Final Thoughts

We have a number of articles in tonight’s newsletter about China and Chinese steel and iron ore prices. Why do we pay so much attention to one country? China controls 50 percent of the world’s steel production. The country has somewhere around 300 million metric tons (330 million net tons) of excess capacity. They have been trying to export their way out of the hole that we could see growing and in the process save jobs and keep the masses from focusing any discontent on the government. China is a problem that will not easily go away and one we must watch carefully. We have to expect China to take the actions taken by the United States to the WTO and, what will happen to the domestic steel industry should the WTO rule against the U.S.?

I was meeting with a CEO of a manufacturing company yesterday and we started to talk about the steel industry comparing it to the dysfunctional airline industry of the 1980’s and 90’s. The airline industry did not become profitable again until they understood who their customers were and how to maximize the revenue for each and every seat. How many flights have you been on lately with open seats? During our conversation this CEO told me, “The domestic steel industry is not set up to make a profit long term.”