SteelOnTheNet Insights Podcast

Introduction (00:00–01:30)

The steel industry is one of the most capital-intensive industries on earth. A greenfield integrated steelworks can cost two billion dollars or more. Even a modern electric arc furnace plant — a smaller, more flexible investment — typically requires several hundred million dollars of capital. These are not decisions that can be easily reversed.

Yet time and again, steel projects are approved on the basis of feasibility studies that are incomplete, over-optimistic, or fundamentally flawed. The consequences are predictable: cost overruns, delayed startups, underperforming assets, and in the worst cases, complete project failure.

Here is the uncomfortable truth: most steel project failures are decided years before ground is broken. The mistakes are made at the study stage — in the assumptions, the methodology, and sometimes in the motivations of those who commission and conduct the work.

In this episode, I want to examine why feasibility studies go wrong, what the failure modes look like, and what a rigorous study actually requires. If you are involved in commissioning, financing, or approving a steel investment, this episode is for you.

What a Feasibility Study Should Deliver (01:30–03:30)

Let me start with what a feasibility study is supposed to do.

A feasibility study is not a promotional document. It is not a justification for a decision already made. It is an objective, structured assessment of whether a proposed investment is technically viable, commercially sound, financially attractive, and operationally deliverable.

Good practice recognises a hierarchy of study stages. The process begins with a concept appraisal — a relatively rapid assessment of whether an investment idea is worth pursuing at all. If the concept appraisal is positive, a pre-feasibility study follows, examining the main variables in greater depth and identifying the key risks. Only if the pre-feasibility study is sufficiently encouraging should a full feasibility study be commissioned — a comprehensive, detailed analysis that forms the basis for an investment decision.

Each stage acts as a decision gate. Projects that cannot pass through a gate should be stopped or fundamentally redesigned before proceeding. Skipping stages — moving directly from concept to full commitment — is one of the most reliable predictors of project failure. It saves time and money in the short term. It destroys value in the long term.

The Independence Imperative (03:30–05:00)

Before examining what a feasibility study should contain, I want to address something more fundamental: who should conduct it.

The consulting team must be genuinely independent. That means no financial interest in the outcome. No commercial relationship with equipment vendors. No dependence on the project sponsor for future work. No political pressure to reach a particular conclusion.

This sounds obvious. In practice, it is frequently violated.

Vendor-sponsored studies are compromised by definition — the organisation supplying the technology has an inherent interest in a positive outcome. In-house studies conducted by the sponsor's own team are subject to organisational pressure and confirmation bias. Studies commissioned by governments or development agencies with a political commitment to a project face similar distortions.

The result in each case is the same: the answer is known before the work begins, and the study is constructed to support it.

Genuine independence means the consulting team is appointed solely on the basis of competence, has no axe to grind, and is contractually required to report what the evidence shows — including when that evidence is unfavourable. Reputable international lenders now routinely require independent technical advisors as a condition of financing. There is a good reason for that.

Market Analysis: Always the Starting Point (05:00–07:00)

With independence established, let us turn to content. And the starting point — always — is the market.

No amount of technical excellence or financial engineering can save a steel project built for a market that does not exist, or that is too small to support the proposed capacity. Market analysis is the foundation on which everything else rests.

There is a critical distinction that is frequently misunderstood, and I want to be precise about it. Only direct demand counts.

Direct demand is steel that is physically consumed within the project's catchment area — steel used by construction companies, manufacturers, and fabricators who will buy and process it locally. That is the market the project will serve.

Indirect demand is a different concept entirely. When a country imports cars, washing machines, or industrial machinery, those products contain steel. But that steel was manufactured elsewhere. It is not available to be supplied by a local steelworks. Including indirect demand in a market assessment inflates the apparent opportunity and produces a fundamental overestimate of the addressable market.

I have seen feasibility studies that make exactly this error. The market looks large on paper. In reality, the steel demand that the project could actually capture is a fraction of what the study claims.

Get the market analysis wrong, and every subsequent section of the study is built on sand.

The Seven Classic Failure Modes (07:00–14:30)

With market analysis as the foundation, let me now examine the most common ways that feasibility studies fail. I have identified seven failure modes that recur across steel projects worldwide.

The first is demand overestimation. Even setting aside the direct versus indirect demand error I have just described, project sponsors consistently overestimate their ability to capture the available market. A new entrant does not immediately achieve full market share. Existing suppliers — domestic and international — will defend their positions.

Local buyers have established relationships and supply chains. A realistic study must model realistic market penetration rates, absorption curves, and ramp-up timelines. Projects that assume rapid achievement of full capacity in a competitive market are almost always wrong.

The second failure mode is logistics and infrastructure — and this is one of the most consistently underestimated areas in steel project analysis. It has two dimensions. The first is transport costs. Steel is a heavy, low-value-to-weight product.

Steelmaking raw materials — iron ore, coking coal, scrap, limestone — are also heavy and bulky. Transporting these inputs over long distances, and then distributing finished steel across large geographic areas, adds cost at every stage. Those costs must be modelled in full and tested rigorously against the project's profit margins. A project that looks viable when raw materials are sourced locally may become completely unviable when realistic transport costs are applied.

The second dimension is supporting infrastructure readiness. A steelworks does not exist in isolation. It requires roads, railways, and ports capable of handling large volumes of raw materials and finished product. It requires reliable power supply. It may require dedicated ore handling or processing facilities.

These must be in place — or under binding commitment to be delivered on a defined timeline — before the steelworks investment is made. A project that assumes the necessary infrastructure will follow is taking an enormous risk. In some of the most costly failures in steel industry history, the plant was built but the infrastructure never arrived, or arrived too late, or at a cost that fundamentally altered the economics.

The third failure mode is technology misjudgement. The steel industry has a long and expensive history of projects built around technologies that were unproven at industrial scale, or that were technically sound in one context but inappropriate in another. My strong advice is this: tried and tested is the safest route.

Established technologies — proven in comparable operating environments, with a track record of performance data — carry significantly lower execution risk than novel or first-of-kind processes. Equipment vendors are understandably enthusiastic about their products. Their projections on productivity, energy consumption, and maintenance costs should always be independently verified. The cost of being an early adopter at industrial scale in the steel industry can be very high indeed.

The fourth failure mode is CAPEX underestimation. Steel project capital costs have a consistent tendency to grow between feasibility study and completion. There are several reasons: scope changes, design development, unforeseen ground conditions, escalating input costs during construction, and optimistic initial estimates. A rigorous study must apply realistic contingency provisions.

But there is another discipline that is equally important and less consistently applied: always seek multiple vendor offers for major equipment packages. A single vendor quotation tells you what one supplier wants to charge. Multiple competitive offers reveal the true market price and provide negotiating leverage. Projects that proceed on the basis of a single equipment quote are exposed to significant cost risk.

The fifth failure mode is cost competitiveness. A project may appear commercially viable when assessed in isolation — the numbers look acceptable, the return seems adequate. But the relevant question is not whether the project is viable in isolation. It is whether the proposed facility can compete in the market it intends to enter.

That requires benchmarking the project's projected cost structure — production costs per tonne, energy costs, raw material costs, conversion costs — against the key competitors it will face. And here a further discipline is essential: the input cost assumptions underpinning that cost structure must be real and secured, not aspirational.

If the project's competitive position depends on a concessionary energy tariff, or on raw material prices that assume a government agreement not yet formalised, those assumptions must be contractually locked in before capital is committed. Implied assurances are not a foundation for a cost competitiveness analysis. If the analysis shows that the new facility will be a high-cost producer even under favourable assumptions, that is a fundamental problem that no amount of financial engineering can resolve.

The sixth failure mode is optimism bias and sponsor pressure. This is perhaps the most pervasive and the hardest to eliminate. When a project has strong political backing, or when a sponsor has invested significant time and reputation in promoting an investment, there is enormous pressure on those conducting the study to reach a positive conclusion.

Assumptions are stretched. Risks are minimised. Downside scenarios are omitted. The result is a study that tells the sponsor what they want to hear, rather than what the evidence supports. A genuinely independent consulting team, as I discussed earlier, is the primary defence against this failure mode.

The seventh failure mode is governance and institutional quality. This is a factor that technical and financial analysts sometimes overlook, but which experienced investors and lenders treat as a hard determinant of project success. Large steel investments require sustained institutional capability over many years — through construction, commissioning, ramp-up, and into full operation.

Where governance structures are weak, where independent oversight is absent, or where decision-making is subordinated to political rather than commercial logic, the conditions for mismanagement are created. The business must have the structures and processes that prevent a project going off the tracks — an independent board, clear accountability, rigorous performance reporting, and the authority to take hard decisions when circumstances demand it.

Wanting to build a world-class steel plant is not the same as having the institutional capability to construct and operate one profitably. A rigorous feasibility study must assess governance honestly — not assume it away.

People, Project Management and Training (14:30–16:00)

Technical and financial viability are necessary conditions for a successful steel investment. They are not sufficient.

A feasibility study must also address the human dimension: who will build this project, and who will run it?

Project management in major steel construction is a specialist discipline. Large-scale steelworks projects involve complex multi-contractor environments, long procurement lead times, intricate commissioning sequences, and significant interface management challenges. The capability to manage this process — or the plan to acquire that capability — must be assessed and costed.

Equally important is the operational workforce. A new steelworks requires skilled operators, metallurgists, maintenance engineers, and managers. Where will they come from? If the local labour market cannot supply them, recruitment and relocation costs must be factored in. If the technology is new to the operating team — as it frequently is — structured training programmes must be planned, budgeted, and delivered before startup.

Projects that treat workforce development as a minor administrative detail routinely discover, at the worst possible moment, that they lack the human capability to operate their assets effectively. The result is extended ramp-up periods, underperformance against design capacity, and cost overruns that were entirely foreseeable.

The Green Credentials Imperative (16:00–17:30)

I want to turn now to a factor that has moved rapidly up the agenda for project finance in recent years: environmental performance.

For most of the industry's history, a feasibility study was judged primarily on its financial metrics — net present value, internal rate of return, payback period, and debt service coverage. Those metrics remain essential. But they are no longer sufficient.

International lenders and development finance institutions now routinely assess the environmental credentials of proposed steel investments alongside their financial returns. Resource efficiency, energy efficiency, and greenhouse gas emissions have become material factors in financing decisions. Projects that perform poorly on these dimensions face higher financing costs, more demanding covenant structures, or outright rejection.

This is not a marginal or transitional phenomenon. It reflects a structural shift in how capital is allocated globally, and it will intensify rather than diminish.

The practical implication is clear. A feasibility study for a new steel facility must now address emissions performance explicitly. It must demonstrate that the proposed technology and process configuration meet — and preferably exceed — current and foreseeable regulatory requirements. It must quantify energy consumption and carbon intensity. And it must show that the project is aligned with the direction of travel in environmental regulation, not merely compliant with today's baseline.

A feasibility study that ignores emissions is now an incomplete feasibility study.

What Good Looks Like (17:30–19:00)

Let me summarise what a rigorous feasibility study actually looks like.

It begins with genuinely independent consultants — professionals with no stake in the outcome and the expertise to challenge assumptions.

• The market analysis is built on direct demand only, with realistic market penetration assumptions and a clear competitive landscape.
• Logistics costs are modelled in full, and supporting infrastructure is confirmed rather than assumed.
• The proposed facility's cost structure is benchmarked against key competitors, with input cost assumptions contractually secured.
• Technology selection is based on proven performance at comparable scale.
• Capital cost estimates are supported by multiple vendor offers and carry appropriate contingency.
• Project management and workforce requirements are addressed and costed.
• Governance structures are assessed.
• Environmental performance is evaluated against current and anticipated regulatory requirements.

And the financial analysis includes not just a base case, but sensitivity analysis and genuine downside scenarios.

Lenders conducting thorough due diligence will look for all of these elements. The absence of any one of them should raise questions.

Red Flags: How to Spot a Weak Study (19:00–20:00)

For executives, board members, and financiers reviewing a feasibility study, here are the warning signs that the work in front of you is not fit for purpose.

• Single-point forecasts with no sensitivity analysis.
• Indirect demand included in the addressable market.
• Logistics costs treated as a footnote and supporting infrastructure assumed rather than confirmed.
• No competitive cost benchmarking.
• Input cost assumptions that depend on concessions not yet legally secured.
• A single vendor quotation accepted for major capital items.
• CAPEX with no contingency provision.
• Workforce and training requirements unaddressed.
• Governance risks ignored or dismissed.
• Environmental performance absent.
• And a consulting team with a discernible commercial interest in a positive outcome.

Any one of these is a concern. Several of them together should prompt a fundamental reassessment before capital is committed.

Conclusion (20:00–21:00)

So what is the feasibility study trap? It is this: a study that looks thorough, runs to hundreds of pages, and carries the name of a reputable firm — but is built on compromised independence, inflated demand, ignored logistics, untested capital costs, and no serious engagement with competitive reality or environmental performance. It tells the sponsor what they want to hear. The project gets approved. And the problems that a rigorous study would have identified — or stopped entirely — emerge instead during construction, during ramp-up, or in the first years of operation, when the cost of fixing them is vastly higher.

Steel projects fail for many reasons. But a disproportionate number of them fail because the trap was sprung at the feasibility stage — long before a tonne of steel was ever produced.

Three things above all others: insist on genuine independence. Start with the market, and be precise about what that market actually is. And treat the feasibility study as a decision tool, not a justification document.

This has been a SteelOnTheNet Podcast. I'm Dr Andrzej M Kotas. For full show notes and related resources, visit steelonthenet.com/insights/podcasts. Thank you for listening.