Journal Article

The new economics of steel

Mukherjee, Atanu, Chattopadhyay, Kinnor

2018

Overview

Mukherjee and Chattopadhyay cite that the steel industry has a historic opportunity to change the economics of steel-making by adopting digital transformation across the life-cycle of its operations leading to significantly elevated sustained EBITDA, EBITDA/ton and return on capital employed. Worldwide, the bane of excess capacity, commodity price swings, demand stagnation and operational flexibility and efficiency have led to depressed EBITDAs and global steel companies have rarely exceeded profitability levels above 10% on average in the last 10 years. Similarly, the EBITDA/ton of profitable integrated steel companies worldwide have ranged from $50-80/ton, well below a sustainable level of $100-120/ton. In developing countries like India, barring a few integrated steel companies, the EBITDA levels after discounting for the elevated cost of debt have struggled to breach the sustainable level of about 16%. With worldwide excess capacity expected to recede slowly, flexible design, operational flexibility and operational efficiency, enabled through digital technologies hold the key to economic transformation and sustained competitive advantage for steel firms. Our research shows that applying specific integrative digital techniques can improve EBITDA margins by 5-7% points and EBITDA/ton by $25-60/ton over baseline performing levels.

• Publisher: Quartz Business Media Ltd
• Subject: Algorithms / Artificial intelligence / Business competition / Developing countries / Digital techniques / Economics / Efficiency / Flexibility / Heat detection / High temperature / Historical metallurgy / Iron and steel industry / LDCs / Monitoring systems / Neural networks / Productivity / Profitability / Sensors / Signal processing / Simulation / Stagnation / Steel industry / Steel making / Transformations