Steel Industry and Auto Industry

Steel is the basic material of automobiles. Without sufficient steels, it would be impossible for auto companies and their suppliers to operate. When we visited Metalsa in Roanoke, I asked one of the executives how many steel suppliers are there near Roanoke. He said “only one”.  Considering that there are many other auto suppliers and plants near Roanoke, I was worried that whether one steel company can supply enough steel for all these customers near Roanoke.

Production of steel can sometimes reflect a country’s overall productivity and economy size. United Kingdom was once the largest economy in the world, and it was also the largest steel producer as well. Then, around 1890, US surpassed UK and became the largest steel producer. After World War II, US became the largest economy in the world. In 2011, China has surpassed US as world’s largest steel producer. There are estimates that China can soon surpass US as world’s largest economy.

Production of steel is high in China due to two main factors: high domestic demand and growth of exports.

Domestic demand for steel is high due to the construction of high speed trains, large amount of infrastructure projects, and rapid shipbuildings. China is planning to construct the biggest high speed train network in the world. China is also expected to become the largest shipbuilder of the world by 2015.

Exports of steel had grown before the financial crisis. The global financial crisis in 2008 decreased foreign demand for Chinese steels. The decrease in demand forces Chinese steel companies to reexamine its strategy. Chinese steel industry is urging for changes. An article from Wall Street Journal reported that “the China Iron and Steel Association urged its members to favor higher value-added products over cheap construction steel”. Currently, low cost construction steels still are the majority of exported steels. Steel companies are planning to focus more on higher value-added products, which include automobiles. This implies that there may be another round of growth for Chinese auto industry.

http://cn.wsj.com/gb/20140514/bch085557_ENversion.shtml

9 comments to Steel Industry and Auto Industry

  • Alexander Dawejko

    He said that they use primarily one steel supplier, not that there was one steel supplier in the US.

    • Yes, if it’s a competitive market in the economic sense, one supplier is comparable to others, and using just one lowers costs for both the buyer and the seller: lower shipping costs, greater familiarity with special needs, how to trouble-shoot, inventory levels. Sole sourcing is a feasible strategy. You have to be much more proactive when you face an oligopolistic supplier market, and even that is constrained if you’re a small share of an oligopolist’s business.
       
      A steel service center gets the product from various steel mills – I asked explicity about this, the Metalsa plant has two ultimate steel suppliers. The service center however takes coils and “slits” them and recoils them so that Metalsa gets exactly what they need to feed into the start of their rolling process – the steel mills don’t do that, they want to make standard grades with the width determined by their mill setup. Note that over time steel companies have moved away from vertical integration – they ran their own steel centers, which of course handled only their own products – and in the US have focused on high-margin specialty products, unlike China. Even in China firms make no money, in the past several years many steel producers there have not just gone bankrupt but actually closed.

  • heardd16

    The link between a country’s economy, steel production and the auto industry is noteworthy. I look forward to seeing how aluminum production influences countries’ economies, especially if aluminum turns out to be a successful substitution for steel.

  • Louis Ike

    I agree that being a large domestic producer (and consumer) of steel correlates to a strong economy and growth within a nation. However, I think that you may be overlooking the fact that these booms in steel production were in part because the nations did were moving into manufacturing and had little infrastructure. I am not sold that simply being the largest steel producer etc is causality enough to say that a nation’s economy is more productive than another. China is a large manufacturing giant that is without a doubt, but the developed nations are much more service oriented, which does not require steel, ships, or trains necessarily.

  • Zachary Durkin

    I do think low production costs have a lot to do with China being able to export so much steel. Also, we must be wary of an exploding economy like China. As China develops, I think the cost of producing steel go up, and once China’s demand for steel plateaus, I think a steel industry collapse like what happened in Pittsburgh and Cleveland is very possible. Just be wary of putting an the expectations of an entire economy onto one specific industry.

    • Kuangdi Zhao

      I am not familiar with the history of Pittsburgh and Cleveland. I am sure that a steel industry collapse is not what our government want. One way to prevent a collapse from happening is to produce less cheap construction steel and more high value-added products. I think this is where steel industry is moving, and this is where they should be moving.

  • Jier Qiu

    US steel industry has been outcompeted by other countries for many years. The main problems are its quality and technology. EU and Japan both have superior steel quality but they are now becoming relatively pricey, while although China produces the most amount of steel in the world, the quality is still a major problem. But either way American steel is not competitive any more long time ago although US is still the number four steel producer globally.

  • Kade Kenlon

    Do you think America will ever build high speed trains like China has? Not only do these trains save fuel, they also prevent accidents on the road.

    • We had trains (and buses) that went everywhere. Almost no trains left, and few buses. Now from a public policy perspective – safety, fuel efficiency – we in the US might want to subsidize alternatives to cars. For better or (my sense) worse, that’s not politically acceptable, and fights against our preference for autonomy, despite all the direct costs and negative externalities (a tautology, the latter obviously not affecting our decision-making).

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