While the steel industry as a whole continues to lose money, provide poor returns on capital, and steel rebar prices, sales and volumes lack improvement, some rebar producers appear to be profitable. How?
Despite continual investment, the steel rebar prices have provided a cumulative loss over the last two decades. As the rebar producers in established economies might be expected to bear the brunt of industry underperformance, some have in fact prospered.
This prosperity does not stem from an improvement of steel rebar prices, volume or cost (mentioned below) boosting profitability. To catch up with the industry’s big players, strategic change is required. What does this mean? Clearly the success of a company depends on its conditions and its organization/administration –there is no ‘magic solution’ to solve the problems of the under-performers. That said, however, general strategies for rebar manufactures range from higher value added products, horizontal and vertical integration and partnerships and alliances.
Traditionally, when attempting to turn profits around, one merely has to look at the deceptively simple economic equation: Profits = Price x Volume – Costs and then determine which factor is the best optimizer.
Price? A downward trend in steel rebar prices is inevitable –no profit-maximization plan can depend on long-term price increases. Volume? Even in established markets, bar consumption has grown 2-3% in the last 10 years, but this tends to be cyclical and cannot be relied on. Cost savings? Further improvements are limited to technological innovations.
If the traditional methods are failing, what exactly is it about “strategic change” that can turn around a business? Making out-of-the-box changes are frightening and challenging, but can be an extremely beneficial move. Combining with downstream production (fabricating rebar as well as producing it) or using e-commerce to maximize the supply chain can do more to boost profits than waiting for the steel rebar prices to naturally change ever can.
There are more than enough options for rebar manufactures; however, it can’t be stated enough that steel rebar prices, volume and costs will not fix themselves, and for the poor performer in the industry, there is no option not to change.