Steel: An Example of China’s Disruptive Global Impact

http://www.dreamstime.com/royalty-free-stock-photography-stock-market-disaster-image19162907What does China’s marginal economic slowdown really mean in practical terms? For a growing number of industries much more is at stake than a slowing of double digit sales increases in China’s domestic market. For industries in which China has already established its global leadership – as both a market and as a producer – the coming tsunami will challenge swamp established assumptions. 

With Chinese domestic growth moderating – and construction cooling in particular – a 73% hike in Chinese steel exports has begun rippling through the global economy.  While today’s headlines focus on the slight decline in China’s overall GDP growth, the industry- and sector-specific fall out is where radical structural change occurs.

China’s leading position as the world’s largest consumer and producer of steel means that these swings have dramatic impacts on  competing producers as well as end-user industries and all those in the value chain.  So far, the direct impact has not yet shown up in massive US steel imports from China.  Instead, Chinese exports to other emerging markets, particularly in Asia, have disrupted overall global supply/demand balances.  Hence the full impact of falling Chinese domestic prices (see graph below courtesy of the Financial Times and Bloomberg) have yet to hit.  But they will.  Falling US steel prices and a surge in imports will inevitably be followed by mounting trade friction.

Under a reform-oriented leadership, these economic realities may well accelerate further consolidation of the Chinese steel industry. The least efficient mills will be shuttered and salvageable assets will be shifted to better managed firms and upgraded. But so to will marginal producers in other markets.  And China’s position as the world’s leading steel producer will strengthen.

How much of today’s enthusiasm for the revival of US manufacturing, predicated on low-cost (i.e. underpriced) energy, will prove sustainable when China’s much larger demand and product capacities create shift in those industries?

2014 Steel exports and price.img

About George Baeder

George Baeder has spent 35 years helping corporate leaders and policy makers to unravel the complexities of Asian business and economics. China’s growing global role will continue to radically alter long-held assumptions about market priorities, innovation and rules of competition. After nearly four decades in Asia – as an economist, strategy consultant, entrepreneur, investment banker and line manager – George is dedicated to helping organizations challenge and rethink their assumptions, pinpoint the risks and opportunities inherent in China’s emerging global leadership and develop actionable strategies and initiatives to create tangible high-impact outcomes.

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  419. Excellent blog! Do you have any tips and hints for aspiring writers? I’m hoping to start my own blog soon but I’m a little lost on everything. Would you recommend starting with a free platform like WordPress or go for a paid option? There are so many choices out there that I’m totally confused .. Any recommendations? Thanks!

  420. Today, I went to the beach front with my children. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She placed the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear. She never wants to go back! LoL I know this is entirely off topic but I had to tell someone!

  421. The other day, while I was at work, my sister stole my iphone and tested to see if it can survive a 40 foot drop, just so she can be a youtube sensation. My apple ipad is now destroyed and she has 83 views. I know this is completely off topic but I had to share it with someone!

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  424. First off I want to say terrific blog! I had a quick question in which I’d like to ask if you don’t mind. I was curious to know how you center yourself and clear your thoughts prior to writing. I have had a hard time clearing my thoughts in getting my ideas out there. I do enjoy writing but it just seems like the first 10 to 15 minutes are usually lost just trying to figure out how to begin. Any recommendations or hints? Thanks!

  425. Hmm it seems like your site ate my first comment (it was extremely long) so I guess I’ll just sum it up what I had written and say, I’m thoroughly enjoying your blog. I too am an aspiring blog blogger but I’m still new to the whole thing. Do you have any recommendations for first-time blog writers? I’d certainly appreciate it.