In a previous article, we discussed how the real prices of commodities tend to fall in the long term (i.e. once adjusted for inflation).
While there are a number of factors contributing to this, perhaps the most important is that of technological advance.
A recent article in The Economist highlights this argument with regard to the steel industry. The article discusses the growing application of two different steelmaking techniques – Castrip and Belt Casting.
In short, both of these alternative steelmaking techniques eliminate the intermediate process of casting molten steel into thick slabs, which then have to be reheated and rerolled to make them thinner. Instead, the Castrip and Belt Casting technologies cast steel into a product at or near to its final thickness, thus reducing the amount of reheating/rerolling required.
For those with a knowledge of the steel industry, the different steelmaking processes being discussed in the article are not exactly new.
One of them, Castrip, builds on ideas originally patented by Sir Henry Bessemer back in the 1850-60s. The company that licenses Castrip – a joint-venture between Nucor, BlueScope Steel, and IHI – even has a rather dated, but very informative, website.
The other technology meanwhile, SMS’s Belt Casting technology, has been in trial use since the end of 2012 when it was installed at Salzgitter’s Peiner Trager works.
Nevertheless, recent years have seen improvements made to these processes and their use appears to be growing.
Castrip has been licensed to steelmakers other than Nucor, with Albion Steel and Shagang either implementing or thinking about implementing the technology, as the Economist article highlights. Mexican steelmaker Tyasa is also in the process of installing a Castrip mill.
The process that the Castrip/Belt Casting technologies look to make more efficient, meanwhile – continuous casting – was itself an innovation in steelmaking that took place during the 1960s and has since been widely adopted.
Given the commoditized nature of much of the steel industry, the constant innovation and efforts to improve the production process are inevitable. It is these advances above all that have reduced the price of crude steel from some £1,000-2,000/tonne back in the late 19th century¹ (in inflation-adjusted terms) to values closer to £300-500/tonne today.
¹Alan Birch, The Economic History of the British Iron and Steel Industy, 1784-1879 (Routledge, 2005)