Lakshmi Mittal, president and CEO of Arcelor Mittal, says further consolidation within the steel industry is the way to control price volatility.

Addressing a conference sponsored by World Steel Dynamics and American Metal Market, Mittal said price volatility has been at the heart of the industry's poor image with customers and the public. "If the past few years have been about ensuring our survival," he said, "the future must be about re-creating an industry admired for its operational excellence and quality of application and product."

According to a Reuters report, Mittal said it's understandable that customers have a hard time accepting higher pricing because of the pricing models of the past. Volatility, he said, led to alternating periods of low-priced and high-priced steel. He said the industry should act like a service industry, customer-demand led rather than supply driven.

That's why he advises other steel executives to work to emulate the strict quality criteria: "We have to think more like a service company, which are customer demand led and innovative, rather than supply driven," says the chief of the world's number one steel company, with 320,000 employees in more than 60 countries. The firm's sales last year were just under $90 billion.

Although it is currently thriving, driven by industrial growth in China and India, for many decades it was awash in red ink.

"One of the negative impacts of the progress the industry has made is that our customers find it difficult to come to terms with the new and higher pricing levels," says Mittal. "This is understandable given the pricing model of the past. Volatility of steel pricing has led to sustained periods of low-cost steel, spattered with short periods of exaggerated pricing highs."

This was one of the reasons why the London Metal Exchange (LME) plans to start trading two steel futures contracts in April 2008, he said. The Dubai Gold and Commodities Exchange plans to launch a steel futures contract sometime in the second half of 2007.

"Some customers have expressed a belief that this would be a useful starting point to help establish a more stable pricing market (but) I do not believe this to be the case," Mittal says. "Steel futures are essentially a mechanism for financial companies mainly dealing with hedging and futures. It is not a solution for curbing price volatility."

Further consolidation of the steel industry is the answer, he suggests. It would enable steelmakers to invest heavily in research and development and new product development.