Callahan Lam posted an update 2 weeks ago
The charge price squeeze (sometimes termed as the value cost squeeze) is quite a well-known phenomenon to many steel industry strategic planners. It’s a concept that has been in existence for several years. It means the long-term trend of falling steel industry product costs, as evidenced by the falling end product prices that are seen as time passes. In this sense – notwithstanding the falling revenue per tonne – it needs to be remembered that this squeeze does profit the industry to keep the price competitiveness of steel against other construction materials for example 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 perhaps a hot rolled coil, or even a bar or rod product – falls on average (in nominal terms) from year upon year. This assumption of course ignores short-term fluctuations in steel prices (e.g. due to price cycle; or as a result of changing raw material costs from year to year), mainly because it describes a long-term trend. Falling prices after a while for finished steel goods are at complete variance with all the rising prices evident for several consumer products. These falling prices for steel are however caused by significant changes in technology (mostly) that influence steel making production costs. The technological developments include:
alterations in melt shop steel making production processes. A really notable change throughout the last 25 years or so continues to be the switch from open-hearth furnace to basic oxygen furnace and electric-furnace steel making. Open hearth steel making is not only very energy inefficient. It is usually a sluggish 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 a good demonstration of a historic step-change in steel making technology having a major effect on production costs.
the switch from ingot casting to continuous casting. Here – apart from significant improvements in productivity – the primary good thing about 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 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.
Their list above is supposed to be indicative as an alternative to exhaustive – nonetheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall as time passes for assorted different reasons. In the years ahead, the implicit expectation is always that costs continuously 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 cost price squeeze arises due to assumption that – as costs fall – and so the cost benefits are given to consumers as lower steel prices; and that is that behaviour which as time passes helps to conserve the cost competitiveness of steel against other recycleables. The long-term fall in costs is thus evidenced by way of a long-term squeeze on prices.
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