With domestic steel supply increasing, with more foreign steelmakers entering the market and new mergers between local steelmakers, competition in
China's steel market continues to get fiercer. It's a fact that total supply in the Chinese market is greater than demand - though demand for some specific types of steel still cannot be met by domestic suppliers. As an outlet for domestic surplus steel
production, exports are without doubt a good choice. In 2006, besides the attraction of the significantly higher world steel price levels when compared to Chinese prices, the sharp increase of steel exports from
China can be largely attributed to surplus
production and to competition between the Chinese steel mills.
To go abroad and participate in international competition is an inevitable trend for
China's steelmakers, especially the big mills. Currently, their strategies to develop overseas markets can be summarized as follows:
Indirect & direct exports
It's a fact that the majority of steel is not now exported directly by the steelmakers. Instead, the major transactions are done between domestic traders and overseas buyers. At present, the average ratio of direct exports to domestic sales of the local steel mills ranges between 5 percent and 30 percent. By way of indirect exports, steelmakers can have a share in the world market and develop some potential clients at low cost. However, the indirect approach is not good for steelmakers seeking to control the market and to maximize their profits from the margin between price levels in
China and those abroad. Therefore, steelmakers are trying to expand the scale of their direct exports by establishing connection channels with clients.
Overseas subsidiaries
This strategy needs both ambition and sufficient funds. Currently, only a few big mills have the ability to form subsidiaries abroad, such as
Baosteel and Wuhan Steel. These subsidiaries collect firsthand information from overseas markets, contact potential clients and sell products all over the world. Take
Baosteel for example: the company had been establishing a worldwide marketing network for many years before any of the other steelmakers in
China. Now, it has subsidiaries on almost every continent. In
Europe alone, after a period of more than ten years of development,
Baosteel subsidiary sales revenues reached RMB 3.1 billion in 2005, i.e., more than EUR 30 million. On Sept. 13, Chinese government leaders paid a visit to
Baosteel's European headquarters located in Hamburg when the second session of the “Hamburg Summit Meeting” was held in
Germany.
Foreign collaborators
Many of
China's steelmakers have developed sales agents in their overseas markets. However, the relationship between them is commonly not very close. Most of these agents are middle traders and their incomes are gained from price margin rather than commission. Normally, they don't want to introduce their clients to the steelmakers. Therefore, domestic mills can profit better through collaboration with many different agents at the same time.
Direct investment
This is the highest grade of entry to the world market. Whether they go it alone or merge with local enterprises, to establish a mill in the target country is the dream of all ambitious companies. So far, there has not yet been one big factory established abroad under control of
China's steelmakers. Some big joint venture projects are in the negotiation phase though.
It is apparent that Chinese steelmakers are moving abroad in order to develop their world market. Although they have a long way to go before they become world-scale steelmakers, and although they will come up against very strong competitors, the Chinese steelmakers will not stop now once they have started on the way to developing overseas markets.