Based in Ruhr, Germany, ThyssenKrupp is one of the world\'s largest steelmakers.
ID: 1199274 • Letter: B
Question
Based in Ruhr, Germany, ThyssenKrupp is one of the world's largest steelmakers. In 2007, ThyssenKrupp built the largest and most technologically advanced steel plant in the U.S. Located in Alabama and costing $5 billion, this steel plant imports steel slabs made in Brazil and processes them into high-grade sheets for car and appliance makers. However, citing high production and transportation costs, in October 2012, ThyssenKrupp put the Alabama plant up for sale, priced at $8.86 billion. The currency used in Brazil is the real.
1. ThyssenKrupp’s strategy to use its Alabama plant to process steel slabs into high-grade sheets is a common one for manufacturers: importing unfinished goods from a low-cost country to the U.S. for final, value-added work. ThyssenKrupp had planned for the Alabama plant to purchase and import 5 million tons of steel slabs from Brazil. However, ThyssenKrupp’s strategy failed and the company never reached this capacity. On March 1, 2007, one Brazilian real was worth $0.4857. On March 1, 2012, one Brazilian real was worth $0.5609. How did this exchange rate movement contribute to the failure of ThyssenKrupp’s strategy?
Depreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. less expensive, resulting in more than 5 million steel slabs imported by the Alabama plant.
Appreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
Depreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. less expensive, resulting in more than 5 million steel slabs imported by the Alabama plant.
D. Appreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
2.
ThyssenKrupp expects several offers for its Alabama plant by the end of the year. However, analysts and industry experts believe that South Korean, Japanese, and Chinese steelmakers would most likely not be interested in acquiring the Alabama plant and that ThyssenKrupp will sell its plant to an American steelmaker, such as U.S. Steel or Nucor Corp. Which of the answer choices best explains why these analysts and industry experts expect ThyssenKrupp to sell its Alabama plant to an American steelmaker, not an Asian one?
Intense competition among the world’s steelmakers has put downward pressure on raw steel prices. Prices of benchmark steel in the U.S. have fallen to $620 a ton, from more than $800 during the summer of 2011. At these lower steel prices, it is not possible to maintain profit margins by operating a steel plant in the U.S.
Expansionary monetary policy in the U.S. has caused an appreciation of the U.S. dollar. As a result, Asian companies have difficulty obtaining the cash necessary to meet ThyssenKrupp’s $8.86 billion asking price. As American companies, U.S. Steel and Nucor Corp. have ready access to capital from this larger U.S. money supply.
Steel is a categorized as a “national” commodity, meaning that its production is a high priority for national interests. Consequently, foreign firms producing national commodities must join into a partnership with a U.S. company. It is unlikely an Asian steelmaker will be able to join with a U.S. steelmaker.
While depreciation of the dollar against Asian currencies makes it easier to purchase assets in the U.S., the value of those assets in Asian currencies also decreases. That is, sales in the U.S. converted to appreciating Asian currencies results in smaller values of profits.
A.Depreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. less expensive, resulting in more than 5 million steel slabs imported by the Alabama plant.
B.Appreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
C.Depreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. less expensive, resulting in more than 5 million steel slabs imported by the Alabama plant.
D. Appreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
2.
ThyssenKrupp expects several offers for its Alabama plant by the end of the year. However, analysts and industry experts believe that South Korean, Japanese, and Chinese steelmakers would most likely not be interested in acquiring the Alabama plant and that ThyssenKrupp will sell its plant to an American steelmaker, such as U.S. Steel or Nucor Corp. Which of the answer choices best explains why these analysts and industry experts expect ThyssenKrupp to sell its Alabama plant to an American steelmaker, not an Asian one?
A.Intense competition among the world’s steelmakers has put downward pressure on raw steel prices. Prices of benchmark steel in the U.S. have fallen to $620 a ton, from more than $800 during the summer of 2011. At these lower steel prices, it is not possible to maintain profit margins by operating a steel plant in the U.S.
B.Expansionary monetary policy in the U.S. has caused an appreciation of the U.S. dollar. As a result, Asian companies have difficulty obtaining the cash necessary to meet ThyssenKrupp’s $8.86 billion asking price. As American companies, U.S. Steel and Nucor Corp. have ready access to capital from this larger U.S. money supply.
C.Steel is a categorized as a “national” commodity, meaning that its production is a high priority for national interests. Consequently, foreign firms producing national commodities must join into a partnership with a U.S. company. It is unlikely an Asian steelmaker will be able to join with a U.S. steelmaker.
D.While depreciation of the dollar against Asian currencies makes it easier to purchase assets in the U.S., the value of those assets in Asian currencies also decreases. That is, sales in the U.S. converted to appreciating Asian currencies results in smaller values of profits.
Explanation / Answer
Answer1: Appreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
Answer2:
Intense competition among the world’s steelmakers has put downward pressure on raw steel prices. Prices of benchmark steel in the U.S. have fallen to $620 a ton, from more than $800 during the summer of 2011. At these lower steel prices, it is not possible to maintain profit margins by operating a steel plant in the U.S.
Answer1: Appreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. more expensive, resulting in less than 5 million steel slabs imported by the Alabama plant.
Answer2:
Intense competition among the world’s steelmakers has put downward pressure on raw steel prices. Prices of benchmark steel in the U.S. have fallen to $620 a ton, from more than $800 during the summer of 2011. At these lower steel prices, it is not possible to maintain profit margins by operating a steel plant in the U.S.
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