Comprehending the Steel Industry

The cost price squeeze (sometimes called the value cost squeeze) is quite a well-known phenomenon to the majority of steel industry strategic planners. It is just a reality that has been around for countless years. It means long-term trend of falling steel industry product costs, as evidenced with the falling finished product prices which are seen after a while. In this sense - notwithstanding the falling revenue per tonne - it ought to be remembered how the squeeze does benefit the industry by maintaining the purchase price competitiveness of steel against other construction materials like 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 possibly a hot rolled coil, or a bar or rod product - falls an average of (in nominal terms) from year upon year. This assumption of course ignores short-term fluctuations in steel prices (e.g. because of the price cycle; or due to changing raw material costs from year to year), since it describes a long-term trend. Falling prices after a while for finished steel merchandise is at complete variance with the rising prices evident for many consumer products. These falling prices for steel are however caused by significant modifications in technology (mostly) that influence steel making production costs. The technological developments include:

adjustments to melt shop steel making production processes. An incredibly notable change through the last Twenty five years continues to be the switch from open-hearth furnace to basic oxygen furnace and electric-furnace steel making. Open hearth steel making isn't 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 including improved steel metallurgy, improved environmental performance etc. This is a great demonstration of a historic step-change in steel making technology using a major influence on production costs.

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

rolling mill performance improvements regarding energy efficiency (e.g. hot charging), reduced breakouts, improved process control etc causing 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.

This list above is supposed to be indicative as opposed to 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 the fact 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 price range squeeze arises because of the assumption that - as costs fall - and so the cost benefits are passed on to consumers in the form of lower steel prices; and that is that behaviour which as time passes allows you maintain the cost competitiveness of steel against other recycleables. The long-term fall in costs thus remains evidenced by the long-term squeeze on prices.

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