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steel industry

Page history last edited by Brian D Butler 15 years, 1 month ago

 

Steel Industry

 

Coking coal accounts for 22 to 25 percent of costs for Brazilian steelmakers, while iron-ore represents about 12 percent on average, Schumacher said.  ...“Brazilian steelmakers are more competitive than their global rivals when the price of coking coal drops more than iron ore.’

 

Ingredients

 

iron ore and coking coal, the main steelmaking materials

 

Iron Ore

 

Iron ore inventory

 

Coal Industry:  raw ingredient for steel

 

Following a difficult 2007, the Coal Industry is firing on all cylinders. Its long-term outlook is promising. With countries such as China, India, Russia, and Brazil moving ahead with massive infrastructure projects, demand for steel—and, in turn, coal—should increase in kind. With tighter supplies and demand still growing, coal prices should remain elevated over the next several years, although we do expect rates to moderate somewhat past the 2010 time frame. As the sector's fortunes have improved, so, too, has investor sentiment

 

Table of Contents


 

 

 

 

 

Countries

 

China:

 

China’s steelmakers, which cut output in the second half, are benefiting from the 4 trillion yuan ($585 billion) federal stimulus plan to revive growth.

 

Mills in China’s northern province of Hebei

 

Stockpiles in China....watch them...if they run low...orders are coming...example: "Stockpiles rose to 61 million tons at the end of Feb. 6 from 57 million tons in the week ended Jan. 23"

 

Stimulus package in China:  "China’s stimulus package, which will boost spending on housing and railroads, has revived steel demand, the Ministry of Commerce said on Feb. 5. Local benchmark steel prices jumped 46 percent from November when the government announced the package"

 

See more on China in GloboTrends

 

 

India

India = big exporter of iron-ore to China (as is Brazil...see below)  see Federation of Indian Mineral Industries, a grouping of iron-ore miners

 

India produced 160 million tons of iron ore in the year ended March 31, two-thirds of which was sold to China, according to the federation. The nation holds 25 billion tons of ore reserves, of which ONLY 4 percent of which is high-quality ore. 

 

See more on India in GloboTrends

 

 

Brazil steel industry:

 

 

Gerdau SA, Latin America’s biggest steelmaker, fell 0.1 percent to 15.34 reais at 11:13 a.m. New York time in Sao Paulo trading, after rising as much as 1.9 percent earlier. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-largest steel company, supplier, rose 0.9 percent to 29.34 reais. Cia. Siderurgica Nacional SA, the third-biggest steelmaker, slipped 0.3 percent to 36.97 reais.

 

Vale, the world’s biggest supplier of iron ore

 

See more on Brazil in GloboTrends

 

 

 

 

 

 

 

Effects of Credit Crisis 2008:

 

As credit markets capsized in the third quarter of 2008, construction projects slowed and consumer spending decreased, stalling growth in the steel industry. Nonetheless, our research indicates that the long-term strength of global steel intensity (the amount of steel needed per dollar of global GDP) will probably fuel growing demand for many years to come, to as much as two billion tons annually by 2025. 

 

Since the turn of the decade, infrastructure and construction projects linked to urbanization—mostly in China but also in India, the Middle East, and other regions—have accounted for more than 35 percent of global steel demand and for more than half its growth. Demand for other metals, such as aluminum and copper, also exceeds GDP growth in these regions.

 

read more...  McKinsey Report:  Industry trends in the downturn: A snapshot

 

 

 

 

 

 

 

 

Reduction of Chinese subsidies for energy might affect manufacturing competitiveness

 

I recently read some research (from americanmanufacturing.org) that changed the way that I viewed China's comparative advantage in manufacturing, and highlighted the ways in which China has successfully competed globally by supporting industry.  In summary, the study concluded that total Chinese energy subsidies over the past 7 years have amounted to over $27 billion, a majority of which went to coal-fired energy producers.  

 

One industry in particular that has benefited extensively from energy subsidies has been the steel industry in China.   As of 2007, China was able to produce and sell steel for about 20% less price than US or European companies.  At first glance, the casual observer would say "yeah so, of course China is cheaper because of lower labor costs".   But, in steel production, labor costs are nearly insignificant, accounting for less that 10% of producing Chinese steel.  According to the study, the Chinese steel industry has neither an advantage from economies of scale, nor better use of technology or supply chains.  The report highlights that energy subsidies passed along form the base of the cost advantage of these steel producers.

 

While the report by "American Manufacturing" might be biased (it probably is biased against the Chinese), it does bring up some very interesting concerns for global business leaders, investors, and entrepreneurs.   First of all, it is important to understand the real cost structure and source of comparative advantage of China (or any country) before committing to investment, or massive changes in global supply chains.  It is critical that you understand which elements are fundamental (long-term, and lasting), and which elements are artificial (such as government subsidies which are subject to change). 

 

As political and economic forces change in China, there will surely be changes that will affect business.  Just make sure that the long-term business plans you put in place are secure enough to withstand potential changes.

 

Will the subsidies regime change?

 

With international pressure mounting, and WTO rules such as the 2007subsidy-reduction agreement (between US and China) coming into effect, we are seeing shifts in subsidies that could have an impact on the global competitiveness of Chinese firms. 

 

In other energy markets, we have seen recent changes in the manner in which the Chinese control the oil industry.  The national oil refineries in China were loosing money big time as the cost of oil internationally reached record highs, but the Chinese government kept price controls on the local market pricing structures.   In a surprise move to reduce pressure on the national oil refineries, the Chinese government eased price controls (and subsidies)

 

The danger for foreign firms, however, is that many are not aware of the important role that energy subsidies have played in China's cost advantage in global business, and they are therefore not aware of the risks that changes in these subsidy regimes could play to global supply chains. 

 

For more discussion about the changes occurring in China, please visit:  Changes are happening in China

 

 

 

 

 

Links to GloboTrends pages 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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