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Understanding the Steel Industry

The charge price squeeze (sometimes known as the cost cost squeeze) is quite a well-known phenomenon to most steel industry strategic planners. It is a indisputable fact that has existed for countless years. It means long-term trend of falling steel industry product costs, as evidenced through the falling end product prices which can be seen with time. On this sense - notwithstanding the falling revenue per tonne - it needs to be remembered that this squeeze does conserve the industry keeping the purchase price competitiveness of steel against other construction materials such as wood, cement etc.

Falling costs. The central assumption behind the squeeze would be that the cost per tonne of your steel product - whether a steel plate or perhaps a hot rolled coil, or a bar or rod product - falls on average (in nominal terms) from year upon year. This assumption obviously ignores short-term fluctuations in steel prices (e.g. due to price cycle; or due to changing raw material costs from year to year), because it describes a long-term trend. Falling prices with time for finished steel goods are at complete variance together with the rising prices evident for most 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. An incredibly notable change over 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. Additionally it is 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 - as well as other benefits including improved steel metallurgy, improved environmental performance etc. This is a great instance of a historic step-change in steel making technology having a major influence on production costs.

the switch from ingot casting to continuous casting. Here - in addition to significant improvements in productivity - the main good thing about acquisition of continuous slab, billet or bloom casting was obviously 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 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 contemporary production planning and control techniques, etc.
The list above is meant to be indicative rather than exhaustive - nevertheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall as time passes for assorted different reasons. Going forward, the implicit expectation is the fact that costs continually 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 - and so the cost benefits are forwarded to consumers in the form of lower steel prices; and that is that behaviour which with time helps you to conserve the cost competitiveness of steel against other raw materials. The long-term fall in costs thus remains evidenced with a long-term squeeze on prices.

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