We are often asked – what exactly is a steel sector due diligence study all about?
I will answer as follows. A steel industry due diligence study is a review of a steel firm, that reports on certain important techno-commercial issues. If you want to invest in a steel business, you are quite likely to want a due diligence report that covers market, technical and financial issues. Sometimes, environmental matters are included in this list as well.
So the due diligence investigation typically consist of a visit from a few steel experts [e.g. technical, market, financial, environmental experts] who take a look at the main issues in their expert area. For example, a steel market expert will look at steel demand today and in the future; will consider market requirements in terms of quality, size and shape; will review the competition; consider future capital investment; will forecast future sales and market share; will assess steel prices today; establish steel price trends in the near future; will project current and future sales revenues; will review steel distribution arrangements and so on. Once the expert visits the steel plant and talks to plant management about the relevant issues – and often validates these by speaking to local customers – he or she usually then prepares a written report on this topic. That market report – together with similar technical, financial, environmental or other sections – is an important chapter in the final due diligence study.
A well-prepared due diligence investigation will of course be internally consistent. This means that sales assumptions in the market study will relate to steel production levels in the technical study; both the sales and the production volumes will also relate to the financial assessments describing fixed and variable costs of production; and so on.
Crucially, a due diligence study should also be independent. This is important because if financiers are to have confidence in the written views and opinions contained in the report, it is important that such opinions are objective and without bias.
To learn more about how our consultants can help in preparing a due diligence or feasibility study, visit our steel feasibility study page.
Dr Andrzej M Kotas