Baosteel to enhance market share with low prices

Baosteel to enhance market share with low prices

China’s National Development and Reform Commission (NDRC) held a meeting on Thursday, November 3, with officials from China’s ten leading steelmakers, including Baosteel. Market sources report that two main conclusions came from the meeting: 1.) The current decrease in finished products prices is reasonable and is the result of changes in the supply and demand relation. 2.) Measures that limit output to protect prices can only “relieve the symptoms of the disease” instead of “curing it”. Participants at the NDRC meeting agreed that measures to limit output could realistically only be applied to large steel mills, many of which own advanced production capability. This would then leave ample opportunity for small steel mills to increase their output and capture market share that would be available if the large mills were forced into production cutbacks. Influenced by the meeting, Baosteel recently held an interior meeting with its staff members. Baosteel analyzed the current market conditions and challenges faced by the company, and then put forward its new strategy for the next stage. Taking a page from the Wal-Mart playbook, Baosteel determined that it should institute a low-price sales policy in order to enhance its market share and force outdated enterprises out of the market. Baosteel has been regarded as the mainstay to stabilize China’s domestic market for a long time. The ex-factory prices of Baosteel remained at a relatively high level during the price fall in the second quarter of this year. Baosteel’s high prices in turn supported other steelmakers’ prices. Baosteel’s fourth-quarter price reductions, while large, simply brought most of its prices into line with the prevailing market price. Consequently, Baosteel is continually feeling pressure as it receives more and more complaints from customers demanding lower prices. Baosteel’s former strategy of high prices was a function of its aim to maximize profits. In light of the current market conditions, Baosteel took the following two factors into consideration as it looked to move forward with its low-price policy. 1.) With the rapid development of China’s iron and steel industry, remarkable progress has been made in the quality and quantity of iron and steel products. If a huge price gap remained between Baosteel’s price and the market price, Baosteel would likely miss out on the opportunity to capture more market share. In fact, it might have seen its market share dwindle. 2. The NDRC’s opinion contrary to the principles of the China Iron Steel Association meeting alleviated Baosteel’s worry about implementing its new strategy. Baosteel’s new policy should enable the company to participate fully in both domestic and international markets. This in turn will pave the way for Baosteel to be a stronger enterprise. There is no doubt that Baosteel will cut its 2006 first-quarter prices by a certain amount. This means that prices in China’s iron and steel industry might decrease dramatically. SteelOrbis Shanghai