Baoshan Iron and Steel is a steel manufacturing company based in the district Baoshan in China. The company is listed on the Shanghai Stock Exchange with a stock price of 60019 (SHA). The company has collected a revenue of 164.1 billion CNY in the year 2015 makes it one of the significant steel manufacturers in the country. The production capacity of the company is 1 million metric tons, which is an impressive number for the company (Baosteel, 2020). Porter’s five forces analysis of the global steel industry is conducted to develop an understanding of the global steel industry.
Competitive Rivalry
According to Bell (2019), Arcelor Mittal, China Baowu Group, Nippon Steel Corporation are the three leading companies in the world for steel manufacturing from the perspective of steel production on an annual basis as the companies produce 96.42, 67.43, and 49.22 million metric tons of steel respectively. The companies that are in direct competition with the leading firms are not far behind, which include HBIS Group, POSCO, Shagang Group, and Ansteel Group, as their production is 46.80, 42.86, 40.66, and 37.36 million tons respectively in the year 2018. Comparing the production capacity of these leading companies in the world with the Baoshan Iron and Steel of 1 million metric tons, the company is facing intense competition. The companies present in the industry have massive production, sale, and distribution capacities, which makes the competition stiff for the present companies in the industry.
Bargaining Power of Suppliers
According to Maulana & Sunitiyoso (2012), the raw material used in the production of steel is basic such as coke, processed iron, and limestone with no radical innovation in the materials. The availability of these materials is also high as there is a large number of traders and manufactures that are dealing in different national and international markets at effective offerings. The suppliers understand their dependence on the companies because the companies have the power of end consumers. The company uses this power during the negotiation with the suppliers, and they shift to another supplier in case a supplier tries to dominate the company. Therefore, the bargaining power of suppliers in the global steel industry is low.
Bargaining Power of Buyers
When there is a balance between the negotiation powers of buyers and companies, there is moderation for the bargaining power of the buyer. The steel is a necessity product, which is made through a complex process under difficult working conditions. It is not a product that can be produced by the small level cottage industry, but the buyers have to depend on the large companies for the purchase of products. Keeping in view this point, the bargaining power of the company is strong, but the fact that there are multiple companies offering the steel products neutralizes the dominant impact of the bargaining power of companies (Cygler et al., 2014). As a result, the bargaining power of buyers becomes moderate, and the deals are made through moderation.
Threat of New Entrants
According to Hernande et al. (2018), the complexity of the process and the difficult working conditions are managed only through massive capital investments. The capital investment is not the only hurdle, but the continuous adaption of technology and maintenance of different international standards make it further difficult for the companies to manage the operations of steel manufacturing. The massive penetration of the current companies with high involvement of governments in many companies makes it further difficult for private investors to have the feasibility of investing in steel manufacturing. The number of hurdles for the new entrants is of financial and non-financial nature, which are not easy to overcome. This overall complexity is the reason that the threat of new entrants for the present companies of steel manufacturing is low.
Threat of Substitutes
Cement, iron, and brick are the three most important raw materials for construction projects, and it is not possible to complete the constructions without these materials. Iron provides strength to the construction, and there is no concept of construction without the use of steel. The high amount of steel means the quality of construction is high, which is the reason that the buyers emphasize on buying the best quality steel and to use it optimally. There is no product that has the ability to replace the need for steel in the current era, and there Is no expectation of such products in the near future. These two facts are enough reasons to state that the threat of substitutes in the global steel manufacturing industry is low.
References
Baosteel. (2020). Baoshan Iron and Steel. Available at: http://www.baosteel.com/group_en/contents/2898/40043.html
Bell, T. (2019). The World’s Biggest Steel Producing Companies for 2018. Available at: https://www.thebalance.com/the-10-biggest-steel-producers-2010-2340299
Cygler, J., Gajdzik, B., & Sroka, W. (2014). Coopetition as a development stimulator of enterprises in the networked steel sector. Metalurgija, 53(3), 383-386.
Hernandez, A. G., Paoli, L., & Cullen, J. M. (2018). How resource-efficient is the global steel industry?. Resources, Conservation and Recycling, 133, 132-145.
Maulana, M. T., & Sunitiyoso, Y. (2012). Scenario planning development for pt krakatau steel. Indonesian Journal of Business Administration, 1(3), 63983.