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Comprehending the Steel Industry

Comprehending the Steel Industry

The cost price squeeze (sometimes termed as the cost cost squeeze) is quite a well-known phenomenon to the majority of steel industry strategic planners. It is just a reality that 's been around for many years. It refers back to the long-term trend of falling steel industry product costs, as evidenced through the falling end product prices which might be seen as time passes. Within this sense - notwithstanding the falling revenue per tonne - it should be remembered the squeeze does help the industry keeping the price competitiveness of steel against other construction materials for example wood, cement etc.

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

adjustments to melt shop steel making production processes. A really notable change throughout the last 25 years has been 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. Additionally it is 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 - and also other benefits like improved steel metallurgy, improved environmental performance etc. This is a good instance of a historic step-change in steel making technology developing a major influence on production costs.

the switch from ingot casting to continuous casting. Here - aside from significant improvements in productivity - the main good thing about investment in continuous slab, billet or bloom casting would have been a yield improvement of ~7.5%, meaning much less wastage of steel

rolling mill performance improvements with respect to energy-efficiency (e.g. hot charging), reduced breakouts, improved process control etc leading to 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 list above is designed to be indicative as an alternative to exhaustive - however it illustrates that technology-driven improvements have allowed steel making unit production costs to fall after a while for several different reasons. Going forward, the implicit expectation is that costs will continue to fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.

Falling prices. The mention of term price within the phrase price range squeeze arises as a result of assumption that - as costs fall - hence the cost benefits are forwarded to consumers available as lower steel prices; and that is that behaviour which after a while helps you to maintain the cost competitiveness of steel against other unprocessed trash. The long-term fall in costs is therefore evidenced with a long-term squeeze on prices.

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