Challenges, opportunities in the metals industry

The metals industry plays an important role in any economy because of its influence on diverse end-user applications in a number of sectors, such as chemical, engineering, agriculture, automobiles, infrastructure, electronics, and others. According to CII, the manufacturing industry has a share of about 21% of the total greenhouse emission in the world. Of this, 15% is contributed by the
steel industry. As a result, about 3-4% of the total CO2 emissions of the world are contributed by the steel industry.

The global metals industry faces many challenges; a few of them being volatile fluctuations in commodity prices, stringent customer demands coupled with reduced lead times, increased government regulations, intensifying competition from replacement substitute materials like plastics and paper. The key challenge in the metals industry value chain is the impact of metal prices, which also has
serious implications over end-use products, as any slight price hike is passed on to the end customer.
While raw material and energy costs contribute to a huge share in production costs, manufacturers who can source out raw materials feedstock through their in-house backward integration or secondary
re-melting activities to cut down production costs, thereby increasing their effectiveness in the market. The key aspect in the metals market have been challenges of being price effective and competitive to
maintain long-term back-to-back contracts with end users.

Challenges in the metals industry
In emerging economies highly unorganised metal sector has seriously challenged the economy. China has an industrial concentration of 42.6% with over 1000 large, medium, and small scale steel plants. In India, industrial concentration is over 71%; however, the secondary metal producers sector is highly fragmented and unorganised.

China is one of the largest contributors to the metals industry, with surplus supply over local demand. The challenge for many countries is safe guarding domestic manufacturers from cheaper/ inferior Chinese imports, which has been a huge concern in India. The presence of Chinese players in the metals industry has posed numerous challenges to metal companies globally especially those located
close to China. Despite having higher logistics costs to export metals products into India, China still has a very competitive cost structure in its export markets mainly due to governmental incentives for export.

India recently filed Safeguard Duty on imports of aluminium flat rolled products and aluminium foil from China; there was a drastic increase in imports from China by 29.87% in 2010-11 over the previous financial year. Production and sales of the domestic industry decreased even during the period of imposition of Safeguard duty with the increase in import. Local capacity utilisation also remained
low; as a result the Indian domestic industry claimed positive price undercutting in both products despite the imposition of safeguard duty.

A key long-term challenge within the metals industry is the replacement demand for non-metal materials coupled with replacement within the metals industry. For instance, aluminium replacing steel in automobiles due to weight reduction strategies by global OEMs.

Opportunities available in the industry
Leveraging cost advantage, strategic feed stock localisation through regional M&A is a phenomenon in emerging markets of aluminium industry. Competitive economic feedstock sourcing is a key opportunity in the industry and as a result few medium scale companies are looking at directly acquiring companies who have feedstock supply ability.

Information technology (IT) has been the catalyst driving growth of manufacturing industries over the years and has metamorphosed the way manufacturing operations were carried out in the organisations.
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