Energy and Sustainability Challenges and Opportunities in the Global Steel Industry

1. Energy and Sustainability Challenges and Opportunities in the Global Steel Industry Ravi Madhavan The Center for Industry Studies & Katz Graduate School of Business, University of Pittsburgh West Virginia University, April 9, 2008

2. Background Iron & Steel industry accounts for ~ 19% of final energy use and about a quarter of direct CO2 emissions from industry sector The steel industry is experiencing “Sudden Onset Globalization” Steel producers are global-scale for the first time in history Energy and environmental challenges and opportunities in the steel industry Anticipated growth in BRIC nations exacerbates challenges Newly munificent industry environment creates opportunities Hypothesis: Energy price shocks may accelerate global consolidation The Story in Outline

3. Three Stages of Globalization: I. Exports Inter-regional Trade in Steel (2000) Data: IISI

4. Three Stages of Globalization: II. Strategic Alliances (~1980-1995) Steel Network in 1995 Graphics based on joint work with various co-authors. Details available on request.

5. Three Stages of Globalization: III. The M&A Stage (~1995-)

6. The Geography of Steel Data: IISI, US Geological Survey, Researcher estimates

7. Energy and Sustainability Profile • High energy-intensity of steel • Accounts for 19% of final energy use and quarter of direct CO2 emissions from industry sector • Large share of coal in the energy mix • Iron & Steel industry accounts for 3.15% of global GHG emissions • High growth BRIC nations suffer from lower average efficiency, thus exacerbating the problem • Significant improvements possible

8. Industry Responses • Investment in new processes and products • E.g., POSCO’s FINEX process • Efforts to reduce energy intensity • E.g., ULSAB-AVC • Reducing greenhouse gas emissions • E.g., Nucor’s environmentally friendly pig iron • Material efficiency • E.g., efficient use of resources by German steelmakers

9. Industry Responses • Steel recycling • E.g., Iron and steel recycling loop in Japan • Environmental Management Systems • E.g., US Steel Corp. CITE program • Employee Training • E.g., Communities of Practice at Bohler-Uddeholm

10. Industry Performance • Since 1975, the steel industry in the Triad has reduced its energy intensity by 49% • However, the Triad’s share of global steel production has declined from 56% to 33% during this period • Focus now needs to be on BRIC steelmakers • IISI: globally applied, technologically focused, and intensity-based approach

11. Energy Price Shock Impact • Merrill Lynch: Contract prices for coking coal, used to make steel, expected to reach a record high of $300 a tonne, a three-fold rise from an agreed price of $98 last year, amid a "supply apocalypse" following recent weather-related supply disruptions in Australia (Reuters, March 7, 2008) • Pricing environment provides some cushioning • Potential impact if viewed as “industry shock” • Accelerate M&A logic further? • Drive vertical integration?

12. Conclusion • Steel industry is one of the most energy-intense • “Sudden onset globalization” has led to newfound MNC status for steel majors • Energy and sustainability challenges are exacerbated by anticipated growth in BRIC nations • The steel industry is seizing opportunities to improve energy and sustainability profile • Energy price shock may accelerate global consolidation logic