global steel trends

McKinsey’s 5-Point Analysis of Global Steel Trends

(Source: China Iron & Steel Industry Association)

On 2 September, at the 13th China International Iron and Steel Congress, McKinsey Global Metals and Mining Senior Managing Partner Ai Jiarui analysed the development trend of the global iron and steel industry from five aspects, including the evolution of the global landscape, green transformation, changes in raw material markets, global cooperation, and digital transformation, and put forward relevant development proposals.

From the perspective of the evolution of the global pattern, global steel demand will continue to grow in the future, but the growth rate is slowing down, the compound annual growth rate of global steel demand in the past 10 years is about 2%, and 2023 to 2035 will fall to less than 1%; emerging developing regions will promote global demand growth, India, Southeast Asia, the Middle East and North Africa will become the fastest growing region by virtue of the population growth and infrastructure expansion, and China’s demand continues to shrink after peaking in 2020, India and other developing regions to lead the demand growth is enough to offset the decline in demand in China. China’s demand will continue to shrink after peaking in 2020, with demand growth led by India and other developing regions more than offsetting China’s demand decline.

In terms of the green transition, it is expected that the global share of green steel plates in total plate demand will be 2 per cent in 2024 and will reach 28 per cent in 2040. Specifically, the transport sector, energy sector, and construction sector will be the main drivers of demand for green steel, with developed countries developing faster and developing countries developing relatively slower. In addition, it should be noted that in Europe, the pace of investment in green steel has been slower than expected. In the short term, willingness to pay was not offsetting the additional costs; in the long term, this would be mitigated as barriers were removed. He suggested that companies needed to consider timing and technology routes to ensure the economics of the transition.

In terms of changes in the raw materials market, the demand for decarbonisation and the increase in scrap resources are driving a shift in the steel industry towards utilising more scrap and DRI (Direct Reduced Iron). According to global metallurgical raw material demand forecasts, pig iron will remain dominant (around 60 per cent in 2035), mainly in developing regions, while DRI and scrap will grow at a faster rate globally. Meanwhile, limited scrap supply will drive DRI development, scrap recycling enhancement and technological breakthroughs, such as CCUS (Carbon Capture, Utilisation and Storage) applications in steel. Maximising the use of steel scrap through optimal recycling is key, he cautioned.

At the same time, he expects a more severe surplus of traditional blast furnace iron ore products, while DR (direct reduction) grade pellet ores and metallurgical coal are projected to experience a shortage of more than 20 per cent by 2035. He suggested that companies should take action to secure the supply chain of key raw materials, such as building HBI (hot briquette)/DRI hubs together globally through co-operation, and strengthening M&A activities in the metallurgical coal sector.

In terms of global cooperation, the traditional boundaries between energy and materials stakeholders are fading. He pointed out that more and more companies are making their global presence through mergers and acquisitions, joint ventures and co-operation to drive strategy and reduce risk, such as a green steel start-up that has signed co-operation agreements in various parts of the value chain, and a company that has invested in a joint venture to build a large-scale integrated steel plant in Saudi Arabia. At the same time, he cautioned that along with the evolution of the ecosystem, structural enabling factors will be key to meeting challenges and achieving business expansion.

In terms of digital transformation, digital technologies such as Artificial Intelligence are constantly being upgraded and iterated. The efficient use of digitalisation as well as technologies such as Artificial Intelligence can increase the productivity and production efficiency of steel companies, thereby improving profitability and maintaining a competitive edge in the industry. This is also a key point to ensure the sustainability of the value chain. He explained that 10 to 15 years ago, steel companies carried out some relevant pilot projects, but did not scale them up. Now, many related projects continue to evolve at scale, and the digital transformation of the steel industry is developing vigorously.

‘These five major development trends bring challenges as well as opportunities to the steel industry.’ In response, he made five recommendations for developing a steel development strategy.

Firstly, different regions of the world present different dynamic patterns, and it is important to geographically deploy globally, taking into account not only traditional steel-related raw material deployment, but also energy deployment.

Second, steel companies should focus on product restructuring, focusing on high-growth/profitable emerging segments (e.g., energy transition-related products, steel and non-steel, downstream applications), and establishing linkages with upstream metallurgical raw materials.

Third, green transformation has become a priority, with clear decarbonisation paths, new market layouts, and designing winning business models, including timing, technology, offtake, partnerships, and green premiums.

Fourth, focusing on supply chain security and strengthening global collaboration to drive supply chain development and strengthen competitive positions, especially in upstream areas such as renewable energy partnerships and circular economy businesses.

The fifth is to take advantage of M&A opportunities, integrate assets in ‘natural’ areas, and empower strategic plans, such as increasing market share, energy/materials, and other synergies.

In addition, he said it is important to strengthen organisational and capability building in the new context, and to strive to build differentiated organisational and team capabilities to bring sustainable value transformation to the business and the industry.

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