1. Porter’s Five Forces of the Steel Industry
Industry rivalry is high
There is not much product differentiation resulting in intense competition to get large contracts thereby minimizing customer’s switching cost and loyalty and causing excess capacity.
High exit barriers since assets are specialized due to various technology being used in the industry
Increase of mini-mill competitors
Increase in global competitor (Japanese Steel, Arcelor Mittal Steel)taking up greater market shares
Is low for integrated steel industry
Growth is stagnant from the low price of steel
Economies of scale
Significant capital investment in acquiring property and equipment
Barriers to exit are also very high as “tax laws and accounting rules inhibited the closing of inefficient plants”
Difficult access to supply and distribution
Slightly higher for the mini-mill industry due to lower capital commitment and scale
For the industry, it is moderate
Iron ore and scrap are relatively cheap commodities
Few suppliers
Mini-mills reliability on scrap metal can cause it to shift to a more costly materials like iron carbide in cases of higher cost of scrap metal due to limited supply
For integrated steel makers, supplier power is low because their backward integration practice( acquiring their own coal/coke mines and transportation facilities).
Bargaining power of union workers is medium too.
Is moderate
The huge availability of steel products has allowed buyers to set the price they will for steel products.
Relatively low switching cost
Large buyers have (e.g. car makers) have more bargaining power. For example, the U.S steel producers had to fulfill Japanese automakers’ quality before they were allowed to supply Japanese auto plants in the U.S.
It is moderate to high
High in applications where strength is not a crucial concern but cost is( e.g. plastic, wood, synthetic materials, fiberglass)
Moderate in applications that require strength since substitute materials are just not strong enough
Threat of cheaper Chinese steel could take sales from domestic players too.