Glass house
Picture this.
The steel industry in each country lives in a glass house. Everything is visible - there are no secrets. Goliath, who is representative of the Chinese steel industry's unprecedented threat to the viability of the non-Chinese steel companies, is circling the house.
What's the necessary action for the non-Chinese steel mills to prevent Goliath from entering the house and destroying it? The needed action is to build a massive cast iron gate that keeps Goliath on the outside.
One might say that, in this new world, protection against offshore steel deliveries is the trump card.
This evolving steel industry structure is not a happy one for some players:
- The Chinese and other sizable steel-exporting companies will be facing import restraints in a growing number of countries, which will greatly reduce their deliveries. Yes, folks, protectionism reduces trade.
- Steel exporting mills delivering only a small portion of their product to affiliated steel-consuming units will find it very difficult to almost sustain exports; and, they will suffer from a lower-value-added export mix than if they had downstream affiliated outlets.
- Steel mills located at deep water ports in the Pacific Basin - there are about 26 of them - will remain in a very competitive exporting environment. For example, a new $11 billion 6 million-tonne-per-year steel plant in Vietnam is starting up with no good market for the higher-end products that can be produced by its state-of-the-art hot strip mill. It also has no ownership of downstream steel processing entities in Vietnam or elsewhere. The profit outlook for this mill, which may face interest expenses of more than $100 per tonne, is quite a challenge.
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