Scale, Structure and Steel

1.

The arrival of minimills minimized the minimum efficient scale of production for a steelworks from around 4 million tonnes for an integrated stelworks to 0.5 million tonnes for a minimill operating an EAF. (2 million tonnes if it uses CSP technology) Consequently, possible economies of scale can be generated much faster which leads to a stronger sloping LRAC-curve until reaching the MES.

2.

The reason for the cost advantage of a minimall towards an integrated steelworks is the lower rate of fixed costs. (30% vs. >60%). During times of an economic downturn a minimill can adapt the production easily when demand is fluctuating. In an integrated steelworks this is possible only to a certain extent because of technical restrictions. This gives the minimill a higher portion of variable costs that can be cut off when necessary.

3.

Speeding up the steel making process will lower variable costs of production such as labour costs per produced tonne of steel produced. In the case of a minimill time reduction of the steel making process will have a significant impact on the energy needed.

4.

What threatens the economic advantage of minimills is the development of the price for scrap steel. As more and more countries develop a certain infrastructure and build up industries the demand for steel increases in those countries. Considering EAF-steel that will result in a higher number of countries that are net steel scrap importers rather than net steel scrap exporters. This will lead to a higher price for steel scrap and therefore higher raw material costs for minimills.