Mittal Steel in 2006
Mittal Steal in 2006: Changing the Global Steel Game
Industry Analysis
Although steel was a highly demanded good, the industry as a whole was largely unprofitable. One reason for this was that the industry remained highly fragmented in contrast to their suppliers and even some of their buyers, who were considerably more consolidated. Aside from the increased competition that fragmentation contributed to, it also degraded the steal industry’s bargaining power to raw material suppliers and in some cases, such as the auto industry, the buyers. The resulting high fixed costs, volatile raw material prices, and intense price competition fueled unstable profitability. Adding to the fragmentation issues was a lack of differentiation in the market. For the longest time there were really only two production possibilities. One, being vertically integrated and producing higher-grade steel at a higher cost of operation, or two, de-verticalize and focus on low cost, low-grade steel production. Depending on the production selected, the resulting accessible customer base was limited. This lack of differentiation further fueled the limited bargaining power of steel manufacturers. As stated above, steel was highly demanded. The problem was that the growth of that demand remained quite stagnate for nearly 20 years. It wasn’t until the explosion of growth in the Chinese construction industry, attributing to 25% of total steel consumption, that the steel industry saw any profitability. In an industry where customers demand a low cost and a consistent product, being able to maintain a reliable supply while being as cost efficient as possible was key to a firms success. Though there was a spike in Chinese demand, only those strategically positioned could access the true value of the Chinese market. This was because the steel industry operated primarily on an intra-regional basis. Many factors attributed to this, but a firm’s dependence on raw material access, and
Industry Analysis
Although steel was a highly demanded good, the industry as a whole was largely unprofitable. One reason for this was that the industry remained highly fragmented in contrast to their suppliers and even some of their buyers, who were considerably more consolidated. Aside from the increased competition that fragmentation contributed to, it also degraded the steal industry’s bargaining power to raw material suppliers and in some cases, such as the auto industry, the buyers. The resulting high fixed costs, volatile raw material prices, and intense price competition fueled unstable profitability. Adding to the fragmentation issues was a lack of differentiation in the market. For the longest time there were really only two production possibilities. One, being vertically integrated and producing higher-grade steel at a higher cost of operation, or two, de-verticalize and focus on low cost, low-grade steel production. Depending on the production selected, the resulting accessible customer base was limited. This lack of differentiation further fueled the limited bargaining power of steel manufacturers. As stated above, steel was highly demanded. The problem was that the growth of that demand remained quite stagnate for nearly 20 years. It wasn’t until the explosion of growth in the Chinese construction industry, attributing to 25% of total steel consumption, that the steel industry saw any profitability. In an industry where customers demand a low cost and a consistent product, being able to maintain a reliable supply while being as cost efficient as possible was key to a firms success. Though there was a spike in Chinese demand, only those strategically positioned could access the true value of the Chinese market. This was because the steel industry operated primarily on an intra-regional basis. Many factors attributed to this, but a firm’s dependence on raw material access, and