18 Mar 08 | Christmas | The challenges facing steel

A speech given by Secretary General of IISI, Ian Christmas, at the Arab Iron and Steel Union conference in Doha

18 March 2008

Good morning ladies and gentlemen. This is the first occasion I have had to address the Arab Iron and Steel Union and Conference. It is a great honour and privilege for me to be here. I have been asked to talk about some of the challenges facing the world steel industry.

I would like to take the opportunity to introduce the International Iron and Steel Institute, which may not be familiar to all of you. IISI is the world organisation for the steel industry. Its member companies are steel producers who account for over 75% of total world steel production.

We have offices in Brussels and Beijing. The latter was opened two years ago to service our rapidly growing membership in the world’s largest steel producing country.

IISI provides a strategic forum for the chief executive officers of our member companies. In addition, we have numerous committees benchmarking best practice. Our websites are the prime source of statistics for our industry. Worldsteel.org is the most visited steel website. Last but not least we promote the use of steel products, particularly in automotive and construction applications.

The governing body of IISI is its Board of Directors. The Directors are the CEOs of our member companies. There is also an Executive Committee that meets every three months. In October 2007, Mr Mohammad Al-Jabr was elected to the Executive Committee. He is our first member from this region and his presence on the committee reflects the long-term commitment of his company in IISI and the growing importance of the region.

In addition to HADEED, IISI has several other members in the region including, Arcelor Mittal, Qatar Steel, and Ezz Holdings. The Arab Iron and Steel Union continues to be a valued affiliated member of IISI, as it has been for many years.

Ten or even five years ago, the number-one challenge facing the steel industry worldwide was its lack of profitability. For many steel companies there was the issue of survival. In the 1990s steel companies in Western Europe and North America destroyed shareholder value at a very rapid rate.

The last five years has seen a renaissance of the industry in terms of its profitability and its rate of growth. This is largely due to the growth of steel use in China, but this is not the only reason. There is also the realisation in the top management in the industry that things could not go on as in the past. Today’s steel businesses are managed for value creation, profitability and growth.

Consolidation in the industry has helped in this rebirth and as a result we can start to address the longer-term challenges facing our industry.

Today, I will talk about the steel industry's six main challenges: safety, climate change, construction, China, people and raw materials.

Safety

The first and most important challenge is safety. The IISI Board of Directors’ meeting in October 2006 adopted a set of safety principles and made the commitment that nothing is more important than the health and safety of people who work in the steel industry.

In the high-tech advanced steel industry of today, there is no reason why people should be injured at work. All steel companies must be committed to eliminate all accidents.

This commitment is enshrined in the six principles adopted by our Board of Directors. These are:

1. All accidents can and must be prevented
2. That management is responsible and accountable
3. That employee engagement and training is essential
4. Work-safety is a condition of employment
5. That excellence in health and safety supports excellent business results
   and
6. That health and safety must integrated in all business management processes.

We at IISI are committed to help our membership move to an accident-free industry and that leadership must come from the top management of every steel company.

We hold one very important workshop every year which is the meeting of our Safety Committee. This year it will be held in Pittsburgh on the 17 and 18 of June. It will bring together the senior managers responsible for safety in our member companies.

I am very pleased to issue an invitation to all the steel companies present to attend this meeting, regardless whether they are members of IISI or not.

I think you will find it an invaluable opportunity to learn from each other what constitutes best-practice in safety management. It will also enable you to establish a worldwide network of contacts which will help you on the journey to an accident-free future.

Climate change

My second challenge is climate change. With current projections of the growth in steel production worldwide, it is likely that global CO₂ emissions for our industry could double from present levels by 2050.

Yet scientists on the Intergovernmental Panel on Climate Change state that unless CO₂ emissions are halved, the earth’s average temperature will rise by more than three degrees with potential catastrophic consequences.

Whilst it is recognised that mature industrialised countries must take the leadership in reducing emissions, it is also recognised that this responsibility must be borne by all countries and people around the world.

For the steel industry, this means we will see radical changes in the patterns of the production and use of steel over the next 20 to 30 years. As one of the world’s largest emitters of CO₂ emissions, we have an important responsibility to address the issue.

Last year over two billion tonnes of CO₂ were emitted by steel producers around the world. Steel is the largest single industry-sector in terms of CO₂ emissions.

The good news is that the IISI Board has adopted a positive climate change policy for the industry.

The policy emphasises the need to maximise the recycling of end-of-life scrap, to accelerate the adoption of best practice technology everywhere, to encourage the use of by-products such as cement slags, and to apply the new generation of steels to improve the energy-efficiency of steel-using products such as passenger cars.

Our policy also requires us to measure and report our emissions and set clear commitments for the future. We also need to engage in long-term research and development for new technology which would enable us to make steel with a much lower carbon footprint than is the case today.

The main element of our policy that has achieved headlines is our advocacy of a global approach for steel. At the recent meeting in Bali of the Conference to the Parties to the UN Framework Convention on Climate Change, the possible benefits of adopting a global sector approach were recognised. The Bali road map gives our industry two years to come forward with clear proposals as to how this might work.

The IISI global sector approach is based on three principles. Firstly, all steelmakers and steel producing countries must measure, report and set targets for the future improvements in their CO₂ emissions. These targets should be based on CO₂ emissions per tonne of steel produced on an intensity-based approach. This is because it is clearly unacceptable for developing countries that wish to improve the welfare of its citizens to accept an absolute cap on emissions.

Most importantly, our approach seeks the involvement of all the major steel producing countries in developed and industrialised countries. Today, one country – China – accounts for nearly 50% of all CO₂ emissions in the steel industry.

Construction

My next challenge is for us to grow the application of steel used in construction. Whilst it is true that nearly half of all steels are used in construction today – and is particularly important in this region – nevertheless, we have only achieved a small part of steel's potential.

Other building materials such as timber are becoming increasingly scarce. Steel has the sustainability, the durability and the recyclability credentials to take a much bigger share of the construction market. It is this potential that makes me most optimistic about the future for steel.

IISI has formed a consortium of its members who are some of the leading steel companies around the world. The consortium is called Living Steel and has a programme to promote the use of steel particularly in residential construction. It has a 14 million euro budget over five years and is undertaking demonstration projects in many parts of the world. We have projects underway in Poland, Brazil, India, China and Russia.

China

My next major challenge for steel is China. Today China dominates the world steel industry. China is the largest exporter of steel; it is the largest importer of raw materials; it accounts for 50% of world iron production; and over 50% of all coke. It continues to grow at double-digit rates and many Chinese steel companies will become world leaders in a few years. China already has some world-class steelmaking plants.

However, it has many hundreds of million tonnes of steel produced in very small and inefficient plants which create major environmental problems in China – in terms of air and water pollution and in excessive use of scarce energy resources.

Whilst nearly all Chinese steel companies are state-owned, it is a very market-orientated economy. The process of much needed consolidation and modernisation of the Chinese steel industry is taking a long time to achieve.

How successful the Chinese are in rationalising and modernising their industry will have a critical impact on the future of the world steel industry.

People

My next challenge is people. I have already said that steel today is a high-tech, growing and profitable business. In the lean years many steel companies did not recruit new young employees. Many steel companies today have a high proportion of their employees aged 45 years and over. Luckily this is not the case in developing parts of the world and here in this region.

Nevertheless, it is a common issue right around the world that if the steel industry is to be successful in the future, it needs to recruit the brightest young people. As part of our international initiative to encourage more young people to follow appropriate qualifications in material science and engineering, IISI launched Steel University five years ago.

This is an e-learning system for material science which is used in more than 50 universities worldwide. It is also used increasingly for post-entry training of young individuals in member companies. Its unique feature is the simulations of steelmaking processes appreciated by both students and university lecturers.

Steel University is available in English, Chinese, Spanish, and Korean. It is being translated into German and Japanese. I think Arabic should be next – provided steelmakers in this region take the initiative.

Raw materials

Last month there was another major hike in the price of iron ore from Brazil and Australia. It is a growing concern in the steel industry that the iron ore market is dominated by only three companies which behave in a very uncompetitive manner.

The increase in the real price of iron ore is well above the real economic cost and is a major problem for the steel industry and more importantly the users of steel. Whilst I believe, as an economist, that new iron ore sources will be developed and steel companies will become more self-sufficient in iron ore, nevertheless it is true today that the price and availability of raw materials is a key challenge for our industry.

In the brief time I had this morning I hope to have outlined some of the key challenges facing the steel industry today. The good news for the industry is that steel is the most sustainable material.

For steel producers in this region: you are in a part of the world that has great potential for the future. There is a young population, there is rapid development, there are energy resources and there are the financial resources to make a great future.

Thank you for giving me the opportunity to attend for the first time the meeting of the Arab Iron and Steel Union. I hope it is a first step in building a closer union between steelmakers in this region and their colleagues around the globe.