Warrian on Steel

Dr. Warrian taught us a great deal about the steel industry on Monday.  It was especially interesting the perspective that he gave us for the industry in China.  First, he compared it to the dominance they have in the production of the electronics.  He referenced Foxconn and said that China controls about 13% of the market, and then compared that to the 51% of the steel market that China dominates.  This is a massive part of the industry especially when considering how much smaller it was only a couple of decades ago.  The part that I had found most interesting was the mistakes that the American companies have made in the recent years to fall behind in the industry.  Essentially they moved away from focusing on inputs at the exact wrong time and then when they tried to catch up they came back in at just as bad a time.  This seems like an important lesson about industry moves in general; all the experts were on the same page about the right move and it still didn’t work out.  Finally, he spoke about where the industry was going and how it would be changing.  He expressed how the most successful firms in the future will be the ones that find a way to balance all aspects of the business, especially R&D to manufacturing.  Additionally he showed how moving forward innovation in the steel industry could be diversified.  Not only are they focusing on how to change their product, they will also focus on innovating for the future output of their products—like they have begun to with car companies.  There was much more that we learned from Dr. Warrian, but these were aspects of the lecture that especially sparked my interest.

4 thoughts on “Warrian on Steel

  1. American companies? ArcelorMittal is not, several others are likewise headquartered in Europe or Japan. Nucor and USSteel are domestic, though which pension funds and institutional investors own their shares is anyone’s guess….national identity matters little for that! So the ill-timed vertical disintegration and reintegration is not just the US end of the industry.

    It will be some time before the shakeout in China is over, and the shape of the global industry becomes clearer. Is vertical integration really sensible? – it ties up a lot of capital, and if steel does poorly, the mining side won’t offset that. On the one hand, BHP Billiton and Vale have huge iron ore mines so my sense the industry is more concentrated that steel. Can a single steel company use the ore from a single modern open-pit mine, or are the economies of scale in mining of a different order of magnitude? That would be an interesting paper topic.

      • The flooding of the market could have two objectives: grab further market share and to drive other firms out of the market,much like the attempts of OPEC to close other exporters doors through low commodity pricing. The rising wages of Chinese laborers, however, could help to even the playing field for the equality of the global market.

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