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Speaking of Precision

Speaking of Precision is a knowledge preservation and thought leadership blog covering the precision machining industry, its materials and services. With over 36 years of hands on experience in steelmaking, manufacturing, quality, and management, Miles Free (Milo) Director of Industry Research and Technology at PMPA helps answer "How?" "With what?" and occasionally "Really?"

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The Bread Versus Steel Paradox

Posted July 03, 2012 12:00 AM by Milo

Why doesn't the cost of these correlate to the investment needed to produce them?

Bread = $3.80/pound

Cold drawn bars for machining right now ~$0.66-68/pound

This great question came from a discussion I had with Ronnie Masliansky, General Manager, Marketing and Product Control, Arcelor Mittal Steel.

Arecelor Mittal Long Carbon North America is a PMPA Technical Member.

So why do you think that the price of these items doesn't correlate with the investment needed to produce them?

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#1

Re: The Bread Versus Steel Paradox

07/03/2012 3:33 AM

Hi Milo,

Because the bread is bought by "Joe Public".

It must be about 40 years ago when I first started as a Sales Engineer I had a customer called Hydrep. Fairly obviously he repaired hydraulic equipment (mainly cylinders), but he also had a side line making things to sell to "Joe Public". He would make a Tea Pot Stand (who uses them now) out of a fabricated scroll legged frame with a small ceramic tile in it and a piece of bent wire to roll up your aluminium toothpaste tube (who uses ....).

I remember at the time, he said the he could charge 16p (Old Pence) per lb. about 7p in new money for the bits he made for engineering compared to £1-00 per lb. for the bits for "Joe Public".

It seems that engineering is as undervalued today as it was 40 years ago.

If engineering (and I don't mean Automotive Engineers) could charge the same rate as Lawyers, Estate Agents, Doctors etc. it would be a different world where we could get the best of the best.

I left Automotive Engineers out as they seem to be able to charge a huge hourly rate.

Oh! they deal a lot with "Joe Public" too.

Best regards,

John

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#2

Re: The Bread Versus Steel Paradox

07/03/2012 4:20 AM

What happens to a correlation when, instead of weight, one uses volume?

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#3
In reply to #2

Re: The Bread Versus Steel Paradox

07/03/2012 8:55 AM

Good thought.

I am wondering about economy of scale. I have seen some pretty big bakeries... this might not play a big roll role.

[edit] However, I haven't seen a steel mill on a street corner of every city.

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#4

Re: The Bread Versus Steel Paradox

07/03/2012 9:13 AM

I don't really know if I understand you correctly, but I believe subsidies may have a part to do with them. But only a part.

I recall back in the 70's because of the shortages of wheat, the price of wheat went up drastically.

At the time the price of bread was going through the roof. originally it was approx. $0.24 a loaf, But I believe it was pushing $0.40 a loaf with the reason that wheat prices were so high.

Then the USDA release the cost even at the time of high priced wheat for a loaf of bread, was approx. $0.02 1/2 per loaf.

Price of bread went down soon after. So greed is the other part.

I believe the correlation is more so for what the market and public are willing to spend. The United States loves it cheap and bountiful food, and our obesity shows it.

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#5

Re: The Bread Versus Steel Paradox

07/03/2012 2:13 PM

If you buy your bread on sale from a wholesale outlet, you could probably match that price.... There is a lot of waste in baking fresh goods for the public...If it doesn't sell within a certain period of time, it's a loss...When selling baked goods you have to have and maintain an extensive delivery network.....The fact that you are selling food for human consumption requires special licensing, special training, inspections, permits, liability insurance...food for thought

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#6

Re: The Bread Versus Steel Paradox

07/03/2012 7:33 PM

I don't understand why you think they might be correlated, You are comparing a finished article to an unfinished material. There is a great deal of labor per pound of bread than there is per pound of cold drawn bars.

The steel would be better compared to the flour going into the factory than the bread leaving it.

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#7
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Re: The Bread Versus Steel Paradox

07/03/2012 7:48 PM

The question is about the relative price and the relative investment to produce: "So why do you think that the price of these items doesn't correlate with the investment needed to produce them?" The bars and bread are both semi finished in that for some applications they can be used as is-bars cut into suitable lengths and bread cut into suitable slices- or both can be used to make a more finished good- bars into machined parts and bread into sandwiches or french toast. Why is bread a small integral multiple of the price of steel when the investment required to produce the steel is hundreds of thousands of times that to make bread? Milo

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#8
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Re: The Bread Versus Steel Paradox

07/03/2012 8:21 PM

Well I don't think you have taken into account all the ingredients necessary to make bread, and the expense to produce them...You have the flour which must be ground from wheat which must be grown on land which must be cultivated....The butter made from cream which comes from cows which must be fed and cared for....salt, shortening, yeast all must be kept clean and inspected for human consumption....

What's the big deal with steel, you dig out of the ground for free...

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#9
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Re: The Bread Versus Steel Paradox

07/03/2012 8:32 PM

Ha! Must mine the ore, beneficiate the ore haul the ore, dig the coal, distil to make coke, (coke plant is very expensive), dig the limestone haul the limestone build blast furnace with stoves and powerhouse, conveyor docks and car dumper system, rail to bof shop, thermos cars to haul miolten metal, build bof converter shop and ancilliaries, build oxygen separating plant, build continuous caster, build rolling mill with reheat furnace, haul to cold finisher, build drawbench, shear, straighteners, eddy current tester cranes and stacker storage system. Operate all with paid labor.

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#10
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Re: The Bread Versus Steel Paradox

07/03/2012 8:48 PM

Yes and what feeds your labor? Bread I say, without the bread there is no labor, only hungry mouths to feed....Bread must be had today, and it must be fresh, and it must be dependable....Steel? oh maybe next week is ok...

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#11
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Re: The Bread Versus Steel Paradox

07/03/2012 11:02 PM

in some countries it is rice not bread!

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#12
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Re: The Bread Versus Steel Paradox

07/03/2012 11:38 PM

This is a great question.

Some years back, I did a comparison of prices based in loaves of bread, rather than dollars. What my charts showed was that prices for autos, housing, clothing, entertainment etc. remained fairly constant over the thirty years I looked at when measured in units of bread loafs and how much bread a dollar would buy at any given point in time. The chart made a fairly soft rise to the right.

A loaf of bread will sustain a man for a day, the minimum cost for human labor.

Prices are the result of the marketplace, which is merely a collective opinion of value.

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#17
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Re: The Bread Versus Steel Paradox

07/04/2012 9:16 AM

Ha! Must mine the ore, beneficiate the ore haul the ore, dig the coal, distil to make coke, (coke plant is very expensive), dig the limestone haul the limestone build blast furnace with stoves and powerhouse, conveyor docks and car dumper system, rail to bof shop, thermos cars to haul miolten metal, build bof converter shop and ancilliaries, build oxygen separating plant, build continuous caster, build rolling mill with reheat furnace, h

Milo, do we still do these things?

I thought I read something like 90% of the steel market now consists of recycled raw material?

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#18
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Re: The Bread Versus Steel Paradox

07/04/2012 10:14 AM

Much of the market is met with electric furnace steel which is primarily scrap remelted. Many critical applications for cold working applications and sheet still require basic oxygen produced from virgin materials. If we stopped adding new melt to the mix, eventually residual elements would build up to the point it would be unuseable. We are constantly adding new melt to our global steel supply. Not just recycling.Milo

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#13

Re: The Bread Versus Steel Paradox

07/03/2012 11:40 PM

There seems to be some sort of misunderstanding here:

Rule 1: Things cost what people are prepared to pay for them.

Rule 2: Things sell for whatever price people will accept.

My friend Scott is an accountant he does the books for a local baking franchise, the cost for a 50c bread roll is ~ 3c, that's why bakers are happy to have fully stocked shelves at the end of each day. An example of Rule 1.

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#15
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Re: The Bread Versus Steel Paradox

07/04/2012 6:30 AM

Is that 3c per roll figure inclusive of all inputs....

  • material
  • labour
  • plant depreciation
  • plant lease
  • rent
  • insurance
  • energy
  • admin
  • reject product
  • unsold product
  • distribution
  • marketing
  • etc?

or is it just for the ingredients?

The steel cost does not include convenient storage for discretionary consumption at every food outlet everywhere. It doesn't really go stale either.

Bakers can't be gouging on prices. If there was a motza to be had we'd all be doing it.

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#20
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Re: The Bread Versus Steel Paradox

07/04/2012 11:06 AM

Hi ffei,

I think things "cost" what it takes to make them but things "sell" (to Joe Public in particular) at the price he is prepared to pay, which on some items has no relation to the actual cost of manufacture. There are products out there that sell for pounds and are literally made for pennies, (Cola, Energy drinks etc.)

It is just that the price the manufacturers pitches theirs product at is "the market price" and "we" have little say in the matter.

Best regards,

John

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#14

Re: The Bread Versus Steel Paradox

07/04/2012 2:39 AM

Really guys, 5 OFF TOPICS

For pointing out that cost isn't necessarily related to investment or raw materials.

Obviously I've upset some coward who censors rathers than argues.

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#16
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Re: The Bread Versus Steel Paradox

07/04/2012 7:49 AM

Actually, those are good points, so I tried to erase one of the OTs.

Another point not considered is that whenever selling edible goods to the public there are regulations - like health inspections - to deal with. These are a large burden in labor costs.

Plus there are the liability costs. You're not likely to have someone claiming they found a dead rat in the bar of steel you sold them.

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#19
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Re: The Bread Versus Steel Paradox

07/04/2012 10:17 AM

I gave you a good answer. Your comments advanced the conversation. Milo

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#21

Re: The Bread Versus Steel Paradox

07/04/2012 1:51 PM

The way I would describe the differences in pricing is to compare the value added to the raw material. Bread is made from wheat that has been milled, with numerous additives and then mixed, cooked, packaged, and sold in a retail setting.

A piece of iron rod ready for milling is worth quite a bit more after it has been machined into a useful product. Can you still buy a pound of nails for less than $3.80? If the steel is used to make some higher end product, it can be worth much much more than $3.80 per pound. Have you ever priced a small piston for a filter head. Its weight is less than 1/2 pound and the cost is more than $50.00. To buy an unfinished iron rod may be cheap at 0.66/pound but it would be hard to find a retail market for such unfinished products other than someone who is willing to machine it into something useful. Measuring an unfinshed product against a finished product in demand is not a fair comparison.

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#22
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Re: The Bread Versus Steel Paradox

07/04/2012 3:54 PM

I rated this a good answer, though as i said earlier i consider both useable and both to be 'semi finished.' your analysis of value add and value as machined are worthy points. Milo

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#23

Re: The Bread Versus Steel Paradox

07/05/2012 8:32 AM

One loaf of bread lasts me about a week so I only need to buy about 52 a year (what's that 60 lbs?). 60 lbs of steel pipe won't get me from a pressure vessel to a pump.

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#24

Re: The Bread Versus Steel Paradox

07/05/2012 9:00 AM

If cost of resources to produce the bar of steel was such that no one was making a profit at 66 to 68 cents a pound, then steel wouldn't be that price.

Steel is not a necessity, food is. Can't eat steel. Everyone has to eat.

Some where someone described both as unfinished products. The bread is a finished product it can be eaten as is. Can that be said about the steel bar pictured. Even as an axle it would need to be finished. So add a loaf of bread to the price of that axle for everyone involved.

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#25
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Re: The Bread Versus Steel Paradox

07/05/2012 8:32 PM

well you can cut of a piece of steel bar and hit it on the head of someone who has a loaf of bread

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#26
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Re: The Bread Versus Steel Paradox

07/06/2012 7:41 AM

Someone that is going to hit you over the head to steel a loaf of bread isn't going to spend the time cutting off a piece of steel to do it.

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#27
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Re: The Bread Versus Steel Paradox

07/06/2012 8:12 AM

.....tax department goes to more trouble than that to bludgeon you over the head to steal your bread......

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#28

Re: The Bread Versus Steel Paradox

07/26/2012 2:09 PM

Until the late '80's, a loaf of bread, gallon of gas and a pack of cigarettes were about the same price. (That was when diesel was 2/3 the price of gasoline.

As for engineers being undervalued, how 'bout MD's and Surgeons compared to singers, football players and movie stars. 'Mercans have a weird sense of value and what is important. Never could explain it.

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#29
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Re: The Bread Versus Steel Paradox

07/26/2012 9:46 PM

...knighthoods for gay minstrels and jesters....

A sad reflection of what "our" society deems to be valuable.

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