Defining the Essentials of the Metals Industry

The Metals industry plays a vital role as a supplier to various segments, including construction, automotive, engineering, and many others. Understanding this industry is essential, as it comprises distinct segments, each of which presents unique challenges and innovative solutions. Let’s take a closer look at the value chain of the mill products and mining segments.

SAP categorizes Metals as part of Mill Products within the Mining and Mill Products value chain, alongside other segments such as Forest, Paper and Packaging, Plastics, Textiles, Cement & Concrete, Building Products, and Furniture. It's essential to note that industry participants typically identify themselves by their specific segment, like Metals, rather than the broader Mill Products category.

The Mill Products grouping is logical from a process perspective, as many industries begin with process-type production before moving into discrete manufacturing. It can be compared to baking, where creating dough is an unpredictable process, while subsequent steps like cutting are controllable, much like discrete manufacturing. Metals companies, while not starting with dough, face similar process challenges.

A crucial commonality among Mill Products industries, including Metals, is the vast number of product variations. Unlike automotive, which combines thousands of parts into one car, these industries create thousands of different products from limited input materials. In Metals, for instance, a single plate can be cut into countless length/width combinations, resulting in virtually unlimited unique products. In terms of production, Metals and other Mill Products industries consume significant energy and heavily use machinery and assets. From a customer interaction standpoint, the Metals industry primarily operates in a B2B context within its value chain. However, as industry borders blur, companies are increasingly moving up or down the value chain, sometimes even reaching end-consumers or expanding into adjacent industries using their process expertise.

Within the Mill Products and Mining industry, there is a group of similar industry value chains. Metals companies, for example, transform a raw material into a product. As an example, there might be steel. So, it is about transforming iron ore into a steel plate that can be used to build a car, create a beverage can, or can even become a metal roof. Next to the Mining and Metals Industry value chain, you will find Forest Products and Paper or Building Materials. These are neighboring industries, having other commodities and products, but towards the end, the basic principle of the value chain and transformation of the material is similar. So, very often there can be ideas or front runners from other industries that metals companies look at.

The primary challenge in the Metals industry is managing a complex value chain.

Managing a complex value chain requires a range of competencies as listed below:

• Product innovation & value-added services: Metal companies are "transformers". Innovation in processing technology and material composition enables a competitive advantage.
• Process excellence & scale economies: Metals companies often produce commodity products. This, combined with the intensive use of costly machinery, drives a strong emphasis on cost efficiency.
• Delivery on time and in full: Due to the use of raw materials and resulting volatility in processes, the ability to deliver on time and in full is a key ingredient for success.
• Supply chain flexibility: Metals are typically characterized by multiple methods of transformation, utilizing both internal and external resources.

A significant aspect of the Metals industry is the diverse range of product shapes that it offers.

Illustrated in the image above are examples such as long products like tubes, wires, and rebars used in construction, and round aluminium ingots that can be reheated and extruded into aluminium profiles. Throughout each stage of the value chain, there is a high degree of variety, providing numerous opportunities to customize and optimize both the process and the product.

The Metals industry comprises numerous distinct subsegments, primarily defined by the chemical material. While the periodic table features many metallic elements that could constitute these subsegments, the industry is dominated by a few key players. Steel and aluminium lead the market due to their widespread daily use, closely followed by copper, zinc, nickel, gold, and silver. Many other metals are alloyed with these primary metals to enhance their physical and chemical properties. For instance, steel alloys can include chromium, nickel, and molybdenum, with the addition of chromium in sufficient quantities resulting in stainless steel. The overall processing chain for most metals is quite similar. It begins with mining the ore, followed by processing (grinding, sorting, cleaning), and subsequently extracting the metals via heating and melting, electrolysis, or chemical reactions. Beyond chemical composition, industry segments can also be defined by the shape of the products. The most common classification is flat and long products. Alternatively, processing methods can delineate segments, with forging and casting being two segments named after the production technologies employed.

Let's learn more about the key subsegments of the Metals industry in the following video.

According to the World Steel Association, the main use of steel is construction followed by machine equipment and Automotive. In 2023, 1763 million tonnes of steel was used. The table below shows the percentage-wise details of steel used by different industry segments. Buildings Material and Construction was the biggest industry segment served by steel.

Steel production exceeds the consumption resulting in tough market conditions.

From a global perspective, it is important to know that China is the biggest player and represents roughly 50% of global steel production and demand. The overall global production exceeds the demand by 130 million tons, so there is a statistical oversupply of 7%, but in reality the excess production capacity is around 30% since years with large parts idling. So, there is tough price pressure on steel companies.​

• Metals Industry Evolution: The Metals industry, vital in construction, faces unique challenges and innovations. It creates diverse products from limited materials, emphasizing energy use, machinery, and B2B interactions within complex value chains.
• Resource Transformation: The Mill Products and Mining industry involves transforming raw materials, like metals and forests, into products, with similar value chains, enabling cross-industry innovation and adaptation.
• Challenging Metallurgy: The Metals industry faces challenges in managing a complex value chain, requiring product innovation, process excellence, timely delivery, and flexible supply chain strategies for competitive advantage.
• Metals Industry Dominance: The Metals industry is dominated by steel and aluminium, with key players like China. Despite oversupply, demand remains strong in construction and machinery, leading to price pressure on companies.