Class 07: Steel

Class 07 of Friday 25 September 2015

Steel discussion

• steel = ?

= technical definition

» steel is iron + small amounts of carbon

» inputs (upstream)

› iron ore

› coal ⇒ coke

› limestone

= market: who uses

» autos

› very specialized uses

» lots of minor uses as part of lots of things

» construction = 80%

› commodity

= markets: who makes

» integrated producers, e.g., US Steel or Nippon Steel

› cheap ocean transport

» minimills: scrap metal + electricity

= oligopoly

» ? economies of scale ?

= shifting vertical integration

QUESTION FOR MONDAY:

» Why no price wars in steel?

• additional questions

» Fixed costs versus variable [for us economists, marginal] costs

» demand elasticities ← → potential for sustainable margins

• questions to think about over the next weeks

» substitutes for steel

» role of technical change

» do mergers help firms? if so, which / when?

» impact of globalization

› interactions with cost structure

› interactions with local versus global variance in demand

» how manage a steel company

› alternative phrasing: what background do CEOs have and why?