Methodology for the calculation of costs

This section explains the methodology used by SteelOrbis Research Team for costs and margin calculations.

Introduction

Each mill has its own particular production cycle, equipment and consumption of raw materials. SteelOrbis Research Team calculates the production costs for each steel mill by country and then calculates the average production cost for each country’s markets.

Approach to calculation and input data

We study each plant fully and collect data about each plant - capacities, equipment, production methods, types of marketable products, what raw materials are used and where they are purchased. We collect all financial statistics for the enterprises to calculate fixed costs.

We use actual purchase prices for the main raw materials and their real transportation cost to calculate production costs. At the same time, we take into consideration actual changes in the structure of suppliers, production capacity and utilization.

Production cost in the current period of commercial output is calculated according to the current raw material prices (without time shifts and inventories).

The cost of one type of material is calculated as the amount of material needed to produce a ton of rolled steel multiplied by the price of this material. The price of the material includes the cost of delivery and all taxes and also includes calculations that it is a different material from different markets at different prices.

The full cost combines raw material and energy costs and fixed production costs. The full cost (with fixed costs) is calculated only for commercial products that are traded on the market.

Production cycle calculation

When we calculate the cost of a ton of rolled steel, we aggregate the costs of each stage of the production cycle:

• first the sinter production stage (HBI for EAF steel) and the coke production stage for BOF steel (if the mill has its own equipment), followed consecutively by;
• the pig iron production stage from the produced sinter or/and from purchased material (pellets),
• the production of a ton of crude steel (EAF/BOF steel),
• the production of square billet/slab from this steel,
• the production of rolled steel (rebar/wire rod/HRC).

Energy and fuel costs

Include:

• electricity,
• natural gas,
• energy coal (fuel for the PCI),
• oxygen,
• refractory materials.

Fixed costs

Include:

• depreciation of fixed assets,
• salaries and wages including payroll and social security contributions (pension fund contributions, obligatory health insurance fund, social insurance fund and all social allocations for employees of the companies),
• purchased parts and accessories,
• production works and services provided by third parties,
• rent payments,
• taxes included in the production cost
• other expenses.