At a recent working conference on the Chinese steel industry, domestic steelmakers were advised to invest in and develop downstream steel-consuming industries in order to stabilize and promote the long-term development of the steel industry in China. This recommendation came not from the government but rather from economists and steel industry experts. Furthermore, feedback received from steelmakers at the conference indicated that many of them agreed with this viewpoint and that some of them are already planning their strategies in this regard.
Under great pressure as regards raw material supplies and manufacturing costs, Chinese steelmakers have been moving to increase investments to ensure their supplies of iron ore, coke, coal and other metals. Most local steelmakers, and especially the big ones, are independently or jointly developing their interests in raw materials, both locally and overseas. Currently, the steelmakers' enthusiasm in this regard is at its peak historical level.
At the same time, it is observed that the steelmakers who are expanding their raw material interests seem to have little time for the downstream steel-consuming sectors. There are several reasons for this. Firstly, the Chinese steel industry has a short history and so further development towards the downstream sectors has not really come on to the agenda in a big way yet. Secondly, the huge profits in steelmaking and the uncertain risks in new industries force steelmakers to err on the side of caution. Thirdly, steelmakers lack the relevant experience and drive to expand their businesses into the steel-consuming sectors.
Due to the lack of direct ties of interest with downstream industries, Chinese steelmakers traditionally prefer to transfer increasing costs directly to their customers and seldom think about the consequences. This relationship between steel suppliers and users is a source of danger which threatens the stability of the market in China and its healthy development. Once the market faces great change, conflicts of interest between steelmakers and steel users are likely to become acute.
The Chinese steelmakers appear all-powerful in their local market and the steel users seem fairly passive in comparison. However, this situation developed on the basis of shortages of steel supplies - a basis which is undergoing change at the current time. Given China's increasing steel output and the appearance of international oversupply of steel, the seller's market is gradually turning into a buyer's market.
Some steelmakers with foresight have perceived this trend. To stabilize their long-term sales, they have taken actual steps to set up downstream industries which will consume the steel they produce. Baosteel and Angang, as leaders and pioneers among the Chinese steelmakers, have already set up subsidiaries or joint ventures in auto parts, real estate construction, engineering machines, steel structures, etc., thereby setting good examples for other steelmakers to follow. In future, more Chinese steelmakers are expected to move into downstream industries, thus ushering in a new era of development.