Steel and aluminum, quo vadis? A pathway to growth in challenging times

February 17, 2017

Executive summary

The steel and aluminum industries have multiple similarities. Both industries produce alloyed metals from price-volatile ores and secondary scrap material. These products are manufactured in comparable capital-intensive processes from casting to finishing and are used by similar customers, such as those in automotive, engineering, and construction companies. However, an analysis of key performance indicators reveals how dissimilar steel and aluminum enterprises are from each other. They face vastly different volume, demand, volatile commodity pricing, and competitive challenges, and their metrics are different in profitability, cash flow, capital investment requirements, net-debt-to-EBITDA ratios, and equity-to-EBITDA ratios.

At present, the aluminum sector is faring better than steel, in large part because aluminum is a still evolving market. But four megatrends — energy shifts, digitization, urbanization, and globalization — are already transforming both industries, and their impact will only be amplified in the coming years. In response, aluminum and steel companies need to adopt new strategies that effectively address investment constraints, changing market demands, R&D, product development, cost containment, efficiency, and the strategic moves of competitors. These strategies, the centerpiece of a framework developed by Strategy& to provide a dynamic pathway to growth for the steel and aluminum industries, take four forms: strengthen core, extend capabilities, tap into new regions, and revamp business models. To address capital constraints and build the capabilities they need, many companies will develop new core strategies directly related to their value proposition and identity. This will often require partnerships and alliances, some with those inside the sector, and some with outside industries.

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Although the differences between the steel and aluminum sectors are notable, in our view the steel industry is a window into what the aluminum industry will eventually look like if it doesn’t take steps to stop its slide. Both sectors face big challenges and have big opportunities. Both have to be proactive if they hope to overcome the obstacles in their way. The megatrends and industry metrics are troubling, but they shouldn’t induce paralysis. The more dynamic organizations in the sector have the opportunity to drive toward sustainable profitability by choosing and implementing the right key strategies.


Steel and aluminum, quo vadis? A pathway to growth in challenging times