Publication: Location of Spanish integrated steel, 1880-1936
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1998-01
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Abstract
This analysis questions whether or not Biscay was an optimal location for Spanish integrated steel mills at the end of the century and tries to determine Spain's optimal site as coal found substitutes all throughout the twentieth century. The contrast of the correct location of Spain's main production center is relevant, because a wrong location could have been introducing the inefficiencies and redundant costs which may have made Spain lose its competitivity on international markets and could have been biasing the competitivity of its products to low coal consumption. The suspicion of a mistaken location has been cornmented upon by a number of Spanish historians and economists. The first part of this paper will introduce the relevant aspects for formalizing a model for the location of integrated steel mills; together with sorne specific considerations for the case of Spain. Part two will show the methodology applied, i.e. the underlying assumptions, the model of transport cost minimization and the calibration of parameters. The contrast of the model will be completed by combining each of the two alternative sources of coal with the different iron ore sites respectively. Each combination will give us the numerical results presented in the next section. We will be able to observe how the reduction of coal consumption affects the optimal location for each of these alternative combinations of inputs. At the same time it will be easy to identify 'the supreme site' given the overall tendency to reducing the weight of coal as an input. Our preliminary conc1usions were then scrutinized by introducing the different aspects excluded from the model. Uniform transport costs were questioned and the alternative of sea transport was cüntemplated. Scope economies, such as port capacities, ore transportation costs, and labor and capital availability were considered in order to question the results we have obtained. Our final conc1usions are that Bilbao was second-best, but that Gijón as a feasible alternative never really existed. Locating Spain's principle steel mill in Bilbao guaranteed its technical drive to reduce coal consumption and sealed the loss of natural hegemony once its ore reserves depleted.
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Spain, Iron and steel industry, Location, Transport cost minimization, Weber