Callahan McWilliams posted an update 2 weeks, 3 days ago
The fee price squeeze (sometimes called the price cost squeeze) is quite a well-known phenomenon to many steel industry strategic planners. It is a reality that ‘s been around for several years. It means 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 must be remembered the squeeze does profit the industry to keep 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 an steel product – whether a steel plate or possibly a hot rolled coil, or a bar or rod product – falls on average (in nominal terms) from year to year. This assumption needless to say 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 upon year), since it describes a long-term trend. Falling prices over time for finished steel goods are at complete variance with the rising prices evident for many consumer products. These falling prices for steel are however a result of significant modifications in technology (mostly) that influence steel making production costs. The technological developments include:
alterations in melt shop steel making production processes. An incredibly notable change over 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 isn’t just very energy inefficient. It’s also a slow 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 for example improved steel metallurgy, improved environmental performance etc. This is a great example of a historic step-change in steel making technology using a major impact on production costs.
the switch from ingot casting to continuous casting. Here – aside from significant improvements in productivity – the key advantage of investment in continuous slab, billet or bloom casting was 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 causing reduced mill conversion costs
less set-up waste through computerization, allowing better scheduling and batch size optimization
lower inventory costs with adoption of latest production planning and control techniques, etc.
The list above is supposed to be indicative rather than 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 that costs is constantly 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 – so the cost benefits are given to consumers available as lower steel prices; and it is this behaviour which with time allows you keep up with the cost competitiveness of steel against other raw materials. The long-term fall in costs is therefore evidenced by a long-term squeeze on prices.
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