COMPREHENDING THE STEEL INDUSTRY

The fee price squeeze (sometimes referred to as the value cost squeeze) is quite a well-known phenomenon to most steel industry strategic planners. It is a concept that ’s been around for countless years. It refers back to the long-term trend of falling steel industry product costs, as evidenced with the falling end product prices which are seen with time. Within this sense - notwithstanding the falling revenue per tonne - it needs to be remembered how the squeeze does conserve the industry to keep the cost competitiveness of steel against other construction materials like wood, cement etc.

Falling costs. The central assumption behind the squeeze is that the cost per tonne of an steel product - whether a steel plate or even a hot rolled coil, or perhaps a bar or rod product - falls normally (in nominal terms) from year upon year. This assumption needless to say ignores short-term fluctuations in steel prices (e.g. due to the price cycle; or as a consequence of changing raw material costs from year to year), mainly because it describes a long-term trend. Falling prices over time for finished steel goods are at complete variance with the rising prices evident for several consumer products. These falling prices for steel are however due to significant adjustments to technology (mostly) that influence steel making production costs. The technological developments include:



changes in melt shop steel making production processes. An incredibly notable change through the last 25 years may be the switch from open-hearth furnace to basic oxygen furnace and electric-furnace steel making. Open hearth steel making is not only very energy inefficient. It is also a pokey steel making process (with long tap-to-tap times) with relatively low labour productivity. The switch from open hearth furnace to basic oxygen process or electric arc furnace steel making allowed significant steel making cost improvements - as well as other benefits such as improved steel metallurgy, improved environmental performance etc. This is an excellent example of a historic step-change in steel making technology using a major effect on production costs.

the switch from ingot casting to continuous casting. Here - apart from significant improvements in productivity - the main advantage of purchase of continuous slab, billet or bloom casting would be a yield improvement of ~7.5%, meaning a lot less wastage of steel

rolling mill performance improvements when it comes to energy efficiency (e.g. hot charging), reduced breakouts, improved process control etc resulting in reduced mill conversion costs

less set-up waste through computerization, allowing better scheduling and batch size optimization

lower inventory costs with adoption of contemporary production planning and control techniques, etc.
The list above is meant to be indicative as opposed to exhaustive - however it illustrates that technology-driven improvements have allowed steel making unit production costs to fall as time passes for assorted different reasons. In the years ahead, the implicit expectation is that costs is constantly fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.

Falling prices. The mention of term price in the phrase cost price squeeze arises due to assumption that - as costs fall - therefore the cost benefits are given to consumers by means of lower steel prices; and that is that behaviour which over time really helps to keep up with the cost competitiveness of steel against other raw materials. The long-term fall in costs is therefore evidenced by way of a long-term squeeze on prices.

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