at all-time lows—wreaking havoc for other markets. This has led to political responses in the form of tariffs on Chinese steel imports across regions like Europe and North America, heightening instability between markets.
Worryingly, high production costs and low demand in Western regions are forcing manufacturers to consider shutting down or consolidating facilities to make ends meet. Profit margins are shrinking for many manufacturers, causing significant downturns in steel pricing across many markets, including those in the US, China, and Europe.
Coupled with this challenge is the threat of climate change, which massively complicates steel production. The steel industry is the highest carbon-emitting manufacturing sector, producing 7% of all man-made greenhouse gas emissions. However, calls to meet 2050 net zero goals mean that, by that point, 53% of steelmaking capacity will likely be using electric arc furnace (EAF) technology. There’s a ripple effect going on here as EAFs require scrap steel, meaning that manufacturers will be forced to revert to crude steel to meet consumer demand. This will be a pressing concern for countries like Italy, a sustainability leader in European steelmaking, where over 85% of steel production is derived from scrap metal.
Unfortunately, making crude steel is notoriously carbon-intensive, and demand for it is forecast to grow by 60% by 2050. That’s why manufacturers are turning to alternative sustainability solutions like hydrogen steel, whose smelting and deoxidising processes emit significantly less or no carbon.
However, location is a dictating factor for many manufacturers seeking the equipment to facilitate this, where space capacity and regulations act as constraints in places like China and the US. Yet not all countries are bound by these: Saudi Arabia is emerging as a player that may significantly change the steel landscape in years to come.
According to reports, Saudi Arabia’s $1.5tn Neom project is shockingly consuming 20% of the world’s steel, an unprecedented level of consumption for a single project. This has resulted in ripples of concerns for sustainability and resource allocation across the industry, although Saudi Arabia has issued assurances that it plans to be completely net zero in this project.
Given the sheer scale of the developments within the Neom project—namely, the creation of a linear city known as The Line—it’s likely that this degree of consumption will continue for the foreseeable future, and it remains to be seen whether Saudi Arabia will deliver on its sustainability pledges. Moreover, the country’s potential as a steel producer could redirect steel demand in the Middle East and generate more competition on an international level, heightening industry instability for manufacturers in other regions.
The need for global collaboration in steel
Collaboration between steel manufacturing companies could be the answer to tackling a lot of these challenges. Many manufacturers are facing a ‘sink or swim’ situation where operating in total isolation within a market is no longer feasible.
Joint ventures have been suggested as an effective way of maximising success in global collaboration, and BCG proposes steel companies adopt a similar approach to the concept of airline code-sharing so that they can expand their portfolios significantly more cost-effectively.
In terms of sustainability endeavors, this could be non-negotiable for manufacturers who simply cannot access the necessary equipment for green or hydrogen steel production and do not have the budget to expand operations across borders to access this independently.
For companies that have been crippled by shrinking profit margins, that is certainly becoming a reality, as exemplified in the case of Nippon Steel’s recent acquisition of U.S. Steel, a longstanding American giant in steel production.
Moreover, the exchange of resources via these joint ventures arguably benefits countries and not just companies. To illustrate, domestic demand for steel in Japan has been on a steady decline since the global financial crisis of 2007-2008. This decline is hugely influenced by wider structural changes in the economy due to stagnating income and an aging population, reduced steel consumption for infrastructure, hesitance to adopt green steel and uncertainty around future demand. Its role in the global steel industry has thus drastically changed over the past two decades.
Partnering with manufacturers abroad could be key to resolving Japan’s ongoing challenges by broadening talent pool access, sharing cost burdens, and fostering shared innovation for long-term sustainable solutions.
Staying competitive in a shifting market
Markets are going to continue rapidly shifting, and the bottom line is that steel companies must be as agile as possible. That means having a forward thinking, future-proof strategy that is adaptable to the inevitable swift changes that will arise across markets.
Manufacturers should understand that there are two ongoing trends that are reshaping the future of the steel industry.
It’s impossible to dismiss the role of technology in paving the way for the steel industry’s outlook. Importantly, the roles and benefits of technology AI are multifold, whether that’s directly on the factory floor or for wider activities like sustainability endeavors. The fact of the matter is that many AI solutions are at the core of driving the needed change for a more resilient steel industry.
That’s because there’s an inherent need for optimised visibility across the value chain, particularly when looking to cut down on emissions. That visibility ensures manufacturers know where energy is being sourced from. For example, sustainability efforts can be totally undermined when using EAFs if electricity is generated by coal. AI tools have their place in ESG reporting, empowering manufacturers to stay on top of data and not let important details slip through the cracks.
Technology solutions are also fueling more streamlined operations so that manufacturers can ensure optimal machine functionality while maximising visibility. One popular technology among manufacturers is computer vision which is able to capture and process instant data to deliver real-time actionable insights around production quality of steel while alerting headquarters to potential risks and defects in operations.
Additionally, when paired with generative AI, it helps create more interconnected digital ecosystems within manufacturing organisations to ensure the continuous exchange of data while ensuring information is being processed to generate valuable insights. Not only does this help them keep a tab on the current performance of operations, but it also empowers proactive management to identify abnormal patterns, enabling predictive maintenance, process optimisation, and quality control.
Steel manufacturers need to take a step back and acknowledge the wider picture of what’s happening in the global arena and how this is shaping the steel industry’s future. Specific challenges like climate change, plummeting prices due to surplus supply, and political tensions are going to put constraints on the supply chain. Cross-collaboration across the international stage and maximised visibility are at the crux of driving operational agility to overcome these challenges.
About the author
Shinichiro Nakamura is a manufacturing and global thought leader in the secondary steel processing industry. He is the President of one to ONE Holdings, which operates steel tube making factories in Japan and Vietnam and implements inline galvanising technology for tubing companies around the world.
His original family business, Daiwa Steel Tube Industries in Japan, is one of the largest producers of inline galvanised steel tubes in East Asia. Shin is a past Regional Chair of the YPO North Asia region and current member of the Board of Governors at the Asia School of Business. He previously consulted at Bain & Company and received his MBA from MIT Sloan, specialising in New Product & Venture Development.
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