Micro Steel Industry Case Study Flashcards
(23 cards)
How does the steel industry illustrate the price mechanism in action?
Global steel prices rose in 2021–2022 (from $555 - $634) due to post-COVID demand. Higher prices rationed demand and incentivised firms to increase production—classic signal/incentive/rationing functions at work.
What is the PED of steel like, and why?
Steel has inelastic demand (PED < 1) in construction due to its necessity.
However, in manufacturing of consumer durables, demand is more elastic as alternatives (e.g. aluminium) exist.
What is the PES of steel, and why?
PES is inelastic in the short term due to long production times and fixed capacity.
E.g. It takes years to build or expand a blast furnace, limiting quick supply response.
How do subsidies affect the steel market?
In India, the government provides subsidies and tax relief to domestic producers under the National Steel Policy 2017 to boost output and self-reliance. Leads to potential market distortion.
How have tariffs been used in the steel industry?
The US imposed 25% tariffs on steel imports in 2018 under Trump to protect domestic firms from Chinese dumping. Short-term gains for US firms, but raised costs for downstream industries.
What externalities are associated with steel production?
Negative externalities include air and water pollution, high CO₂ emissions (~1.8 tonnes of CO₂ per tonne of steel). Social cost exceeds private cost—justifies carbon taxes/regulation.
How does the steel industry link to information failure?
Consumers and firms may underestimate long-term environmental harm of steel, leading to overconsumption. Also, lack of knowledge about “green steel” alternatives may slow adoption.
How is the steel industry a case of market failure?
Due to negative externalities and imperfect information, steel is overproduced from a social standpoint. Government intervention (regulation, subsidies, carbon pricing) aims to correct this.
How do minimum prices affect the steel industry?
Some countries consider minimum import prices to prevent dumping. If set above equilibrium, can lead to excess domestic supply and retaliation in trade wars.
How does government failure occur in steel policy?
Tariffs to protect domestic steel may backfire: higher input costs for car and construction industries. Politically popular but economically inefficient—e.g. US auto sector losses.
What market structure does the steel industry resemble?
Global steel is an oligopoly—few large firms dominate (e.g. ArcelorMittal, POSCO, Tata Steel). High concentration ratio, significant barriers to entry, and potential for collusion.
How do steel firms engage in non-price competition?
Firms invest in branding (e.g. Tata’s reputation), R&D (green steel), and delivery efficiency. Non-price strategies help avoid price wars and retain market share.
What types of economies of scale exist in steel?
Technical (large blast furnaces), bulk-buying (iron ore, coal), and managerial economies reduce long-run average costs as output increases. Encourages natural monopoly tendencies.
What are the main barriers to entry in steel?
High capital costs, strict environmental regulation, access to raw materials, and established brand loyalty make it difficult for new firms to enter.
How does price discrimination occur in steel markets?
Some steel firms charge different prices based on grade and use: automotive steel vs construction steel. If resale is impossible and demand elasticities differ, 3rd-degree discrimination works.
How do mergers affect the steel industry?
Horizontal mergers increase market power (e.g. Mittal Steel merged with Arcelor in 2006). May lead to economies of scale, but also risk of reduced competition.
What labour market issues exist in steel?
Steel plants are often in declining industrial areas. Closure of plants (e.g. Redcar, UK) causes structural unemployment. Many steel workers are unionised, limiting wage flexibility.
How can the government intervene in steel labour markets?
Retraining schemes (UK’s Tees Valley Combined Authority retraining after Redcar closure), regional subsidies, and minimum wage laws to reduce poverty in steel communities.
How does the steel industry illustrate monopsony power?
In some towns, the steel plant is the sole major employer. Firms may have wage-setting power, suppressing wages below competitive levels—classic monopsony case.
What is the impact of automation in steel?
Shift towards high-tech production reduces labour demand but increases productivity. Contributes to wage inequality and long-term decline in traditional steel jobs.
What is the market share for Tata Steel in India?
In India, tata has a market share of 70%
When did arcelor and Mittal steel merge and how much is it valued now?
June 2006 it merged and now its value is $38.3B
What steel company are uk trying to nationalise?
Jingye steel in Scunthorpe
