Welcome to Tea with DidiSep 15, 2019
Holmes Lam posted an update 8 months, 1 week ago
The cost price squeeze (sometimes called the price cost squeeze) is a reasonably well-known phenomenon to many steel industry strategic planners. This is a proven fact that has been around for many years. It refers back to the long-term trend of falling steel industry product costs, as evidenced with the falling end product prices which can be seen over time. In this sense – notwithstanding the falling revenue per tonne – it ought to be remembered that this squeeze does benefit the industry by preserve the cost competitiveness of steel against other construction materials such as wood, cement etc.
Falling costs. The central assumption behind the squeeze is that the cost per tonne of a steel product – whether a steel plate or perhaps a hot rolled coil, or even 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. because of the price cycle; or as a consequence of changing raw material costs from year to year), since it describes a long-term trend. Falling prices with time for finished steel products are at complete variance together with the rising prices evident for most consumer products. These falling prices for steel are however caused by significant adjustments to technology (mostly) that influence steel making production costs. The technological developments include:
alterations in melt shop steel making production processes. An extremely notable change over the last Twenty five 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 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 – and also other benefits including improved steel metallurgy, improved environmental performance etc. This is an excellent demonstration of a historic step-change in steel making technology creating a major influence 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 was obviously a yield improvement of ~7.5%, meaning a smaller amount wastage of steel
rolling mill performance improvements regarding energy efficiency (e.g. hot charging), reduced breakouts, improved process control etc resulting in 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.
The list above is meant to be indicative rather than exhaustive – nevertheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall after a while for many different reasons. In the years ahead, the implicit expectation is always that costs continually fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.
Falling prices. The mention of term price inside the phrase price range squeeze arises as a result of assumption that – as costs fall – so the cost benefits are given to consumers as lower steel prices; and that is that behaviour which over time allows you conserve the cost competitiveness of steel against other garbage. The long-term fall in costs is thus evidenced by way of a long-term squeeze on prices.
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