Hot Strip Mill Cost Modelling Notes and AssumptionsThe Steel Costing Model
The economic model shown above has been prepared to show how hot rolled coil costs can be estimated through a simple cost benchmarking approach. The predicted total cost is not meant to represent an actual cost for any particular hot strip mill. It is a notional figure only - albeit one that is built on fairly representative current input cost data.Input Costs
Key input costs are based on January 2020 world average costs. Ferrous scrap is priced at ~$250/tonne, steel slab at ~$400/t and hot rolled coil is assumed to sell at around $485/tonne [ex-works]. This allows for a small profit of ~$15/tonne to be made in this specific example. Other factor costs e.g. natural gas or electricity are at market prices, with factor usage (manpower, yield etc) estimated by our technical experts and economists. SG&A denotes sales, general and administration cost. MHPT denotes man hours per tonne (a measure of labour force productivity).The Steel Product
The steel product that is costed above is a metric tonne of hot rolled steel coil of approx 2mm or 3mm gauge. The HRC conversion cost is for a notional medium size steelmaker who purchases slab on the open market and rolls this into coil on a traditional tandem hot rolling mill of perhaps 1 or 2 mt per year capacity. Average labour productivity is assumed at a blue collar wage cost of $20k/year. To prepare cost benchmarks for specific locations please contact us (see below). Steel costs for the BOF steelmaking process route (oxygen steelmaking) may be found on our BOF steelmaking costs page.The Business Environment
Site visitors are advised that all cost estimates shown should be adjusted to reflect the facility setup in which the steel plant operates. Thus, energy costs would be increased [higher natural gas costs] if slab was allowed to cool prior to rolling. Electricity cost could possibly also be reduced with ownership of an in-house power plant. Depreciation costs above are based on a HSM capex cost of $170/tonne depreciated over ~20 years; this cost could be significantly lower in the case of a narrow strip mill, and much higher in the case of a Steckel mill. Labour productivity may also be better than shown (e.g. in recently-built plants).Accounting Methods
Actual costing estimates may also differ because of local accounting practices. For example, the figures above assume straight line depreciation over a 20 year asset lifetime. The estimates also assume that 25% of labour cost are fixed. The model above endeavours to present the economic data on the basis of standard management accounting practices. Users of the model should be clear that the model is likely to require adaptation for different accounting circumstances.Cost Model Updates
To estimate the impact of a change in any main input (e.g. geographic location, slab cost, natural gas cost, labour cost etc) on the total, fixed or variable production costs of any steel product (semi-finished; or flat, long, or pipe) made through either main production process route, please contact our steel cost economists.