Consolidation in the stainless steel industry, especially flat products, is in full swing and is set to continue, according to a report by Marcus Moll of SMR GmbH.
Price fluctuation and the shrinking gap between product prices and the raw materials costs (the conversion gap) are two long-term trends that put pressure on producers to lift productivity and at the same time become more flexible – two contradictory aims which constitute the basic dilemma of the industry. Industry leaders can opt to stay independent, enter a strategic alliance or form a joint venture or merge with another company. All three options have been adopted in recent years. Stand-alone strategies and strategic alliances without capital involvement are more common in Europe and Asia, while mergers and acquisitions are the preferred option in the Americas. As long as a company is successful, independence is the best option. The advantage of a strategic alliance (an agreement without capital participation between the companies) is that it is easier to dissolve the alliance if the results are not satisfying for one or all parties involved. On the other hand, the possibilities to jointly invest in a market or market-segment are limited too. The few examples of strategic alliances in the stainless steel industry have mostly been successful.
Vertical joint ventures or acquisitions are often a solution for mid-size family-owned processors who face difficulties in financing, especially when the market is weak. Horizontal joint ventures are mainly aimed on consolidating the market, or segments of it. Horizontal acquisitions aim to eliminate competitors and obtain access to needed production facilities.
All stainless steel producers grew organically and have developed production bottlenecks and imbalances over the years. To meet actual market needs, and to adapt to the shrinking conversion margin, firms will need to cut production costs.
The stainless steel flat products industry is more consolidated than the long products industry, but stainless steels are more consolidated than the C-steel industry. 80% of the flat products market was controlled by 16 companies in 1990, by 12 companies in 2000, and by 2010, SMR predicts, only six companies will control 80% of the market. The scenario for long products is similar, but consolidation is lagging behind the flat products market by about 10 years.
