Surviving the 'perfect storm' - David Varcoe Manager Research and Development
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Surviving the ‘perfect storm’ David Varcoe Manager Research and Development
Perfect storm: a confluence of events that drastically
aggravates a situation
2
Historically high US / Australian dollar exchange rate – 100%
appreciation over ten years
Average Monthly Exchange Rate (USD:AUD)
1.10
USD:AUD
Avg (Jul 90 to Dec 06)
Avg (Jan 07 to date)
1.00
High (Jul 90 to Dec 06)
Low (Jul 90 to Dec 06)
High (Jan 07 to date)
Low (Jan 07 to date)
0.90
0.80
0.70
0.60 GFC
Key Drivers:
• Commodities demand
• Relative strength of Australian economy
0.50 • Interest rate differentials and attractiveness
of Australian Gov’t bond yields
0.40
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Source: CEIC
3
Three and fourfold increases in the price of key raw material inputs
such as iron ore and coal over a five year period
4
Global steel industry plagued by over capacity
China's steel industry faces toughest time since turn of century
Xinhua and Staff Reporter
2013-02-02
‘China's steel industry was confronted last year with its greatest difficulties since the turn of
the century, as the global economic slowdown curtailed demand, an industry association said
Thursday.
The country's crude steel output grew 3.1% to 716.54 million tonnes in 2012.
The association said its member companies saw profits plummet 98.22% to US$252
million year on year, while total sales dropped 4.31% to US$568.2 billion.
Last year, 28.75% of its member companies reported losses, the association said, as prices
for steel products experienced a downward trend.
Meanwhile, China's steel sector still has excessive production capacity, which has caused
steel output to greatly exceed market demand. As a result, steel producers competed fiercely
to boost their sales, which in turn resulted in steel price decreases, the association said.’
5
So what to do?
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Change the rules of the game with four strategies
1. Rapidly reconfigure manufacturing facilities to maintain viability,
and more rapidly respond to the dynamic business environment.
2. Find ways to more cost effectively serve the available markets.
3. Increase differentiation of premium or flagship products in order
to change the basis of competition.
4. Change the culture to better equip our staff to deal with the
circumstances.
7
1. Reconfigure manufacturing facilities
• Crude steel manufacturing capacity was reduced by 2.5 million tonnes per
annum or 50% in 2011, to focus on domestic market. This resulted in
Negligible export and spot market exposure;
Much lower exchange rate volatility exposure;
Lower asset and cost base.
= more sustainable business
• Individual manufacturing units modified in order to increase flexibility
Tube industry example
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Tube Industry Example
• October: Customer decided to close their tube galvanising plant due to lack of
competitiveness with imported finished goods.
• This customer previously bought hot rolled (heavy gauge) feedstock from
BlueScope, processed it into tubes, and then galvanized the tubes.
• Closure of the galvanizing plant meant loss of this market as the customer
switched to importing pre-galvanized heavy gauge feedstock.
• December: BlueScope successfully developed the capability to make this
feedstock by fundamentally redesigning a coupled pickle line and rolling mill.
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2. More cost effectively serve available markets
• In-line Painting - Invention of a novel manufacturing process for combined
metal coating and painting
– Reduction in operating and capital cost
– Simplified process for production of fit-for-purpose products to serve new markets
102. Contributing to the cost effectiveness of our customers
Some examples from the import competing manufacturing sector
Market Project Purpose
Quench and New high hardness grade Improved wear resistance for plate
Tempered New high toughness grade Improved weldability for plate
Plate design
High strength / ductile steel Qualification for submarine hulls
Hot Water Higher strength / thinner steel Lighter weight hot water tanks
Heaters
Racking Higher strength galvanized steel Lower cost racking and shelving
and
Shelving
113. Increase differentiation of premium coated products –
ZINCALUME® steel and COLORBOND® steel
.
12The evolutionary path of ZINCALUME® steel in Australia …
BlueScope Steel
is committed to
1830’s 1976 1994 2005 developing next
generation steels
Corrugated Launch of Resin coating Warranty for the next
galvanised ZINCALUME® added for extension from generation in
iron invented steel improved mark 25 to 30 years building
AZ150 resistance
Original ZINCALUME® steel has
coating class:
AZ150 Since 1976 BlueScope has
made more than 15 million
Coating type: Coating tonnes of ZINCALUME®
Aluminium / mass: steel - the equivalent of a
1km wide roof spanning
Zinc alloy 150 grams per from Sydney to Perth
(AZ) square metre
(both
surfaces)Differentiating through Product Leadership
Activate technology is a unique, next generation technology platform for ZINCALUME® steel
and COLORBOND® steel.
It comprises 2%Mg-55%Al-Zn and provides:
Improved product corrosion performance in critical areas over current product
Reduced manufacturing costs due to reduced coating thickness needed to achieve better performance
Product differentiation supported by 13 international patents
Enhanced green building credentials due to reduced CO2 footprint (~2 - 5%), natural resource conservation
Greater product design and application options
• Perforated product applications – such as architectural facades /solar shades
• Greater performance potential in unwashed applications
Distribution restricted- BSL only 14Accelerated Cyclic Corrosion Test (Q-fog)
AM100 – demonstrable
performance advantage
over AZ150 in common
accelerated corrosion test
Distribution restricted- BSL only 15The evolutionary path of ZINCALUME® steel in Australia –
making a great product even better.
• Re-instate a differentiated product offer to BSL based on superior, unique technology
• $100M+ capital investment
• 10+ years of accelerated testing
• 17+ years of field testing
Next generation
ZINCALUME®
ZINCALUME® steel
steel
AM125 coating
AZ150 coating
Superseded The new standard4. Change the culture – ‘Triple A’
• ‘Recharging BlueScope Australia New Zealand’
17Triple A in an R&D context – some examples
• Alignment
– R&D technology platforms more closely linked to market objectives and macro trends
– Greater visibility of overall R&D portfolio for staff, combined with better translation of
link between project tasks and individual value drivers.
• Accountability
– Shift from in-house confirmation testing of all supplier data to accreditation of routine
data provided by suppliers.
– Greater emphasis on use of grants and leveraged funding.
• Agility
– Increase speed to market through adoption of ‘lean’ product development principles.
– Use of open innovation to source ideas and non-core expertise.
18Surviving, and prospering
• Steel manufacturing capacity reduced to match domestic market requirements.
• Individual manufacturing units rapidly reconfigured to meet dynamically
changing customer requirements.
• Novel manufacturing processes developed to reduce the cost to make simple
products.
• A suite of significant new product developments planned for launch in 2013,
changing the basis of competition.
• Organisational culture change so as to better equip staff to effectively respond
to the challenging business conditions.
19Thank you
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