Industry consolidation promises stable steel prices

Related tags Steel

Concentration within the steel industry could result in greater
price stability and lower costs for packagers, though this needs to
be put in context, writes Anthony Fletcher.

Concentration within the steel industry could result in greater price stability and lower costs for packagers, though this needs to be put in context, writes Anthony Fletcher.

As market analyst MEPS points out, steel is much less concentrated than other raw materials, even after the Mittal-ISG merger. The top five steel companies still account for less than 20 per cent of global output.

In some regional markets, the shares held by the new giants of the industry are much larger. Mittal Steel has around 44 per cent of the US market for flat rolled steel. Arcelor has a large slice of the European market for these products, as does ThyssenKrupp.

"There has been much talk about how consolidation may affect steel pricing, and whether concentration of ownership will result in greater price stability,"​ says industry analyst MEPS​. "It is important to put such talk in context."

However, stable prices could have a big effect at the commodity end of the market, and here the outcome could be substantial. The knock-on effect for steel packagers, already battling tight profit margins and threats from innovative new packaging materials such as Tetra Pak's Recart, could be significant.

The recent decision by UK supermarket Sainsbury to switch the packaging of its own brand of chopped tomatoes from cans to Tetra Recart retortable cartons has been seen as something of a watershed in packaging preferences. In addition, the development of an innovative multi-layer polypropylene pack from RPC Bebo UK Corby can be seen as a further blow to the metal packaging sector, which is beginning to see a shift away from traditional methods of packaging and a move towards new innovative plastics.

But as the recent Steel Packaging Congress in Dusseldorf emphasised, if the industry can convince the food industry that it is a cost-effective and flexible means of packaging, it has a bright future. It can retain the freshness and nutritional value of many types of food, it is potentially a very eye catching means of marketing and it is easily recyclable.

MEPS says that the price falls in both North America and Western Europe over recent months have also been the result of a build-up of inventories, after consumers and distributors over-bought in 2004. Producers on both sides of the Atlantic have cut their output by bringing forward maintenance stoppages, reducing operating rates, and suspending some production lines entirely.

In Europe, the leading producers have been queuing up to release details of production cuts, in the hope of convincing the market that supply is being restrained. Arcelor says it is reducing output of flat products by 1 million tonnes over six months. Corus, ThyssenKrupp, Riva, Salzgitter and Rautaruukki have made similar announcements.

"It is too soon to confirm the theory that consolidation stabilises prices,"​ said the MEPS report. "However, the power that the big mills now hold in many flat product categories indicates that success may be just around the corner."

Related topics Processing & packaging

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