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Understanding the Steel Industry

showwoman5Jan 4, 2019, 9:11:11 PM

The price price squeeze (sometimes referred to as the cost cost squeeze) is a reasonably well-known phenomenon to the majority steel industry strategic planners. It is a indisputable fact that 's been around for countless years. It means the long-term trend of falling steel industry product costs, as evidenced by the falling end product prices that are seen after a while. On this sense - notwithstanding the falling revenue per tonne - it should be remembered the squeeze does profit the industry keeping the cost competitiveness of steel against other construction materials for example wood, cement etc.

Falling costs. The central assumption behind the squeeze is the cost per tonne of a steel product - whether a steel plate or even a hot rolled coil, or a bar or rod product - falls on average (in nominal terms) from year upon 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 upon year), because it describes a long-term trend. Falling prices with time for finished steel merchandise is at complete variance using the rising prices evident for most 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:

modifications in melt shop steel making production processes. An extremely notable change through 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 usually 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 - as well as other benefits for example improved steel metallurgy, improved environmental performance etc. This is a good instance of a historic step-change in steel making technology creating a major impact on production costs.

the switch from ingot casting to continuous casting. Here - aside from significant improvements in productivity - the primary benefit of investment in continuous slab, billet or bloom casting would be a yield improvement of ~7.5%, meaning much less wastage of steel

rolling mill performance improvements regarding 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 recent production planning and control techniques, etc.
Their list above is supposed to be indicative as opposed to exhaustive - nonetheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall with time for many different reasons. To come, the implicit expectation is always that costs is constantly fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.

Falling prices. The reference to the term price within the phrase cost price squeeze arises due to assumption that - as costs fall - so the cost benefits are passed on to consumers available as lower steel prices; and it is this behaviour which over time helps you to maintain the cost competitiveness of steel against other garbage. The long-term fall in costs is thus evidenced by a long-term squeeze on prices.

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