• Kilic Lillelund posted an update 1 month, 1 week ago

    The fee price squeeze (sometimes called the value cost squeeze) is a pretty well-known phenomenon to the majority steel industry strategic planners. It is a reality that has been in existence for several years. It means the long-term trend of falling steel industry product costs, as evidenced with the falling end product prices which might be seen after a while. On this sense – notwithstanding the falling revenue per tonne – it should be remembered that the squeeze does profit the industry by preserve the purchase price competitiveness of steel against other construction materials such as wood, cement etc.

    Falling costs. The central assumption behind the squeeze could be 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 typically (in nominal terms) from year to 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 upon year), because it describes a long-term trend. Falling prices after a while for finished steel products are at complete variance with all the rising prices evident for several consumer products. These falling prices for steel are however caused by significant adjustments to technology (mostly) that influence steel making production costs. The technological developments include:

    alterations in melt shop steel making production processes. A very notable change throughout the last Twenty five years has been the switch from open-hearth furnace to basic oxygen furnace and electric-furnace steel making. Open hearth steel making isn’t only very energy inefficient. Additionally it is 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 various benefits for example improved steel metallurgy, improved environmental performance etc. This is a great example of a historic step-change in steel making technology developing a major effect on production costs.

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

    rolling mill performance improvements with respect to 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 latest production planning and control techniques, etc.

    The list above is supposed to be indicative as opposed 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 costs continually fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.

    Falling prices. The reference to the term price inside the phrase price range squeeze arises due to the assumption that – as costs fall – hence the cost benefits are passed on to consumers in the form of lower steel prices; and that is that behaviour which after a while helps you to conserve the cost competitiveness of steel against other unprocessed trash. The long-term fall in costs thus remains evidenced by the long-term squeeze on prices.

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