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Steel's future on the right track: insiders propose that the steel industry pursue a new model for supply chain management, one that leads to less waste (read: lower inventories), smoother flow of materials and sustained profits for all participants.

Article Excerpt
Where are we now and where are we headed?

That was the theme of London-based Steel Business Briefing's "Steel Markets North America" conference, held Feb. 28-March 1 in Chicago, co-sponsored by the American Institute for International Steel, Washington, D.C

While much has changed--bankruptcies, megal mergers, plant closures, tariffs--much remains the same, experts agree: particularly the high level of competition that persists throughout the market cycle.

The steel industry has undergone a dramatic turnaround in both operating viability and profitability since 2000. Companies posted record profits and paid down debt last year, and are now able to access investment capital more readily.

There may be fewer steel producers and distributors these days, but the survivors in North America, though larger, won't be allowed to dominate for too long in a highly competitive world market.

Looking at the producer sector, Jim Bouchard, chief executive officer of Chicago-based Esmark, described the mills this way: Between five and 15 years ago, 10 trains were running flat out on a collision course. Capturing market share was their driver, despite their weak balance sheets. Today, five trains are traveling full speed on independent tracks. Sustaining profits is their driver. In the future, as steelmaking's cost structure continues to improve, he predicts, four trains will be operating, driven by excellent investment-grade balance sheets.

The North American steel distribution sector of a decade ago consisted of about 4,000 independent service centers. Many metal distributors have since been compelled to consolidate--rationalizing locations and headcount--in order to reduce inefficiencies.

Service centers are still at a very early stage of consolidation. In the future, Bouchard says, the market will be dominated by perhaps 25 super-sized multi-branch distributors, among about 2,000 companies. The survivors will be obliged to spend some investment dollars in order to improve their quality and customer service;...

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