China's Steel Industry: Porter's Five Forces Strategy Analysis

According to China's Iron and Steel Industry Association, the Chinese iron and steel industry reaped record profit of 169.95 billion Yuan (US$22 billion) in 2006, rocketing more than 30 percent year on year. Stimulated by robust market demand, China produced 418.78 million tons of crude steel in 2006, up 18.48 percent year on year and accounting for 33.79 percent of the total global production.

Directed by the government's macro control policy, the development of China's iron and steel industry is now in good shape. Steel price hike, a product of the country's decade-long economic boom, has also drawn large amounts of funds into the industry. Most of the country's steel giants now are state-owned enterprises.

Aruvian Research analyzes China's Steel Industry in Michael Porter's Five Forces Analysis. It uses concepts developed in Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro-environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.