Steel Industry

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Steel has a historically dominant position in industry usage due to its vast applicability.

In
addition to steel’s use as a raw material and intermediate product, consumption and
production of steel are widely regarded as indicators of economic progress. It would not be an
overstatement to say that the steel industry has always been at the forefront of industrial
development and forms the backbone of any economy. As the steel industry over 6 million
people across the globe and thousands of businesses and jobs rely on the steel industry. A
slight bump or boom in the steel sector has a rippling effect on the industry. But have you
wondered what affects the steel demand?

Here are the four factors that influence the demand for steel significantly:

How Do Production Costs Affect Steel Demand?

Raw material costs account for a large portion of the total cost of steel production. Steel is
made from a variety of materials, including iron ore, coal and limestone. The price of these
raw materials can fluctuate based on supply and demand, and this can impact steel demand.
For example, it's estimated that the global steel industry uses around 2 billion tonnes of iron
ore in the production of crude steel. Changes in the price of iron ore can therefore have a
significant impact on steel production.

Along with raw material costs, factors like the type of steel being produced and the size and
scale of the operation matter too.

Type of steel: The type of steel produced has an impact on production costs. For example,
low alloy steels are easier to forge whereas high alloy steels require more stress. Take
stainless steel — an expensive product that costs far more than common tool steel.

Size and scale of the operation: A large operation with multiple furnaces generally has
lower production costs than a small operation. For example, Pacesetter has service centres in
Georgia, Illinois and Texas that enable us to process large volumes of steel for projects.
Managing production costs can be difficult, that's why expert advice is so important. Let our
team help you make the most informed steel purchasing decisions.
How Do International Trade Dynamics Affect Steel Demand?
The steel industry is highly globalized, with steel being traded between countries regularly.
However, several factors can affect the demand for steel production in different parts of the
world. For example, international trade dynamics can have a significant impact on the steel
industry.
When trade barriers are lowered between countries, it allows for greater trade volume and
typically results in lower steel prices. This can have a positive impact on the steel industry by
increasing demand and stimulating economic growth. However, if trade barriers are
increased, it can have the opposite effect, leading to higher prices and reduced demand.
How Do End-Customers Affect Steel Demand?
End-customers are the final people in the steel sales cycle. Here’s a simplified funnel: Steel is
manufactured > steel is sold to a home builder > the home builder uses steel to build a
development > the houses are sold to individual homebuyers AKA end-customers.
The actions of these end-customers can cause a ripple effect in the steel industry. For
example, if people are buying more new homes, demand increases and so does steel
production.
How Do Government Regulations Affect Steel?

Government regulations can dictate everything from how steel is produced to how it's traded
and transported. For example, environmental regulations may dictate the use of certain
chemicals in the steelmaking process, while trade regulations may dictate how imported steel
can be sold in the domestic market.
Government regulation can have a positive or negative impact on the steel industry,
depending on the specific regulation. In some cases, regulations may help to promote a level
playing field for domestic steel producers. In other cases, regulations can create barriers to
entry for new steel producers.
Ultimately, the impact of government regulation on the steel industry depends very much on
the individual regulations themselves, and this can vary from state to state.

What’s The Global Steel Demand by 2030?


The forecast for steel demand is expected to continue to grow over the next few years. In
2026, the global steel industry is expected to reach a production level of 2.2 billion tonnes.
Several factors are driving this growth. There's increasing demand for steel products in
emerging markets, as well as new technologies that make steel production more efficient. All
this means it's a great time to buy steel. Our product lines and fabrication services ensure that
your project is built with form and function in mind.

FACTORS AFFECTING THE DEMAND OF STEEL

1. The price of related goods

The first one is the price of related goods, the price of substitutes. It can be assumed
that aluminium is a substitute for steel since it has the same characteristics as steel
and can be used instead of steel. Therefore, it is possible that if the price of
aluminium falls, the quantity demanded for steel will reduce. In contrast, if the
aluminium price increases, the quantity demanded for steel will increase.

2. Consumer incomes

If the consumers get higher incomes, it is likely that they are willing to improve their
living standards. Once they are willing to do that, they will use more products, for
example, brand new cell phones which are made with stainless steel. If the public is
buying such products, the producers will produce more and the demand of steel will
increase.

3. Preferences

Another factor is the preferences. It is because there are many types of steel and
many uses for steel. Although they are used in home appliances such as kitchen
ware, steel is mainly used in construction sites. Even if it’s narrowed down to
construction sites, different types of steel are used for different buildings. Also, there
can be occasions where certain types of steel and designs are becoming popular. If
that happens, that certain steel type will get higher demand than other types.

FACTORS AFFECTING THE SUPPLY OF STEEL

Technology
Concerning the factors affecting the supply of steel, all three (technology, input
costs, and government regulation) mention above are included. Every goods must be
made with their own methods and since steel cannot be made in simple way, (it
needs machines and tools) so, technology plays a vital role. If one company uses
better and required machines and tools to produce steel than other company, that
one will be able to produce more.

Input costs
Input costs must also be considered. The reason is simple. Steel requires certain
amount of iron and carbon, and different types of steel require different amount of
components. Therefore, if a type of steel, which requires more amounts of
components than the others, is going to be produced, the production cost would be
very high and that will affect the supply.

Government regulation
Government policies can both increase and decrease the quantity supplied of steel.
Some forms of policies are production quotas and production subsidies. Production
quota can be applied to individual worker, industry or country. Quota can be used to
encourage production or limit it to control the supply of goods. Also, since quotas
increase the domestic price of the restricted goods, just as tariffs, it affects the
quantity supplied. If government provides direct production subsidies, by cash
payments for production of steel, it is to encourage the development of steel
industry.

Section – 3 (Task – 3)

a) The short run is the period in which the firm cannot fully adjust to a change in
conditions. In the short run, the firm has some fixed factors of production. A fixed
factor of production is an input that cannot be varied. In short-run, at least one factor
of production is fixed. As mentioned above, there are three main factors affecting the
supply of steel. Obviously, input costs are variable and since the use of technology
cannot be varied, it can be considered as a fixed factor of production. Furthermore,
due to the fact that the technology is the most important factor, the supply of steel
largely depends on it. If one company had produced and still continuing to
manufacture certain type of steel, for example high-speed steel, with the same
method of production (technology), the supply of steel will be fixed in the short run.
b)

The diagram shows supply curve for steel in short-run. Since it is in inelastic
condition, change in price, from P1 to P2, is more than change in quantity supplied,
from Q1 to Q2 and shown with a steep supply curve in the diagram.

Figure 3.2 illustrates the supply of steel in long-run. Being in an elastic condition the
supply curve is flatter than the inelastic one. In this condition, the change in price is
less than the change in quantity supplied.

There are different types of steel that can be produced. Different types of steel
require different methods and time. For example, steel that is manufactured for
building sites would take days to complete while those for home appliances would
take at most one day. The length of production process is one of the factors affecting
the elasticity of supply. Elasticity of supply will change if resources in production can
be easily transferred from one good to another, for example, from carbon steel to
stainless steel, although stainless steel costs only a little more than carbon steel.
Furthermore, there will be barriers to entry. Any forms of barriers will prevent supply
from adjusting to any price changes. Therefore, it will consequently results in
changing the elasticity of supply.

c) The aim of the price ceiling is to reduce the price of a product (steel). However,
there are still some other ways to lower the price of steel. First of all, is having a
rational policy. Its purpose is to give fixed amount of commodity to each person
during the time of shortages. It happens because of shortage in supply.
Consequently, the problem of supply shortage will result in the reduction in price.
Secondly, is by pegging the price. When the price is pegged (fixed), goods cannot be
sold above or below the fixed price. Price is pegged only to reduce the original price
of a good. The last method is to increase the import. By increasing the imported
goods from other countries, it is possible that those goods are better in quality and
worth more than the local goods. If so, the price for local products will be reduced.

Section – 4 (Task – 4)

a) A price ceiling is a government-imposed limit on how high a price can be charged


on a product. Price ceilings are often intended to protect consumers from certain
conditions that could make necessities unattainable. However, price ceiling can also
cause problems if it is used for an extended period of time without controlled
rationing.

b)

The price ceiling creates a shortage of supply relative to demand by reducing foods
and goods’ prices below their equilibrium level. The point E indicates the free market
equilibrium, which occurs when the quantity supplied meets quantity demanded.
When equilibrium is founded, P1, free market price at equilibrium and Q1, free
market equilibrium quantity can be determined as shown in the diagram. The line AB
is the excess demand, which was resulted when price ceiling at P2, is established. It
also reduces quantity supplied from Q1 to Q2. Although the price ceiling succeeds in
holding down the price, it leads to excess demand. Above diagram can also be used
as a price ceiling for steel. P1, and Q1, are the equilibrium price and equilibrium
quantity respectively for the steel. According to the theory of the price ceiling, when
P1 is reduced to P2, the quantity demanded for the steel will increase and the
opposite for the quantity supplied. When the price is reduced, the amount of steel
supplied Q1 moves to Q2, thereby reducing the quantity supplied. It is because the
steel suppliers will not supply as much as before as the price lowered down.

c)

The above diagram shows the effect of price ceiling on the demand for steel. The
equilibrium price, P1, and the equilibrium quantity, Q1 are founded once the quantity
demanded for steel equals quantity supplied, resulting in equilibrium point, E, being
established. Since the purpose of the price ceiling is to reduce the price of the steel,
when P1 is reduced to P2, the quantity demanded increased from Q1 to Q2. It means
that if the price of steel is reduced, the quantity demanded for steel will be increased,
and the space between A and B becomes excess demand, as shown in the figure. The
reason is simple. For the supply, for every goods, the producers or suppliers will
supply less and less as the price reduces since that reduce their income and profit. As
for demand, steel users, for example, construction sites and car manufacturers will
buy more in order to be able to build more and produce more, resulting in quantity
demanded being excess.

Section – 5 (Task – 5)

a) The aim of a price ceiling is to reduce the price for consumers. When Politburo
introduces price ceiling on steel, it is clear that the price of steel will be reduced.
Since Politburo is intending to distribute the wealth to ordinary Russians, it is
probable that even some poor people who require steel for their own reason will
afford to buy. Although it is an advantage to the customers, it is not favourable to
the companies that are producing steel. It is because, legally, they have to reduce the
price to supply in the free market and consequently, that will lower their income and
profit. The companies may still supply to some extent, however when some
conditions, such as when the production costs become higher than the selling prices,
arise, they may stop producing steel and shut-down cases might occur.

b) When Politburo introduces price ceiling, although it reduces price for customers,
some negatives, which are shown below, might occur.
Reduction in quality
Legally, it is true that price ceiling reduce the price for customers. When price ceiling
is introduced, the most obvious thing that the supplier is likely to do is to reduce the
input costs. Clearly, when input costs are lowered, the quality of steel will also be
lowered. The period, before the price ceiling is introduced, steel producing
companies would use better raw materials (iron and carbon) than the period when
the price ceiling is introduced. Therefore, in the latter period, the product (steel)
becomes lowered in quality.

Black markets
Illegally, price ceiling increases the price. When customers cannot obtain a good(s)
they need, since price ceiling reduced the quantity supplied, they may look in the
black market to get what they need. Those who got lucky or good management get
more profit by selling the goods illegally in black market. The price in the black
market is higher than the free market price since the quantity supplied is less than
that on free market where more sellers could afford to sell the product.

Discrimination
When there is a shortage in supply, because of price ceiling, the steel suppliers will
discriminate in who is able to buy from them. It is possible that they will give favour
to rich people. As a result, only rich people will get opportunity to use steel for their
needs. However, this only occurs when there is a shortage in supply.

c)

Since the purpose of the price ceiling is to reduce the price of steel for consumers, it
also decreases the income for the suppliers. If the income is lowered, the suppliers
will not supply steel as much as before and thus, the quantity supplied decreases.
Furthermore, some suppliers may stop producing steel and turn to other industry,
thereby significantly reducing the quantity supplied in market. As a result, it can be
said that the price ceiling, introduced by Politburo is making the situation worse.

Figure 5.2

Figure 5.3

Even though price ceiling has advantages in some cases, there are some reasons why
the price ceiling, imposed by the Politburo is making the situation worse. Since price
ceiling reduces price for customers, legally, the steel producing companies gain less
profit as shown in the figure and some companies might shut-down. Eventually,
some companies which will not shut-down will turn their interests to black market. It
is described in the first diagram in this section which is resulted in the steel
producers selling in black market in order to get more profit. It is because the price
in black market is higher than that in free market as less quantity is supplied in black
market. Thus, it can be said that price ceiling, which is introduced by Politburo is
making the situation worse.

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