Understanding the Steel Industry

The price price squeeze (sometimes called the cost cost squeeze) is a reasonably well-known phenomenon to the majority steel industry strategic planners. This is a indisputable fact that 's been around for quite some time. It means long-term trend of falling steel industry product costs, as evidenced through the falling end product prices that are seen with time. Within this sense - notwithstanding the falling revenue per tonne - it must be remembered how the squeeze does benefit the industry by maintaining the price competitiveness of steel against other construction materials including wood, cement etc.

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

alterations in melt shop steel making production processes. A very notable change over the last 25 years continues to be the switch from open-hearth furnace to basic oxygen furnace and electric-furnace steel making. Open hearth steel making is not just very energy inefficient. It is also painstaking 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 - along with other benefits including improved steel metallurgy, improved environmental performance etc. This is an excellent example of a historic step-change in steel making technology creating a major effect on production costs.

the switch from ingot casting to continuous casting. Here - apart from significant improvements in productivity - the primary benefit of purchase of continuous slab, billet or bloom casting would have been a yield improvement of ~7.5%, meaning significantly less wastage of steel

rolling mill performance improvements with respect to energy-efficiency (e.g. hot charging), reduced breakouts, improved process control etc producing reduced mill conversion costs

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

lower inventory costs with adoption of modern production planning and control techniques, etc.
Their email list above is designed to be indicative as opposed to exhaustive - but it illustrates that technology-driven improvements have allowed steel making unit production costs to fall over time for several different reasons. In the years ahead, the implicit expectation is the fact 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 price range squeeze arises because of the assumption that - as costs fall - hence the cost benefits are forwarded to consumers by means of lower steel prices; and it is this behaviour which over time helps you to maintain the cost competitiveness of steel against other recycleables. The long-term fall in costs thus remains evidenced by a long-term squeeze on prices.

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04.01.2019 22:08:56

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