Welcome to Tea with DidiAug 21, 2019
Holmes Lam posted an update 7 months, 2 weeks ago
The fee price squeeze (sometimes referred to as the value cost squeeze) is quite a well-known phenomenon to most steel industry strategic planners. This is a proven fact that has existed for quite some time. It refers back to the long-term trend of falling steel industry product costs, as evidenced by the falling end product prices which are seen as time passes. Within this sense – notwithstanding the falling revenue per tonne – it ought to be remembered that this squeeze does benefit the industry by maintaining the value competitiveness of steel against other construction materials including wood, cement etc.
Falling costs. The central assumption behind the squeeze is that the cost per tonne of the steel product – whether a steel plate or 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. due to the price cycle; or as a consequence of changing raw material costs from year upon year), as it describes a long-term trend. Falling prices as time passes for finished steel items are at complete variance with all the rising prices evident for most 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:
adjustments to melt shop steel making production processes. An extremely notable change through the last 25 years has become 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 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 various benefits such as 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 – apart from significant improvements in productivity – the primary benefit of investment in 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 regards 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 contemporary production planning and control techniques, etc.
The list above is designed to be indicative instead of exhaustive – nevertheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall with time for assorted different reasons. To come, the implicit expectation is 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 by means of lower steel prices; and it is this behaviour which as time passes allows you take care of the cost competitiveness of steel against other recycleables. The long-term fall in costs is therefore evidenced with a long-term squeeze on prices.
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