• Sampson Odom posted an update 1 year, 11 months ago

    The fee price squeeze (sometimes called the purchase price cost squeeze) is quite a well-known phenomenon to most steel industry strategic planners. It is a indisputable fact that has been in existence for many years. It means long-term trend of falling steel industry product costs, as evidenced from the falling end product prices that are seen with time. On this sense – notwithstanding the falling revenue per tonne – it ought to be remembered the squeeze does help the industry to keep 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 an 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 to year. This assumption obviously ignores short-term fluctuations in steel prices (e.g. because of the price cycle; or as a result of changing raw material costs from year upon year), since it describes a long-term trend. Falling prices with time for finished steel items are at complete variance using the rising prices evident for several consumer products. These falling prices for steel are however brought on by significant modifications in technology (mostly) that influence steel making production costs. The technological developments include:

    modifications in melt shop steel making production processes. A very notable change through the last 25 years or so has been 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 – as well as other benefits for example improved steel metallurgy, improved environmental performance etc. A great example of a historic step-change in steel making technology having a major affect production costs.

    the switch from ingot casting to continuous casting. Here – aside from significant improvements in productivity – the primary benefit for investment in continuous slab, billet or bloom casting would have been a yield improvement of ~7.5%, meaning a lot 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 latest production planning and control techniques, etc.

    The list above is meant to be indicative rather than exhaustive – nonetheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall with time for several different reasons. To come, the implicit expectation is that costs is constantly 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 cost price squeeze arises because of the assumption that – as costs fall – and so the cost benefits are given to consumers by means of lower steel prices; and it is this behaviour which with time really helps to maintain the cost competitiveness of steel against other unprocessed trash. The long-term fall in costs thus remains evidenced by a long-term squeeze on prices.

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