CDZ Why is Canadian steel cheaper?

Discussion in 'Clean Debate Zone' started by task0778, Mar 4, 2018.

  1. shockedcanadian
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    shockedcanadian Platinum Member

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    China dumps their shyte everywhere, including into Canada, it's a one sided game for them a war of attrition and they have 1 billion people under the thumb of the Commies. The difference is, we can always find a market in the U.S for it.

    Where there is suppression of citizens rights and state controls, there will be anti-Americanism, anti-freedomm and abuses to capitalist systems. The entry of the WTO came from Bill Clinton, and he doesn't know a damn thing about business. Without the internet boom, he would have been far less endeared (and I liked what he did with the economy, oddly enough).

    Now, in fairness, I didn't think China would remain communist, but that isn't for an average citizen to know and I was alot younger, poorly informed. That is why you have the CIA, NSA and others. They should be the ones sitting down and telling Clinton, "look these fookers aren't going to change, they are dictators, they control the whole country and will do so for some time. Letting them into the WTO is counter productive to our interests". The entry of them into the WTO the single worst decision to impact U.S National Security in any time in history.

    Seems, cheap labor was all that mattered. There was a time everyone spoke out against Human Right abuses, but they rarely do now. Everyone wanted cheap labor, trash goods and fresh IPO's. Even in Canada, most Canadians are docile, so why would they care about some chump being tossed into a jail cell in China?

    We have lost out way, and allowed the worst in society become successful. It's time to fight for American workers, liberty and principles. To hell with China and any nation who sides with them in an effort to harm America directly or indirectly. Tariffs are needed to protect the U.S economy until the other fake free trade nations actually become free trade, and for that matter, free.
     
  2. Tehon
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    Tehon Gold Member

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    China was not made a formal member of the WTO until Dec of 2001. That would have been Bush. I'm sure that is what you meant.

    President Grants Permanent Trade Status to China
     
  3. task0778
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    task0778 Gold Member Gold Supporting Member Supporting Member

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    Same question for you as for Tax Man, upon what do you base your statements? I don't doubt what you're saying but I can't find anything to corroborate it. I do know that Canada does import a lot of Chinese steel so they're getting the benefit of those reduced costs, so what this begins to look like is Trump punishing steel exporters to the US for accepting dumped Chinese steel, which basically allows the Chinese to keep doing what they're doing.
     
  4. shockedcanadian
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    shockedcanadian Platinum Member

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    Honestly, this is after reading 1000's of articles, news networks, documentaries and the like. On top of what I know about Canadian tactics in U.S businesses here.

    So, I could search for it, as all of it is online in some form or another, but I don't have the inclination to do so at the moment.
     
  5. usmbguest5318
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    usmbguest5318 Gold Member

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    Before you read the remarks below, let me implore you not to get your hackles up over them. While you might be inclined to take my remarks as derisive, they are not meant that way. The remarks are meant to illustrate why, even knowing a fair bit about economics, business and trade, I cannot here answer your questions as you've asked them: the questions you're posing are, in scope, the sort of questions a business school student (graduate or undergraduate) would take on as the scope of a case study/research project. Even as I don't at all mind writing a short essay (up to about seven 8.5x11 pages) that attempts to give a somewhat comprehensive and credible answer to a topic, I will not embark upon that much work for a post on USMB.

    OP-er, your questions suffer from a number of weakness -- vagueness, naivete, ambiguity, incoherence, and overbroad scope -- that together make them all but impossible to, in this venue, provide a comprehensive (thus fully accurate) answer(s) to them. For example:
    • "Cheaper"
      1. Vagueness and ambiguity --> Cheaper than what? -- This is a basic grammar shortcoming. The "er" form of adjectives is comparative; thus one must specify what is being compared. Cheaper than American raw steel producers' offerings/terms? Cheaper than other countries' raw steel producers offerings/terms?
      2. Ambiguity --> By "cheaper," are you, in your mind, referring to quality or price or some mix of both?
    • "We"
      1. Vagueness and ambiguity --> Who in your mind is "we?"
      2. Naivete -- (I'm not chiding you for being naive, in this regard or any other. I'm simply indicating the evident naivete and noting how it makes answer your question nigh impossible.)
    • General incoherence
      • You open your thread by asking a question that presupposes Canadian steel is cheaper, and then you commence the OP by questioning that presupposition. That is about as literal an example of incoherence as one might craft. Quite simply one cannot ask why something is cheaper and in the very next breath, as it were, express doubt about whether it is cheaper. While I will offer one suggestion for how to coherently pose a series of related questions, I cannot read your mind and thereby know just what you want to know; thus were I (one) to answer my rephrasing of your questions, I'd be guilty of doing something called "framing," which is a very discursively unfair way to treat another person. (Don't misunderstand me. I, probably others, have a general idea of what you want to know, but the generality, thus lack of specificity, of what I can infer is part of what's causing the over broadness of your inquiry's scope.)
        • Sample questions/question sequence (Note: the questions below don't eliminate all the problems I'm here discussing -- e.g., the ambiguity of "cheaper" is not removed -- but they eliminate several of them):
          1. Is Canadian raw steel cheaper than U.S. raw steel?
          2. If Canadian raw steel is not cheaper than U.S. raw steel, why do U.S. consumers of raw steel import it from Canadian suppliers?
          3. If Canadian raw steel is cheaper than U.S. raw steel, what macroeconomic and/or microeconomic/business characteristics have Canadian raw steel producers that allow their steel to be cheaper?
          4. What are the answers to the above three questions with regard to, instead of Canadian suppliers, EU and Mexican ones?
    • General naivete
    • Overbroad scope
      • Concepts and exigencies pertaining to several disciplines -- economics, quantitative business analysis, chemistry and physics, marketing/pricing strategy, and logistics -- must be combined to answer precisely the questions as you've posed them. I've tried above to very cursorily touch on them, but a complete answer requires far more coverage than I am willing to give.

        Moreover, a material share of the answers to the general theme of your questions requires specific input from a lot buyers and sellers, and even having it for one or two firms in either category, I can't disclose that information. It's proprietary and even disclosing it without naming the client is a violation of my (my firm's) contractual agreement with them. I've generalized as best I can so as to give you some sort of input, but I can't take it any greater level of specificity than that. (And, no, I'm not going to reach out ot a client and solicit permission to share their info on web forum.)

    Notes:
    1. From my experience teaching principles of economics I can tell you that, on average, about half to two-thirds of first-time students of economics conceive that "demand" is synonymous with "want." It economics it is not, not in any way. After discovering that, I bothered to simply tell the kids that in economics, "demand" means "buy." "Latent demand" is the economics term for "wanting/wishing/hoping to buy."
    2. There are as many alloys of steel as one can conceive, and the utility of any new one may not become manifest until after years of use of any given production lot. That is, a small bit more molybdenum than is "standard" for, say, 316 steel will alter ever so slightly (or not so slightly if that small bit more crosses some chemical-physical limit) the resulting steel's properties. And make no mistake, buyers of raw steel have their own chemists and physicists who tinker with various alloy combinations to determine whether a tweak "here or there" in the chemical composition will have some desired effect without introducing (or worsening) undesirable effects.

    No.
    I'm fairly certain that producers receive taxation concessions, which are subsidies by another name, from local jurisdictions -- mainly to attract producers to put the steel factory in their area (obviously there are no locality incentives for mining iron and other ores because that happens where the ore is) -- but on a macroeconomic level, Canada does not subsidize its steel industry, and certainly not in any way similar to the way China does.

    It's worth noting that subsidies and tariffs are, in a manner of speaking, but two sides of the die economists call "inefficiency" or "market failure."
    Each is nothing other than government intervention so as to force the market (it's participants) to behave in ways they would not were they driven solely by the profit motive. Positive economics has shown repeatedly that the profit motive is far and away the most efficient one around. Tariffs and subsidies are tools of normative economics, and as such they either create, hide or attenuate market inefficiencies.

    From reading the remarks above, it should be apparent that:
    • Price and product quality are really not the drivers to why a raw steel buyer buys from any given supplier. Sure, a given supplier may bid to sell at a lower price than do its competitors, and in those instances, price may be a key driver. That said, if one's price is competitive with others', price is unlikely to be the determining factor in a buyer's decision making analysis.
    • Because price and product quality are not prime drivers, logistics and other terms of the sale are. More often than not, it comes down to logistics -- who can deliver the desired quantities of the desired product(s) in accordance with the buyer's delivery schedule (not before and not after the agreed upon dates or date ranges).

      What "other terms," one might ask. Well, that could well be pretty much anything the buyer or seller insists upon. There's no way to enumerate what those terms may be. If you can think of something that you might want from the other party to a transaction, it can be a term of the sales/purchase contract if the other party is willing to agree to it. In the realm of B2B contracts, the importance of not straying outside a contract's scope is so important to profitability that while one may not always get what one asks for, one nearly never receives what one does not ask for.
    • At a macroeconomic level, the answer has everything to do with the principles of comparative and absolute advantage. One can read about those concepts on one's own; that is the stuff of basic economics and it's been well explained in myriad places.
    I hope the preceding discussion gives you enough of a sense about why U.S. buyers purchase from Canadian suppliers that you realize there isn't any single answer. Raw steel consumers aren't motivated by the same things that drive final consumers. They're driven by profit maximization (steel production in the U.S. and Canada is a mature enough industry that revenue maximization isn't a viable operating strategy). Such is the way things happen in free markets.

    There is yet another factor that is mor a business matter than an economics matter: competitiveness in general. I suggest you read the following:
     
  6. usmbguest5318
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    usmbguest5318 Gold Member

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    I'll share with you what I shared with another member. I haven't bothered to fully tailor my remarks to your question, and you should be aware that the question the other person asked differs from the one you have, but the information I shared is pertinent to your understanding how the commodities market works. What I've presented is not meant to be a literal explanation of the transacting, but rather a figurative one so that you understand what's going on. Think of it as a process overview rather than as a explicit process flow. [1]

    In the U.S. the selling price of spot steel is the sum of the global commodity price + the tariff. An essential thing to keep in mind about raw steel buyers is this: Steel buyers today have two driving needs: Maintain an uninterrupted supply of steel that meets their quality standards and to get the best available price without taking on excessive risk and price volatility.

    Let me explain what the commodity price is. The commodity price at any moment in time is the price actually paid by buyers of a commodity purchased in the spot market, that is the market whereby one of the terms is that the buyer takes immediate (today, this week, next week, whatever) delivery of the item. [2] When buying in the spot market, buyers pay the lowest possible price, but they don't have a whole lot of say about who is providing the product. Buyers place a buy order and some seller agrees to accept the price one offers. Also sellers place sell offers and buyers agree to pay the stipulated price.

    So if we are both sellers in the spot market for steel, and you place a sell offer of $2/ton of 316 steel and I place a sell offer of $2.0115/ton for 316 steel, buyers will accept your offer until you run out of steel. They will then accept any other sellers offer until such time as my price becomes the lowest available price. Obviously, if a "thirsty" buyer comes along and places a buy order at $2.50/ton, it's a race among sellers to accept the offer. The same thing happens if a steel seller were to place an offer at $1.90/ton; it'd be a race among buyers to accept the seller's offer.

    As a practical matter, buyers use brokers and tell them simply to buy 50 tons of steel and the brokers cycles through the various sellers offers until they've obtained for the buyer 50 tons of steel.

    The spot market is where the lowest prices for a commodity can be obtained, but buyers and sellers get to specify very few terms for the sales/purchase contract. Buyers and sellers get informed of who accepted their offers/orders and they communicate to arrange very near-term logistics for when and where the good is delivered, whereupon shortly thereafter, a train, a truck or bunch of trucks is shows up at the designated delivery point and unload. (The transportation costs (freight in) and risks (FOB origin) are generally borne by the buyer.)

    Now that's how the spot market works. Another way to buy steel is to purchase it as a differentiated good in the contract market. That is what happens when a buyer wants a commodity having characteristics that cannot be specified in the spot market. It also the mode used when the buyer doesn't want to buy at least the minimum quantity permitted by the sellers who participate in the spot market.

    In the contract scenario, the buyer generally issues a request for quotation to whatever sellers the buyer sees fit. The pricing in situations is negotiated by the buyer and seller. It's usually a bit higher than is the price in the spot market, but it doesn't have to be. It's just as common for a contract to stipulate that the price will be the spot market price on some date as it is for contract price to be a sum the two parties agreed by haggling. It is equally common that a supplier will accept a lower-than-market contract price because the contract assures them of a ready sale of a given share of their overall production volume, or if it's a large enough contract, their total production volume.


    As noted above, there are two main ways of buying steel. The raw steel's selling price in one approach, on the spot market, is literally the spot market price + tariff, assuming the steel purchased is imported. The tariff applies in the other scenario too, but buyers have more say about from whom they buy, so they can choose to avoid the tariff itself or not, but they cannot choose to avoid any corresponding price increases domestic sellers my demand simply because they can given that, if imported, the same product will cost buyers more anyway.

    Perhaps you've seen or heard news reports that say something like "Saudi light sweet crude" or "Texas crude?" One reason the product is described that way is so that buyers and sellers can place offers/orders for products that either are or are not subject to a tariff given where the product will be delivered. Basically that informs the buyer that some share of the cost they're paying is a tariff, assuming there is a tariff on crude.

    It's the same idea with steel; however, as noted at at the outset, for raw steel buyers maintaining an uninterrupted supply of raw steel is critical to their business, so buyers will when they must buy imported steel. Basically what they'll do is shift some greater portion of their buys to a hedged contract model and use the spot approach to fill in where they can. That, of course, pretty much screws smaller buyers who cannot offer large or as large contracts and thus may not be able to contract buy at all. I am sure you can see where that leads...big players get the prices they want and small players get bought by big players fighting for increasing market dominance. (Can you say "Gilded Age?") [3]

    The other reason is just basic logistics; however, at that level and volumes, other than the compliance factors associated with tariffs, buyers don't much care from where raw steel comes -- anywhere within a given range of options (usually country or part of the world level) is usually fine. Nobody's that picky when what they need is tens to hundreds of tons of steel because they realize their buy order may have to be filled by multiple suppliers. Insofar as buyers bear the costs and risks of transport, however, they want to know by what means the product will be transported -- ships, trains, or trucks, or some mix thereof.

    Now I can explain delivery logistics too, if you'd like but those prices have nothing to do with the price of the commodity itself.


    Note:
    1. To obtain detailed process flows, I suggest you search the Internet for them. Here is one provider that's shared a general process flow for part of an ERP-enabled (specifically SAP) commodities sourcing/procurement process: SAP Exposure Management 2.0. The focus of this flow is on the risk management objectives of the larger commodities procurment process, but reviewing it will give you some idea of why your question isn't above and that in the OP is not nearly as simple as it may seem.

      You'll note that I used the term "sourcing." The reason for that is because with commodities, much of the process is really about merely finding a source for the spot market buy of a commodity, for raw materials. If one can find a source who has the product one demands, in most instances there is little question about whether one will buy it from that source. Why? Because the good in question is commodity good. Quality as goes metal commodities refers to a specific chemical formula, an alloy, and to a structure -- plates, cylinders, ropes, bars, etc. -- not to whether one maker produces steel of the given chemical formula or physical structure better than does another. Commodities, quite simply, are not differentiable goods.
    2. You may find these links, especially the second one helpful:
    3. A very similar set of exigencies and circumstances is why "small fry" investors aren't generally invited to participate in IPOs.
     

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