Understanding the Steel Industry

The fee price squeeze (sometimes termed as the value cost squeeze) is a pretty well-known phenomenon to the majority steel industry strategic planners. It's a proven fact that 's been around for several years. It refers back to the long-term trend of falling steel industry product costs, as evidenced from the falling finished product prices which can be seen as time passes. Within this sense - notwithstanding the falling revenue per tonne - it needs to be remembered that the squeeze does benefit the industry keeping the value competitiveness of steel against other construction materials such as wood, cement etc.

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



adjustments to melt shop steel making production processes. An extremely notable change across the last Twenty five 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 sluggish 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 including improved steel metallurgy, improved environmental performance etc. This is an excellent instance of a historic step-change in steel making technology having a major affect production costs.

the switch from ingot casting to continuous casting. Here - in addition to significant improvements in productivity - the key advantage of purchase of continuous slab, billet or bloom casting was obviously a yield improvement of ~7.5%, meaning a smaller amount wastage of steel

rolling mill performance improvements when it comes 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 list above is designed to be indicative rather than exhaustive - nevertheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall over time for assorted different reasons. Moving 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 reference to the term price inside the phrase cost price squeeze arises because of the assumption that - as costs fall - and so the cost benefits are forwarded to consumers as lower steel prices; and that is that behaviour which as time passes helps to maintain the cost competitiveness of steel against other garbage. The long-term fall in costs is therefore evidenced by a long-term squeeze on prices.

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