The price price squeeze (sometimes termed as the price cost squeeze) is a reasonably well-known phenomenon to many steel industry strategic planners. It is a proven fact that has existed for several years. It means the long-term trend of falling steel industry product costs, as evidenced by the falling finished product prices which are seen after a while. Within 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 including 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 perhaps a hot rolled coil, or even a bar or rod product - falls typically (in nominal terms) from year upon year. This assumption obviously ignores short-term fluctuations in steel prices (e.g. as a result of price cycle; or because of changing raw material costs from year upon year), because it describes a long-term trend. Falling prices with time for finished steel products are at complete variance together with the rising prices evident for many 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 really notable change through 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 just 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 - along with other benefits including improved steel metallurgy, improved environmental performance etc. This is a good illustration of a historic step-change in steel making technology developing a major impact on production costs.
the switch from ingot casting to continuous casting. Here - aside from significant improvements in productivity - the main benefit for purchase of continuous slab, billet or bloom casting was a yield improvement of ~7.5%, meaning much less wastage of steel
rolling mill performance improvements with regards 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.
This list above is meant to be indicative as an alternative to exhaustive - but 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 the fact that costs continuously fall as new technological developments [e.g. involving robotics, or near net shape casting] allow.
Falling prices. The reference to the term price within the phrase price range squeeze arises as a result of assumption that - as costs fall - therefore the cost benefits are forwarded to consumers available as lower steel prices; and it is this behaviour which over time really helps to take care of the cost competitiveness of steel against other unprocessed trash. The long-term fall in costs is therefore evidenced by way of a long-term squeeze on prices.
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