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On Oct 29, 6:59 pm, "Ed Huntress" wrote:
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On Oct 29, 6:22 am, "Ed Huntress" wrote:

I don't know what "American Steel" has to say about it, but that was
my
beat
in those days. Success in the primary steel industry depends on a lot
more
than technology. Anybody can buy the technology today.

Read the book. Anyone can buy the technology today, but not only one
company did in the sixties.

What does the 60s have to do with what we're talking about, Dan?

Hmmm. I thought we were talking about competing with low wage
countries. And my point is that one can not compete with low wage
countries by doing things the same way they do.

Well, I think that's what I said in the beginning, isn't it? You can't go
head-to-head against businesses that pay $0.80/hour, I said. And Nucor
doesn't go head-to-head with low-wage steel producers. They have a niche,
which is making steel from scrap in electric-arc furnaces. The US produces
around 55% of its steel that way. China produces 13% of its steel that way.

But the US produces around 95 million metric tons of steel/year, while it
consumes about 125 m tons. Nucor has a niche in which it produces 20 m tons.
It's a large niche, but Nucor and all of the other secondary steel producers
in the US put together only produce less than 45% of the steel we use. Note
that remelted scrap is not of high enough quality for use in car bodies, for
example. They aren't really in that big-volume market, except at the lower
end of the quality scale.

Most of the rest of the steel we use comes from primary producers here and
abroad. Those are the mainstay of the steel industry and those are the ones
from which US-based steelmakers have taken a beating, for decades, until
there are only a few of them left. If you could make all of your domestic
steel from recycled steel, the US primary producers probably wouldn't exist
at all. But you can't. It's a niche that's limited by the availability of
scrap and quality limitations.

However, as I also said, finding niches like that is one of the best ways
for US companies to succeed in a globalized economy. Nucor is a first-class
example of doing it right. If we want more steel production in the US,
however, the newcomers are going to have to find another niche, or new
services, or another way of avoiding head-to-head competition with low-wage
countries.

One has to reduce the
amount of labor. Nucor did this by installing the first continuous
casting facility anywhere.

That's far from being correct, being late by about 50 years, but we won't
quibble about history. d8-)

So that is why the sixties have to do with
the discussion. Actually The first continuous casting mill was built
in the late eighties.

That was the first *thin slab* continuous casting mill. The continuous
casting process was used in advanced countries world-wide by the '60s to
make everything from merchant bars to strip, from BOP furnaces, but again,
no quibbling.

At the time their goal was to produce a ton of
steel with one manhour of labor. At that rate low wages in some other
countries mean nothing.

That's almost twice what the cost models show for both major steelmaking
methods today.

And there's a bigger issue. I explained this better in some articles a few
years ago, but direct labor is a bit of a chimera when it comes to China and
other low-wage countries. (Watch Cliff chime in here, BTW; this is his cue).
The fact is that the whole supply chain is making $0.80/hour, or similarly
low wages, from the guy who loads ore into a freight car to the people who
build the steel mill. These are sometimes called "embedded" costs. Most of
the intermediate steps -- the services and products that contribute to the
final product -- either can't be traded on world markets or aren't, for some
political or economic reason. Thus, the whole cost of production is sharply
lower than that of the US.

It doesn't take long for them to adopt new technologies and they can eat up
your productivity advantage in a hurry, or enough of it that they're
competitive again.

In the case of steel, China may not want to. They need primary production
for their own consumption and they don't want to push for bigger market
shares in sensitive world markets, for fear of provoking protectionism.
Actually, if you remember the early days of the Bush administration, they
already have. We have sort of a Mexican standoff going on with China in
regard to steel right now. They're producing 400 m tons to our 100 m tons,
but they still need more. They're actually net importers of around 13 m
tons/year, but only 0.2 m tons comes from the US (plus Canada and Mexico; I
only have lumped figures for NAFTA.) Interestingly, NAFTA in total only
imports 2.6 m tons/year from China.


You're arguing for the sake of argument, not to clarify the state of
manufacturing in the US. Who did what first, and where their past glories
come from, is all about where it went. I thought we were talking about
where
things are. And my point was that primary steel in the US is not
competitive
on the world market. Nucor is a good example of a company that's doing
well
because it's *not* competing directly with primary steel. Relative to
other
producers, we have much less little basic steel capacity in the US than
we
did. And no, rebar is not basic steel. It's a byproduct or a recycled
product. "Basic steel" has a specific meaning in the steel industry.

You mean this?

Definition: Steel produced in a furnace in which the hearth consists
of a basic refractory such as dolomite or magnesite, as opposed to
steel melted in a furnace with an acid lining. The basic process
permits the removal of sulphur and phosphorous and in this respect is
superior. Present day BOS and electric arc furnaces use basic
linings.

Sounds like Nucor makes basic steel to me. And if you meant basic,
why did you use primary?

If electric-arc furnaces used for remelting cars and tin cans are using
basic refractories, I'm a bit behind. d8-). Junk steel is what used to be
made in the remelt furnaces, and a lot of that was with high-silica ("acid")
linings. When rebar was made from primary steel, it often wound up being
basic by default, because there was nothing much else to sell unless the
phosphorus and sulfur are controlled. So BOFs are lined with basic
refractory. That's how "basic steel" and "primary steel" became virtually
synonymous. But rebar could be pretty foul and still pass the limits on
tensile strength and elongation. There's no need for it to be basic steel.

Sorry about that. I'm out of date on this one.


I am not arguing for the sake of arguing anymore than you are. And I
never set out to clarify the state of US manufactuing. I meant to say
that there are ways to compete with low wage companies. And one way
is to reduce the amount of labor to the point that it is
insignificant.

But direct labor was insignificant to begin with. The Steelonthenet.com cost
model for BOF steelmaking shows $14.40 labor cost for a ton of steel made in
a BOF; $13.00 for one made in an electric-arc furnace. Direct labor runs
less than 5% of the cost of making steel either way.

The cost differences lie elsewhere. When you compare a low-wage country like
China with the US, the big thing is the embedded labor costs in materials
and services, as I described above. And you can't control them except at the
margins. But as I realize now, China is a bad example because we're not
trading much steel. I should have used Latin America, perhaps. If China
needed to export steel and if the US didn't jump back on the protectionist
bandwagon, they'd probably clean our clocks, Nucor or not. China sends us
their steel in the form of cheap finished products. d8-)



If you want to discuss that, I'll be glad to. There's nothing to be
gained
by arguing about why AMD Dresden isn't competing against low-wage car
builders, or whether an advanced economy can get most of its steel from
scrap.

The point about AMD is that they produce microprocessors in one of the
highest pay scale countries. So low wages is not necessarily the most
important thing. But productivity is important.

It's certainly true that low wages, at least as direct labor, is not much of
an issue in modern manufacturing. But embedded labor costs can be. Of
course, like Honda in the US or AMD in Dresden, there can be other economic
factors -- and big political ones -- that are more important.

I think we've come back around to the initial proposition: that in
head-to-head competition, you aren't going to compete with low-wage
countries. The trick is to find a way to avoid going head-to-head in direct
competition. Nucor found a niche and is staying ahead of US competitors with
technology. But it doesn't represent an approach that will satisfy either
the volume or the quality needs of the larger market.

As a sidenote, gathering the figures to clarify these points led me to some
articles on newer things Nucor is doing. They're a technological leader, and
they're taking some interesting angles, such as applying
basic-oxygen-furnace technology to iron carbide converted from iron ore.
What this means in the context of niches versus head-to-head competition
remains to be seen.

--
Ed Huntress