Getting to the Core of Challenges Faced by the Global Metals Industry

August 30, 2016

The Metals industry is currently witnessing a period of low growth that has put pressure on prices and created uncertain demand in the industry. Coupled with a lack of supply chain visibility, price volatility, and overcapacity, this period is presenting some key challenges for metals companies.

2013 was a year of foundational change, and metal companies encountered challenges such as overcapacity, lack of supply chain visibility, and raw material price volatility. In the wake of restructuring, cost cutting, and consolidation, metals companies are eagerly looking for new ways to increase revenues. In addition, concern about low growth levels and labor shortages present additional challenges for the industry. Metals company executives must find ways to streamline operations, implement IT systems to improve supply chain visibility, and focus on securing local suppliers to remain competitive in the Global Metals industry.

Overcapacity in Base Metals Market

The biggest challenge facing the Metals industry today is overcapacity. Rising investments in technology have led to an increase in production capacity that surpassed global demand. Overcapacity is especially a concern in the Base Metals market, and base metal prices are unlikely to rise in the near future. Although Western countries have attempted to cut back on output, China and the Middle East have continued to maintain their production levels. The availability of cheap capital in developing countries such as China and low production costs in Russia, India, and Ukraine has also contributed to overcapacity. In addition, weak demand in Europe, Japan, and the US has resulted in a more significant decline in demand than anticipated.

Improving Supply Chain Visibility for Quicker Response Time

Supply chain visibility is a major concern for companies in the Metals industry, and metal companies are struggling to improve this area of their operations. A lack of visibility may be a result of a deficiency in IT systems needed to support supply chain visibility, planning, and execution. This absence of supply chain visibility greatly impacts a company’s ability to respond to any sudden disruptions or problems in its supply chain. Lack of visibility can also cause long delays and unproductive downtime in facilities.

Price Volatility of Raw Materials

Metal companies are concerned with the volatile prices of raw materials, and many view this volatility as their top concern over the next year or two. Issues related to price volatility are especially prevalent in the Steel industry, where the cost of iron ore more than quadrupled from 2002 to 2009, and is expected to continue to rise moving forward. Price volatility in the Metals industry is largely a result of an increase in demand in Asia for iron ore, as well as an increase in investments in new mining projects, which increases total capacity.  Reduced bottlenecks in logistical infrastructure and the rising trend of resource nationalism in resource rich countries have also contributed to raw material price volatility. Securing local supplies for input resources, feedstock, and other raw materials can help metal companies mitigate some of the risks associated with raw material price volatility.

Low Growth Puts Pressure on Prices

Expectations of low growth in the Metals industry have put pressure on prices and created uncertain demand in local and global markets. These issues have presented metal companies with the challenge of finding ways to reduce costs and structure their operations more efficiently. Low growth has also put pressure on companies to streamline operations and concentrate on their core competencies. A focus on value improvement and cost optimization by re-evaluating energy polices and restructuring asset management processes can help companies cope with the challenges presented by uncertain demand during this low growth cycle.

Labor Shortage Could Increase Costs and Decrease Production

Metal companies in developed and developing nations are experiencing a skills shortage as a large number of workers are nearing retirement and there is a lack of young workers. The long-term impact of this shortage could mean increased costs for metal companies as well as decreased production. A skills shortage in the industry could also make meeting contractual obligations difficult for some companies. To address this challenge, the Metals industry has been utilizing staff from other sectors. However, this is only a short-term solution to an issue that presents long-term challenges.

Moving forward, addressing these challenges will be vital for metal companies looking to gain a competitive advantage in the Metals industry. Increased pressure on metal prices, uncertain demand, the volatility of raw material prices, a shortage of skilled labor, and overcapacity have created significant challenges during this period of low growth. While some temporary solutions have emerged, they are not sufficient to solve the long-term issues that many of these challenges present. Companies must focus their efforts on reducing cost structures and sourcing skilled labor. After emerging from a year of foundational change and consolidation, metal companies must remain vigilant and find solutions that can drive growth and improve their operations.

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