ArcelorMittal Maintains Focus On Automotive Sector With New Range Of Automotive Steels
ArcelorMittal (NYSE:MT) has unveiled a new range of steels for the automotive industry. The company’s new Fortiform range of Advanced High Strength Steels (AHSS) offers higher weight savings as compared to the company’s current range of AHSS. [1] The latest offering in automotive steel from ArcelorMittal is part of the company’s strategic focus on the automotive sector. Given the recovering demand and pricing environment for steel, automotive steel with its relatively high and stable margins, constitutes an important focus area for the company. [2]
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Steel Demand and Prices
The principal consumers of steel products are the automotive, construction, appliance, machinery, equipment, infrastructure and transportation industries. The nature of business of these sectors is cyclical, with demand generally correlated with macroeconomic conditions. Thus, demand for steel products is generally correlated with macroeconomic fluctuations in the global economy.((ArcelorMittal’s 2013 20-F, SEC))
Steel prices have fallen over the last few years, driven primarily by weak demand due to adverse macroeconomic conditions in the developed economies and an oversupply situation. This is indicated by trends in the London Metal Exchange (LME) Steel Billet Prices. [3] Over the course of last year or so, steel prices have recovered somewhat, driven by an economic recovery in the developed economies, particularly in the manufacturing sector. The Manufacturing Purchasing Managers Index (PMI) measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. This metric has consistently registered values of over 50 for all months in 2014 for the U.S. [4] While it has faltered somewhat lately for the Eurozone, it has still remained above 50 for all months in 2014. [5]
However, faster growth in steel demand in the developed economies will be offset by a slowdown in steel demand growth in China. As per World Steel Association estimates, Chinese steel demand is expected to rise only 3.1% in 2014, as compared to 6% in 2013. [6] A slowdown in Chinese economic growth, particularly in investment and factory output, has tempered the demand for steel. [7] A crackdown on pollution caused by factories by the Chinese government has added to the slowdown. Overall, the Chinese market is characterized by an oversupply of steel, as Chinese demand for steel is estimated to be 721 million tons in 2014, with Chinese steel capacity estimated to be 1 billion tons.((Global Steel Demand To Slow As Chinese Economy Cools, Financial Times)) Steel production stood at 779 million tons last year. [8]
Overall, global steel demand is expected to rise 3.1% to 1.52 billion tons in 2014, down from 3.6% in 2013, primarily due to lower Chinese steel demand. ((Global Steel Demand To Slow As Chinese Economy Cools, Financial Times))
With demand for steel still recovering and a pricing environment that is still relatively subdued, ArcelorMittal has focused on its automotive steel sales. Automotive steel commands relatively higher margins, with 20-30% of the average selling price being attributable to the value-added nature of the product. ((Global Natural Resources Conference, ArcelorMittal Company Presentation))
The Fortiform Range of AHSS
The Fortiform range of AHSS offers up to a further 20% in weight savings in vehicle parts, as compared to the weight savings already offered by ArcelorMittal’s current range of AHSS. [1] Fortiform 1050 is a grade of steel from the new range which is already available in the market, and has undergone formability and weldability tests with global carmakers, who have approved its use. The first cars using this steel are expected to be produced in 2017. Two other grades, Fortiform 980 and Fortiform 1180, will be released between 2014 and 2017. Samples of these new steels will be available to manufacturers for testing later this year, with industrial production expected to start in 2015. ((ArcelorMittal unveils Fortiform, a range of new advanced high strength steels for safer and lighter cars, ArcelorMittal News Release))
ArcelorMittal’s Automotive Push
Automotive steel is a major thrust area for ArcelorMittal. As per the company’s estimates, its flat products accounted for approximately 17% of the global automotive steel market in 2013. ((ArcelorMittal’s 2013 20-F, SEC)) Shipments of automotive steel accounted for around 16% of ArcelorMitttal’ s total shipments in 2013. ((ArcelorMittal’s 2013 20-F, SEC))
Automakers globally have been focusing on reducing the weight of their automobiles in order to meet increasingly stringent norms for emissions and fuel efficiency. For example, the U.S. government targets improvements in automobile fuel efficiency from 27.5 miles per gallon in 2012 to 54.4 miles per gallon in 2025. [9] In the EU, the target is to reduce the average emissions for manufacturers’ fleets of vehicles to 130 grams of carbon dioxide per kilometer by 2015, and to 95 grams of carbon dioxide per kilometer by 2021. ((ArcelorMittal unveils Fortiform, a range of new advanced high strength steels for safer and lighter cars, ArcelorMittal News Release)) In view of this situation, automotive steel has faced serious challenges from aluminum as a potential substitute material, as automakers look to make lighter cars in order to meet more stringent regulatory standards.
ArcelorMittal has invested heavily in R&D in order to produce AHSS grades that cater to automobile manufacturers’ needs for fuel economy, safety and reduced carbon dioxide emissions. The company is focused on preventing Original Equipment Manufacturers (OEMs) from turning to alternative materials. Prominent examples of ArcelorMittal’s innovation are the S-in motion project, introduced in 2010, which reduces the body weight of a typical C-segment vehicle by up to 19%. In June 2013, ArcelorMittal launched an innovative ultra-lightweight steel car door, which is 30% less expensive than an aluminum door. Further solutions developed for the pick-up trucks market, offer up to 23% weight savings. [10] The company has increased collaborations with OEMs on co-engineering activities. In 2013, Honda launched a new MDX SUV model incorporating ArcelorMittal’s integrated door ring concept, which combines the benefits of laser welding technology with the high performance of press hardened steel, combining substantial weight savings with a major advance in crash-resistance.((ArcelorMittal’s 2013 20-F, SEC)) Out of ArcelorMittal’s total R&D spend of $270 million in 2013, over 30% was devoted to the automotive market. [1] The company has thus emphasized on R&D as it strives to keep automotive steel the material of choice for automakers. ArcelorMittal’s management has reiterated its commitment to automotive steel as a major focus area in the company’s strategy. Thus, the company’s thrust on the automotive sector is set to continue. ((Global Natural Resources Conference, ArcelorMittal Company Presentation))
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Notes:- ArcelorMittal unveils Fortiform, a range of new advanced high strength steels for safer and lighter cars, ArcelorMittal News Release [↩] [↩] [↩]
- Global Natural Resources Conference, ArcelorMittal Company Presentation [↩]
- Steel Billet Prices, LME [↩]
- U.S. Manufacturing PMI, Trading Economics [↩]
- Euro Area manufacturing PMI, Trading Economics [↩]
- Global Steel Demand To Slow As Chinese Economy Cools, Financial Times [↩]
- China Premier Warns On Economic Slowdown As Data Fans Stimulus Talk, Reuters [↩]
- China Steel Mills Have No Cash To Meet Standards-Industry Body, Reuters [↩]
- Steelmakers Must Step On Gas To Keep Car Work, Financial Times [↩]
- ArcelorMittal’s 2013 20-F, SEC [↩]