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  • Callahan McWilliams posted an update 5 years, 2 months ago

    The price price squeeze (sometimes termed as the cost cost squeeze) is a pretty well-known phenomenon to most steel industry strategic planners. It’s a concept that has been around for countless years. It refers back to the long-term trend of falling steel industry product costs, as evidenced through the falling end product prices which might be seen as time passes. Within this sense – notwithstanding the falling revenue per tonne – it should be remembered that the squeeze does benefit the industry by maintaining the purchase price 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 your steel product – whether a steel plate or a hot rolled coil, or even a bar or rod product – falls typically (in nominal terms) from year upon year. This assumption naturally ignores short-term fluctuations in steel prices (e.g. as a result of price cycle; or due to changing raw material costs from year to year), as it describes a long-term trend. Falling prices after a while for finished steel merchandise is at complete variance together with the rising prices evident for a lot of 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:

    changes in melt shop steel making production processes. A really notable change across the last 25 years may be 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 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 – and various benefits including improved steel metallurgy, improved environmental performance etc. A great demonstration of a historic step-change in steel making technology using a major affect production costs.

    the switch from ingot casting to continuous casting. Here – in addition to significant improvements in productivity – the primary benefit for acquisition of continuous slab, billet or bloom casting would be 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 latest production planning and control techniques, etc.

    The list above is supposed to be indicative as opposed to exhaustive – but it illustrates that technology-driven improvements have allowed steel making unit production costs to fall with time for several different reasons. Moving forward, 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 reference to the term price from the phrase price range squeeze arises because of the assumption that – as costs fall – hence the cost benefits are forwarded to consumers as lower steel prices; and that is that behaviour which over time allows you maintain 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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