In the entire European Union, Germany is the leading steel producer. It is capable of delivering high quality and innovative end product. Out of the total production of steel almost 50 percent is exported to foreign markets. On a global market Germany is ranked at fourth position after China, USA and India.

• Definition / Scope
• Market Overview
• Market Risks
• Top Market Opportunities
• Market Drivers
• Market Restraints
• Industry Challenges
• Technology Trends
• Regulatory Trends
• Other Key Market Trends
• Market Size and Forecast
• Market Outlook
• Distribution Chain Analysis
• Competitive Factors
• Key Market Players
• Strategic Conclusion
• References

Definition / Scope

Steel is an important material used in shipbuilding and car manufacturing, as well as building construction and infrastructure development. In Germany the steel is part of the metal industry where it falls in the ferrous metal category.

There are two types of steel manufactured in Germany which are

• Electric based- It uses high current electric arcs to melt the steel scrap and convert the liquid steel of a specified chemical composition and temperature. It provides a better thermal control in which alloy additions can be made easily.
• Oxygen based- It is also known a Basic oxygen process which uses the pure oxygen to convert a charge of liquid blast furnace iron and scrap into steel. The pure oxygen at high flow rate results in fast oxidation of elements allowing the iron to convert within 20 minutes

At present the steel market in Germany is experiencing robust growth. The steel sectors value added growth was 2.2% in 2016, 2.1% in 2017 but is expected to be only 0.4% in 2018. The figure has decreased drastically in past three years.

However the contribution of this sector to the nation’s economy is commendable as it accounts a total 2.3% and the cumulative growth in past 3 years is 2.9%. Despite, other countries are taking a lead in the global setting, the steel produced in Germany has a high export orientation which is likely to keep the entire industry stable in long term.

Market Overview

In the entire European Union, Germany is the leading steel producer. It is capable of delivering high quality and innovative end product. Out of the total production of steel almost 50 percent is exported to foreign markets. On a global market Germany is ranked at fourth position after China, USA and India.

The German steel industry is a part of the steel and metal industry where both work hand in hand. It is not an exclusive sector as it is directly related to other industrial sectors such as building and construction, the automotive industry, the electrical industry and mechanical engineering.

Germany alone accounts 2.6 percent of the world crude steel production and 1/4th of that in the entire EU. With 17.2 billion euros, the steel industry in Germany contributes about 30 percent of the value creation which is achieved by the European region is steel production.

The steel production is not basic as the country as a whole implements various innovation and integrates with other industries such as car or machine construction.

It is one of the sole supplier for the machine construction whereas about 12 percent of raw materials needed in car parts for the automotive industry is also supplied by the steel industry. Other indispensable sectors consist of electrical engineering, metal processing and construction. 

Market Risks

The Rise of China in the Global steel market poses a number of risks to the German industry directly and indirectly.

The effect of the China’s steel industry export boom is three fold in Germany.

• Firstly, the quality standard of steel produced in China cannot be compared to that produced in Germany as the German steel has an impeccable quality. But the high quality of German steel comes with high price which cannot be afforded by the third countries which is why they opt for Chinese steel.
• Secondly, there are other steel producers such as Japan, India and whose steel industries are affected by the sudden increase of China’s steel exports and as Germany is a country that has a good volume of steel consumption, these countries are exporting their steels to Germany
• Lastly, it is becoming difficult for Germany to sell its steel in China because the consumer industries are consuming it from their own domestic supply further decreasing the exports of German steel in China. Thus the imports have tremendously increased in Germany in extent to its export and negatively impacting the overall net trade balance of the steel in the country.

Top Market Opportunities

• Using mass customization and differentiation strategy

There is a forum called autosteel.org in Germany which allows companies involved in steel industry and the automotive to team up and generate value. Thus, the idea is to create a synergy by combining strengths and stabilizing the industries all across.

For instance, in the early stage of the product development, the steel industry should focus on the product features, idea, processes and try to create a differentiated product and as the development period matures it should be able to provide multiple solutions to the industries present in the market and add up more members to the existing customer industries portfolio.

• Development of Nano steel

There has been tremendous investment and research being made in the concept of Nano steel and these are focused on the core features of steel and how they can be modified accordingly. The properties of the steel can be changed.

For instance there is an institution called Max Plank where scientists have been working on the project and the findings of their experiments suggest that there lies a huge opportunity to improve quality of steel while reducing its weight. If German steel industry is ready to adopt such technology as early as possible then it could change the entire face of the industry upside down for good.

Market Drivers

The German steel industry remains strong due to the competitive edge it receives in comparison to other international manufacturers in terms of high technology processes and demand from other supportive sectors such as construction and machinery. 

Two third of the job creation in the entire processing industry is sustained by the steel industry. The value chain of the steel industry is commendable as this single industry not only supports the customer industries which are a part of forward integration but there are various supply sectors in the backward integration that supplies the components to the steel industry. These supplier industries are also sustained because of steel industry. Thus, the steel industry in Germany is driven by its value chain .

There are other multiple initiatives taken by the Government of Germany to support the steel industry such as unsecured loans are provided to finance raw materials used for the steel production, export insurance is available at low cost, there is a body of federal government which carries out surveys that helps in identifying the locations of opportunity for steel sales.

Finally, various subsidies on the energy costs are provided to encourage the companies to use clean energy and as a result of that energy consumption has reduced by 39.2% per ton in the steel industry.

Market Restraints

The most shocking change for the steel industry was faced because of the decreasing demand by one of the major sector i.e. automotive which used to be the key purchaser of steels.

As the cars are moving towards the electric engines and lighter materials, steel is a material that becomes the last choice of car manufacturers because of its underlying feature ‘heaviness’. Thus, there is increasing pressure upon the sector to find another customer industry to offset the loss of automotive sector share.

The overall population of European region has declined, Germany being part of Europe its population has also declined which is going to lead to the shortage of workforce required in the steel industry. The steel production industry overall will be hampered because of the decrease in size of the potential workforce. 

Iron ore is one of the raw material which is imported by Germany to large extent as it is used in production of steel. The German steel industry imports about 95% of iron ore and the fall in the currency value of euro has further increased the cost of iron ore. 

China was the major driver for steel industry in Germany at past due to the high volume of demand in steel made by the country but due to the economic slowdown, the competition in the European region has further intensified in this sector.

As China has moved to new era of industrialization and big construction projects are being managed by its own domestic steel production rather than relying on the international market.

The overcapacity of steel production in China has further led it to seek to penetrate the foreign markets making it number one producer and exporter of steel in the global arena. 

At present, many European countries are facing weak economic growth which means that the countries in this region need to identify the neighboring countries to sell large volumes of steel.

As Germany is one of the most prominent producers of steel where it receives high degree of support from the government with less interventions, geographical proximity, and presence of supportive consumer and supplier industries, other European countries are putting pressure upon Germany to import their steels. 

Industry Challenges

The overall production of the steel in Germany has declined in 2016 by 1.4% because of numerous reasons where low steel price being the major reason along with the country receiving import pressure and overproduction of steel within the industry.

Due to oversupply and less demand in the market, most of the financial statements of the companies involved in the sector showed losses as the sales quantity was low, with lower profit margin and depreciation of inventory. 

Not only a single, but there are multiple environmental degradation factors which can be caused by the steel industry such as high consumption of raw materials. For instance, 2.1 ton of solid raw material has to be imputed per semi-finished steel product. Similarly, the processing requires high energy demand.

The processing also is responsible for emissions that is causing air pollution and this is mostly due to the use of coke in blast furnaces. Similarly other emissions like dust, NOx, Sox, heavy metals and toxins, pollutants in water is caused by the industry.

The major challenge for the factories running in the sector is to become energy efficient and introduce innovative processes which are sustainable and cause less harm to the natural resources.

The price of energy consumption in the production of steel has increased tremendously. It is another factor incurring additional costs to the industry. As the 70 percent of steel produced in Germany is through electricity the large amount of electricity bills to be paid by companies annually. This makes it difficult for companies to survive in financial terms as margins are narrowing because of increasing operational costs. 

Another problem that exists within the industry is the price discovery of the end product steel. As the steel grades are varied to a large extent and is complex. The steel itself is available in large variety of quality with its own grading and specifications.

The commodity specification is not clear due to which there is less price transparency and as a result the number of potential buyers and sellers present in the market demand for high degree of transparency as the prices of similar grade steels are incomparable. Thus, a standard quality specifications are to be identified. 

Technology Trends

The steel production process in Germany leverages the technology to its fullest. In the conceptualization phase the plant is established using the 3D graphics and there is a plant simulation software which plays a major role in the construction up till the development of the plant.

Automation is used to process the entire raw material and convert it into steel. There is a decision support layer in the simulation software which also suggests to improve and make changes in the processes to make the best use of the raw material and reduce inefficiencies. For instance, utilization of the hot molten metal etc. These decisions are triggered with the help of artificial intelligence and the purpose mainly is to develop better quality in steel.

The uniqueness of the steel plant of the industry lies in its ability to integrate multiple processing routes. This technology allows to change the form and chemistry of the steel produced. The purpose of integrating both accordingly is to produce different grades of steel.

After the production of various grades of steel, the recyclable steel scrap is further melted for making it usable and finally, a third route is used to decrease the amount of raw material used to produce a steel in which the quality and quantity remains same.

66% of the steel in the industry is produced using these three routes and the result is reduction in cost and value addition in product.

Regulatory Trends

In March 2015, European Union finance ministers approved an investment Programme that allocated a total amount of 315 billion euros as a part of strategic investment plan between the periods of 2015 to 2017.

The entire European steel industry has benefited as a result of this Programme. Although the steel industry would benefit temporarily, the program doesn’t provide a solution to the mid-term and long term crisis the steel industry in Germany and European region would be facing. 

The German government has introduced policies which can be effective in improving the use of raw material in the industry. The policy is the fact behind the increase in the production of steel over past 20 years. The raw material consumed however has reduced by 10 million tonnes in the same period of time.

The German government has established a Closed Substance Cycle and Waste Management Act with hope of ensuring preservation of natural resources and environmentally compatible disposal of waste, thus providing the framework to encourage and measure recycling commitments.

These measures have resulted in German steel industry to recycle the steel up to 90% rate as the industry now recycles about 20 million tonnes of steel scrap every year. 

Other Key Market Trends

As the steel industry in Germany is thriving, it is also taking the initiatives to develop processes which is environment friendly such as use of sustainable energy and raw materials. Whereas, particular emphasis is given to the use of recycled materials.

As the recycled materials now account about 50 percent of the material used in the entire production process. This is a big achievement for the entire industry.

Market Size and Forecast

As of 2016, the total steel production is 42.1 million tonnes which increased in 2017 where the total production of the industry was 43.4 million tonnes respectively. The total revenue generated as of 2016 was 35.1 billion euros and that in 2017 was 34.2 billion respectively.

Forecast From the year 2015, the steel industry is expected to increase at 2% in real terms annually. 

Market Outlook

42.1 million tonnes of steel was produced as of 2016 which grew by 2.1% in the first half of 2017 and as the demand of German steel is expected to grow by 0.4% in 2018. Definitely, the future of the industry is secure but the figures suggest that the growth can be encountered at a slow pace with no major changes being faced by the industry at present.

The cumulative per capita steel use in Germany as of 2017 is 508.5 kilogrammes.

As of 2017, 1689 million tonnes of crude steel production was recorded where the European Union’s total share in production was 10 pecent. 

As of 2017, Germany is the sixth largest exporter of steel in the world with 26.4 million tonnes of steel exports and third largest importer with 27.1 million tonnes of steel imports.

Distribution Chain Analysis

There are about 20 important sites for the production of steel in Germany. The steel production in Germany can further be divided into two major categories which are: 

1 Integrated Iron and steel works:

There are 4 major location with maximum where maximum steel works and integrated iron production happens are follows:

• Duisberg- 14.8 million tonnes
• Salzgitter-5.7 million tonnes
• Bremen-2.6 million tonnes
• Volklingen- 2.5 million tonnes

2 Electric steel works and rolling mill: the four major locations where maximum electric stell works happens are follows:

• Kehl-2.4 million tonnes
• Kehl-2.4 million tonnes
• Herbertshofen-1.2 million tonnes
• Seignen- 1 million tonnes

Competitive Factors

The most commendable utilization in the industry is the steel scrap or the wastes generated during the production of the steel which the industry has been able to sell overseas. As of 2015, with an export value of 3 percent from the scrap there has been a surplus contributed by the industry in the trade balance. As of 2016, almost 9 million tonnes of steel scraps are exported to third countries.

The steel industry in Germany is facing intense competition from other substitute products such as plastics, glass, textiles, aluminum and stone. These metals are becoming more popular in consumer industries of steel such as automotive, household appliances, construction reducing the supply share of steel in these industries.

As these metals have wide range of applications and their uses are being identified sectors such as automotives are also replacing steel with other metals in their components and parts. Thus, it becomes essential for the steel industry to search for new consumer markets where steel can have its application. 

Key Market Players

The 99 percent of the total volume of the steel production is controlled by the 14 major steel producers in Germany. According to the share of the total production volume every year the major players in the industry are follows:

1. Thyssenkrupp
2. Arcelormittal
3. Salzgitter
4. HKM
5. Sarstahl
6. Dillingen
7. RIVA
8. Bashiste Stahlwerke
9. Georgs Marienhutte
10. Lech Stahlwerke
11. Deutshce Edelstahlwerke
12. ESF Elbe-Stahlwerke
13. Stahlwerke Thuringen
14. Bentler

Strategic Conclusion

At present scenario the German steel industry can be viewed as ‘barely fit for future’ due to the mid-term crisis that is ahead of this industry. As of 2025 however the outlook of the industry seems positive and viable in long term.

The rise in the global demand of steel is going to offset the challenges and the restrains that exist in the steel market. Technology and sustainable means of production can help the industry to mitigate the internal challenges and the support of government and the rise of third countries can boost the sales of German steel in international market.

The oversupply problems that is being faced at present by the German steel industry can be solved by the rise of demand to meet the level.

References

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