The fee price squeeze (sometimes termed as the price cost squeeze) is quite a well-known phenomenon to most steel industry strategic planners. This is a proven fact that has existed for several years. It means the long-term trend of falling steel industry product costs, as evidenced from the falling end product prices that are seen over time. On this sense - notwithstanding the falling revenue per tonne - it ought to be remembered that the squeeze does help the industry by maintaining the cost competitiveness of steel against other construction materials including wood, cement etc.
Falling costs. The central assumption behind the squeeze could be that the cost per tonne of a steel product - whether a steel plate or possibly a hot rolled coil, or perhaps a bar or rod product - falls an average of (in nominal terms) from year upon year. This assumption needless to say ignores short-term fluctuations in steel prices (e.g. due to the price cycle; or as a consequence of changing raw material costs from year to year), mainly because it describes a long-term trend. Falling prices over time for finished steel products are at complete variance using the rising prices evident for most consumer products. These falling prices for steel are however caused by significant changes in technology (mostly) that influence steel making production costs. The technological developments include:
adjustments to melt shop steel making production processes. A really notable change throughout the last Twenty five years has become 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. It is also a pokey 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 such as improved steel metallurgy, improved environmental performance etc. This is a good example of a historic step-change in steel making technology developing a major influence on production costs.
the switch from ingot casting to continuous casting. Here - besides significant improvements in productivity - the main advantage of acquisition of continuous slab, billet or bloom casting would be a yield improvement of ~7.5%, meaning much less wastage of steel
rolling mill performance improvements regarding energy-efficiency (e.g. hot charging), reduced breakouts, improved process control etc causing 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.
Their email list above is supposed to be indicative as an alternative to exhaustive - nevertheless it illustrates that technology-driven improvements have allowed steel making unit production costs to fall as time passes for several different reasons. Going forward, 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 in the phrase cost price squeeze arises due to 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 allows you take care of the cost competitiveness of steel against other recycleables. The long-term fall in costs thus remains evidenced with a long-term squeeze on prices.
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