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Chinese-made steel no longer a threat to US producers
3/15/2006
DETROIT, Michigan, Mar 14 (AFP): The threat of Chinese-made steel to American producers has receded as the price of raw material such as iron ore and coal and energy have increased, the chairman of the largest US steel producer said yesterday.
That's because the cost of raw materials now dictates the price of a tonne of steel not labor costs, said John Surma, chairman and chief executive officer of the Pittsburgh, Pennsylvania-based US Steel Corp.
"Twenty per cent of the cost of a tonne of steel is energy," he told the Detroit Economic Club in Michigan.
"The overall cost curve works against the Chinese. It offsets China's labor cost advantage. China does better in labor intensive industries," he said.
One of the reasons that the price of raw materials has increased is because of the strong demand for steel in the Chinese domestic market, which has increased from roughly 150 tonnes in the early 1990s to about 400 million tonnes today, Surma added.
"Typically in a developing economy, the demand for steel goes up exponentially," Surma noted.
Domestic demand and the need to import large amounts of iron ore have also combined to limit China's ability to export steel, Surma said.
China's rapid expansion of its domestic steel industry still has the potential to unsettle the world's steel markets because if there is a downturn, Chinese-made steel could rapidly displace domestically-made steel in places such as Thailand, Japan or South Korea, he said.
The US steel industry, meanwhile, has been rationalized and downsized to become more efficient and now actually holds an advantage because of its access to raw materials, Surma said.
One of the key threats hanging over the global steel industry is government support for expansions that create excess capacity.
"We have no objection to imported steel. In fact, we rely on it, since on our best day, this country can produce 100 million tonnes of steel per year. We need 20 to 25 million tonnes of imports just to clear the market.
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