Currently, the world steel market is typified by surplus capacity and cyclicality. How did we get here?

To understand the global steel market today, you’ve got to go back to around 2000 and China’s emergence as a major player in the global economy - and a massive producer of steel. Before then, world consumption had pretty much plateaued – it wasn’t the most exciting state of affairs. Then, as a result of the economic reforms of the early 1990s, China arrived and - bang - steel demand just took off. It was growing every year by as much as 60-70 million tonnes, in a total global steel market of only around 1 billion tonnes back then.

However, at the same time that demand was booming, the Chinese were adding capacity at a staggering pace – about 10 to 15 new steel plants a year. As a result, by 2005 they’d switched from being a net importer of steel to a net exporter. Within five years, the market that had been the biggest opportunity had suddenly become the biggest threat.

How can exports from one country represent such a global threat?

The problem is that China became so big that it simply dwarfed everybody else. In 2000, the country produced just under 130 million tonnes of steel. But by 2020, that had jumped to more than a billion tonnes – well over half of world output. So even if China only ships a small proportion of its steel to foreign markets, it still has a massive impact on global supply – and prices.

And with the slowing of the Chinese economy over the last decade, supply has been consistently outstripping demand, meaning that in some years they’ve been exporting as much as 100 million tonnes a year. That’s more than enough to drive down prices and send the whole industry into a severe funk.

Beijing has a long history of intervention. Won’t the government step in to reduce capacity?

In the past, the government has provided support through stimulus measures and told the industry to constrain production. But now Beijing has far bigger worries to deal with, and there’s little logic in intervening to push up domestic steel prices because that’s going to hit the construction sector, which is already in bad shape.

For the last 20 years, Chinese growth has always been the principal driver of the market. But now it’s becoming increasingly clear that Chinese steel demand has plateaued and will start trending down. So, it looks as though the current dynamic is here to stay.

What have producers like ArcelorMittal done in response?

The challenge has certainly been tough but not insurmountable – provided you have the right strategy. In the first instance, Chinese demand drove up raw material prices – it was one of the reasons ArcelorMittal has always had an interest in owning iron ore assets, to keep structural costs down and remain competitive. That decision has worked well for us and stands us in good stead today. Our captive mines make our steel operations more competitive and our market-facing mines – in Liberia and Canada – deliver good levels of profitability through the cycle and offer strong growth potential, particularly Liberia where we’re tripling production.

The influence of China also shaped our decisions around the markets we wanted to be in. Take Southeast Asia. You’ve got half a billion people and oodles of growth potential. That should make the region very attractive. But countries like the Philippines and Indonesia are natural markets for Chinese producers – and if you go head-to-head with them, you’re going to get steamrolled.

Compare that to India – one and a half a billion people, huge growth potential, and no chance of the Chinese flooding the market with cheap steel due to the geopolitical tensions. That’s why we’re investing so heavily in our joint venture in India – because supporting India’s economic development presents such an attractive commercial opportunity.

Brazil is similar – lots of iron ore, decent demand dynamics, unfragmented market structure and a good level of import protection. It’s a good market to be in and why many of our strategic growth projects are located there.

Another geography we like is the United States. This is a large, sophisticated market with lots of demand for high-value, premium products – but it also has high barriers to entry for Chinese steel. That helps to make it an attractive market for us.

There are still plenty of attractive markets – for either growth or structural reasons – and so the key is to position yourself in markets where you can achieve a sustainable structural advantage. If you look at where we are looking to grow our business, it’s predominantly in those markets.

Market dynamics are clearly important but what other factors influence strategy?

When people ask me how we define our strategy, my response is simple – you look at the whole value chain, you look at the geographies, you look at specific customer/product market segments, and you work out the best place to play. I’ve talked about the driver behind our presence in iron ore, the geographies we’re focussed on and why, but your question is the right one – there are other factors.

The obvious first one is product mix. If you can lay on top of a structurally attractive, growing market, good demand for higher-added value products, that’s a very good position to be in. An obvious example is auto, where we have a strong franchise. But it doesn’t necessarily need to be a high-margin product. You could have a good business in commodity products if the conditions are right. Again, it comes back to looking at the whole picture, working out the best place to play, and being high-quality and low-cost – you cannot understate the importance of being competitive in the steel industry, you’ve got to be laser-focussed on this.

What about other strategic levers?

The first is technology. We put a lot of emphasis on R&D and that has served us well. However, this is not to say that ArcelorMittal has a technical moat that will protect it forever – we’re certainly not that complacent or naïve. We know that the Chinese producers can innovate and improve very, very quickly.

However, ArcelorMittal is a massive, quite complex company, so looking ahead there’s enormous potential for artificial intelligence to improve the efficiency of our workforce and all aspects of our operation, from our supply chains to our factories. That’s going to be a huge factor over the next 20 years.

And then there’s the potential of additive, rather than reductive, manufacturing.

Additive manufacturing…in layman’s terms?

In its simplest terms, it’s 3D printing a steel structure – building it up a rather than cutting it or squashing it out of big lump of steel. Take the humble paper clip. It starts life as a 150-tonne ladle of liquid steel that gets moulded and cut into smaller and smaller pieces until it reaches its final shape. It’s an incredibly inefficient and wasteful process. Wouldn’t it be simpler to 3D print it?

Discover more about ArcelorMittal's new Additive manufacturing and Powders offering.

The key question is when is the tipping point? When can I print a steel structure using additive manufacturing cheaper than I can make it using traditional techniques? The challenges are getting the right powders and the speed of printing, but this is an area that we’re pushing into, and I believe it will eventually become cost-effective to use this for a lot of products.

What about decarbonisation? Can that be a way of setting ArcelorMittal apart?

Absolutely. There are two angles to this. First, the energy transition will be steel intensive – there’s a clear demand opportunity there, including for highly sophisticated products like electrical steels for electric vehicles. Secondly, yes, decarbonisation presents a cost challenge, but it is also a huge opportunity, especially if you have access to significant quantities of ‘clean’ energy, by which I mean renewable power, bioenergy, or CCS. Europe and the United States are both investing massively in wind and solar - as is China. But the Chinese are not favourably positioned vs North America or Brazil when it comes to bioenergy. Nor are they close to places like the North Sea and Gulf of Mexico that are going to be important sites for carbon capture and storage. Our entire decarbonisation strategy is focused on identifying and then developing clean energy plays that help to position us with a deep competitive advantage.

So, you can see, the future of the global steel industry is complex but hugely exciting. It will be shaped by geo-politics, trade policy, decarbonisation, tech trends, customer demands and more. My job is to decipher all of that and work out the best places to play.