Kilic Lillelund posted an update 2 months, 2 weeks ago
The cost price squeeze (sometimes known as the value cost squeeze) is a pretty well-known phenomenon to the majority steel industry strategic planners. It’s a indisputable fact that has been in existence for many years. It refers to the long-term trend of falling steel industry product costs, as evidenced by the falling finished product prices which are seen as time passes. With this sense – notwithstanding the falling revenue per tonne – it ought to be remembered how the squeeze does benefit the industry keeping the cost competitiveness of steel against other construction materials like 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 a hot rolled coil, or possibly a bar or rod product – falls normally (in nominal terms) from year to year. This assumption naturally ignores short-term fluctuations in steel prices (e.g. due to price cycle; or due to changing raw material costs from year to year), mainly because 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 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:
alterations in melt shop steel making production processes. An extremely notable change throughout 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 is not just very energy inefficient. It’s 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 various benefits like improved steel metallurgy, improved environmental performance etc. A great demonstration 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 – besides significant improvements in productivity – the main good thing about purchase of continuous slab, billet or bloom casting was a yield improvement of ~7.5%, meaning significantly less wastage of steel
rolling mill performance improvements regarding energy efficiency (e.g. hot charging), reduced breakouts, improved process control etc producing 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 designed to be indicative instead of exhaustive – but it illustrates that technology-driven improvements have allowed steel making unit production costs to fall as time passes for a number of different reasons. Moving forward, the implicit expectation is always that costs will continue to 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 due to assumption that – as costs fall – hence the cost benefits are given to consumers by means of lower steel prices; and it is this behaviour which with time really helps to take care of the cost competitiveness of steel against other raw materials. The long-term fall in costs thus remains evidenced by the long-term squeeze on prices.
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