Steel Times International Nov/Dec 2015 by Quartz

November/December 2015 Vol.39 No.8 – www.steeltimesint.com

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STEEL TIMES INTERNATIONAL – November/December 2015 – Vol.39 No.8

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CONTENTS NOVEMBER/DECEMBER 2015

Picture courtesy of MTAG Switzerland.

November/December 2015 Vol.39 No.8 – www.steeltimesint.com

IRONMAKING BRAZILIAN STEEL ASSOCIATION CONFERENCE PERSPECTIVES

STEEL TIMES INTERNATIONAL – November/December 2015 – Vol.39 No.8

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EDITORIAL Editor Matthew Moggridge Tel: +44 (0) 1737 855151 matthewmoggridge@quartzltd.com

2 Leader 4 News The latest steel industry news from around the world 9 News focus Market economy status? China? Get out of here!

9 13 Japan update China Shock increases uncertainty

Consultant Editor Dr. Tim Smith PhD, CEng, MIM Production Editor Annie Baker

15 Latin America update Brazil’s stainless steel panorama

Advertisement Production Martin Lawrence SALES International Sales Manager Paul Rossage paulrossage@quartzltd.com Tel: +44 (0) 1737 855116

18 India update Insight from India

Sales Director Ken Clark kenclark@quartzltd.com Tel: +44 (0) 1737 855117 Managing Director Steve Diprose stevediprose@quartzltd.com Tel: +44 (0) 1737 855164

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21 Conference report – Brazil China dominates the agenda

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Contents nov.indd 1

33 Conference reports – USA/Europe Joe Poveromo reports from two leading iron ore conferences 38 Perspectives ABB’s Christer Skogum History 40 The railway contractors November/December 2015

11/18/15 8:34 AM

LEADER

Market economy status? China? Get out of here!

Matthew Moggridge Editor matthewmoggridge@quartzltd.com

China has been ‘top-of-mind’ for the global steel industry for some time. Visit any conference anywhere in the world and somebody will be talking about China. My last leader was all about China. I’ve spent time in BBC radio studios – even on the day of Xi Jingping’s official state visit to the UK – discussing ‘the Chinese problem’ and the resulting job losses in Redcar, Scunthorpe and elsewhere. It’s a never-ending story, but now there’s a new kid on the block. He’s been lurking in the shadows, waiting for the right moment to strike. That kid is called ‘Market Economy Status’; the Chinese crave it and if we’re not careful they’re going to get it. I worry that governments around the world sit back and do nothing, preferring to watch the growing tragedy of a situation unfold before taking decisive action. Look no further than Syria for proof. I have a sneaking suspicion that the British Government will do very little for the ailing UK steel industry – preferring instead to curry favour with the Chinese over nuclear power rather than work on a solution to avoid further catastrophe for British steel. I am concerned that the EU is piling regulation upon regulation

on its foundation industries and, far from creating a level playing field (craved by western steelmakers) are moving towards the complete opposite situation. And now there’s ‘market economy status’ for the Chinese, something they simply don’t deserve. Granting it would be disastrous as it would open up the floodgates to more imports of cheap steel. Nobody can accuse the steel industry – particularly the American steel industry – of not making its feelings known. Following on from an open letter earlier this year, nine steel associations, including Eurofer, the AISI and the Steel Manufacturers Association have recently issued a statement expressing concern over China’s attempt to gain market economy status in December 2016 – just over 12 months away (see page 9). My worry is that the powers that be are simply not listening; they don’t want to listen. They appear to have their own agenda and, oddly, it always seems to be detrimental to the interests of those who have the best interests of the countries concerned at heart. Don’t be too surprised if, by next Christmas, the WTO regards China as a fully fledged market economy.

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4 NEWS IN BRIEF Wuhan signs 500kt/yr steel plant contract Wuhan Iron and Steel Corporation (WISCO) and Tidfore Heavy Equipment Group have signed an agreement to build a 500kt/yr steel plant in Liberia. Production will rely upon iron ores from the local Bong mine, one of the earliest overseas mines WISCO has invested in. Infrastructure around the mine has been improved and included road construction and wharf extension. Source: China Metals.

Potential output cuts for MMK A report by Reuters claims that Russian steel producer MMK may cut its 2015 output by 5% year-onyear due to lower demand in Russia. The company hopes that its 2016 production will return to 2014 levels. Source: Reuters.

Shandong to sell some assets Shandong Iron and Steel Company plans to sell some of its assets in its Jinan branch to its parent company Shandong Iron and Steel Group for 12.82 yuan (US$2.02 billion). During H1 2015 Shandong Iron and Steel Company turned loss into profit, earning a net profit of 7.45 million yuan (US$1.17 million). Operating revenue during the period fell 15.32% year-on-year to roughly 23 billion yuan (US$3.62 billion). Source: China Metals.

Shaogang expects 2015 losses Shaogang Iron and Steel Songshan Co could lose 1.6 billion yuan (US$252 million) over the first three quarters of 2015. The Shenzhen bourse-listed company made a loss of 869 million yuan (US$136 million) in 2014 and blames its dire financial position on declining steel prices and Chinese currency depreciation. Source: China Metals.

Chinese iron ore inventories edge up Iron ore inventories at 33 major Chinese monitored seaports edged up 1.24% week-on-week to 82.24 million metric tonnes as of 2 November, according to the XinhuaChina Iron Ore Price Index released on 3 November. The price index for iron ore imports of 62% purity grade declined two points from a week before to 49 by 2 November. The index for iron ore imports of 58% purity grade dropped 1 point to 45. Source: China Metals.

INDUSTRY NEWS

Concerns raised over China’s MES ambitions Nine steel associations from around the globe have released a joint statement outlining concerns over China’s attempt to gain market economy status by December 2016. The American Iron and Steel Institute (AISI), the Steel Manufacturers Association (SMA), the Canadian Steel Producers Association (CSPA), The Mexican Steel Association, the Latin American Steel Association, EUROFER (the European Steel Association, Instituto AcoBrasil, the Speciality Steel Industry of North America, and the Committee on Pipe and Tube Imports have all signed up to the statement. The statement recognises China’s leading role in the current global overcapacity crisis and quotes figures issued by the OECD Steel Committee indicating that, globally, there is almost 700Mt of excess steel capacity. According to the nine associations, China’s state-owned and state-supported steel industry has an overcapacity ranging from 336 to 425Mmt (million metric tonnes) and is expected to grow over the coming years. “This situation, together with a

declining steel consumption, has resulted in record levels of steel exports from China to the rest of the world in 2014 – and which are on track to exceed 100 million metric tons this year,” according to a joint press release issued 5 November 2015. China believes it should be automatically accorded market economy status after the 15th anniversary of its accession to the World Trade Organisation, which is on 16 December 2016. However, the nine steel associations believe that governments are not obliged to treat China as a market economy on or after 16 December 2016. “While one small part of Section 15 of China’s Protocol (subparagraph 15 (a) (ii)) expires on December 11, 2016, the remainder of Section 15 will remain in effect. These remaining provisions allow WTO members to treat China as a non-market economy country unless the Government of China or Chinese producers can show that they operate under market economy conditions,” the nine steel associations have argued. According to the statement, China ‘remains very much a

non-market economy’ when the Chinese government’s ‘significant role’ in many key aspects of the Chinese economy – including its state-owned and controlled steel sector – is there for all to see. “For the steel sector, recognition or treatment of China as a market economy at the end of 2016 would coincide with the peak of Chinese excess steelmaking capacity, and record levels of exports to international markets, including the US, the EU and Latin America,” the nine associations claim. It is argued that premature recognition of China as a market economy would have enormous economic and social impact. “We urge governments around the world to undertake a comprehensive assessment of the continuing role of the state in the Chinese economy and industry, as well as an assessment of the impact on industries around the world, if China were to be treated as a market economy before it made the necessary reforms to ensure that market forces were, in fact, allowed to operate fully in the Chinese economy,” they say. See News Focus article on page 9.

POSCO awards Fives furnace contract Steelmaker POSCO, a leading global manufacturer of autosheet, has awarded Fives the contract to design and supply a high-performance vertical annealing furnace for its new hot-dip galvanising line within its Gwangyang plant in South Korea. POSCO’s Gwangyang facility is claimed to be its biggest and most modern plant on South Korea’s southern coastline. The new continuous galvanising line number

seven will have an annual capacity of 500kt/yr and will be dedicated to high-end GI/GA exposed and advanced high strength steels (AHSS). It is expected to be completed in 2017. According to Fives, the vertical annealing furnace is a critical piece of equipment for producing advanced high strength steels (AHSS). The French production technology giant will be designing and supplying its latest generation

of Stein Digiflex vertical annealing furnace, including its patented Flash Cooling technology operating at a rate of up to 65% H2 and the company’s AdvanTek 2.0 radiant tube combustion system operating with coke oven gas. At Gwangyang, the last two continuous galvanising lines (numbers five and six) have been equipped with Fives’ vertical annealing furnaces for the production of exposed panels and HSS grades.

November/December 2015

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INDUSTRY NEWS

EUROFER calls for action on crisis Following hot on the heels of the release of a statement by nine steel associations from around the world warning about the dangers of granting China ‘market economy status’, the European Steel Association (EUROFER) has teamed up with the industriALL union to call for action on the crisis affecting the steel industry. EUROFER and the industriALL union want policy makers to take action and ward off further job losses. According to EUROFER, around 5,000 jobs have been lost in the past month and there is a real and present threat to Europe’s 330,000 steelworkers, a headcount down 85,000 since 2008. Bart Samyn, deputy secretary general of industriALL, said that ministers must understand that

job losses are happening now and that lay-offs are a direct consequence of the regulatory burden at EU and member state levels, and in particular due to the dumping of Chinese steel on the EU market. EUROFER’s director-general Axel Eggert, said the EU needs to adapt its trade, climate and energy policies and review the EU Emission Trading Scheme in order to keep the steel sector competitive. “Best performers in carbon leakage sectors like steel must not be penalised by additional direct or indirect carbon costs against extra-EU competitors,” said Eggert, adding “Our goal is for policy makers to do whatever it takes to keep this innovative, strategic industry in Europe.” EUROFER claims that Chinese

USD sets subsidy rates on imported steel

Axel Eggert exports have ‘exploded’ to 110Mt this year and have doubled over the past two years. It says that the EU must speed up the deployment of its trade defence instruments in order to safeguard steel industry jobs. EUROFER and industriALL also warn member states about granting market economy status to China when it does not meet the technical criteria to be considered a market economy. Such a move, say both organisations, ‘would be devastating for a number of manufacturing sectors in the EU’ as the possibility to impose anti-dumping measures on cheap Chinese imports would largely disappear. “Once these jobs have disappeared, they are gone forever,” said Eggert.

SSAB’s new converter shop SMS Group of Germany has commissioned a modernised converter shop and associated environmental technology at SSAB Lulea in Sweden. The Swedish steelmaker achieved its own target of increasing the yield of both converters and satisfying high environmental standards in the process. SMS provided two converter vessels with easily accessible and maintenance-friendly two-motor tilt drive systems. On the environmental front the cooling stacks of both converters were modified and provided with easy-to-maintain Baumco adjustable skirts that are lowered hydraulically onto the converter mouth during the blowing phase, enabling primary gases to be extracted efficiently under supressed combustion. The picture shows one of the two converters at SSAB Lulea.

Cut prices or else, warns Tata Steel Following on from recent announcements concerning job losses at Tata Steel plants in the UK, the company has seemingly ruffled the feathers of its suppliers by demanding discounts – or else. According to a recent report by the BBC, Tata Steel wants its suppliers to cut prices by 30% or risk losing the steelmaker’s business. Tata’s long products division has written to its suppliers requesting an immediate 10% discount on all www.steeltimesint.com

Industry news nov.indd 2

purchases and claims it needs the support of its suppliers to transform the fortunes of the ailing business. A consultation process between Tata Steel and its suppliers has been ongoing for some weeks. While some companies have been spoken to directly, others have received letters and the response has been both positive and innovative, according to Tata Steel. But the news hasn’t been met

NEWS IN BRIEF

with cheers from those on the receiving end. The Federation of Small Businesses wants Tata to treat its suppliers with the ‘utmost sensitivity’, arguing that small businesses rely upon the integrity of their bigger customers when it comes to honouring agreed contracts and paying on time. John Allan, national chairman of the Federation of Small Businesses, says he is deeply concerned by the latest news from Tata Steel.

The US Department of Commerce has set preliminary subsidy rates on imported corrosion-resistant steel products from China, India, Italy and the Republic of Korea, signalling that it may impose punitive duties on the products. Imports of some corrosionresistant steel products may be taxed up to 236% based on the level of subsidies they receive, claims the USDC. Corrosion-resistant steel products are used in the manufacture of trucks, automobiles, agricultural, and industrial equipment. Source: China Metals.

NLMK closes pre-export loan Russian steelmaker NLMK has closed a four-year US$400 million pre-export loan facility on which it had secured attractive pricing. The proceeds will be used to refinance short-term debt. Grigory Fedorishin, NLMK’s CFO, said he was pleased to close the preexport loan deal and that leading international banks participated in the transaction.

Hoa Sen Group announces takeover Hoa Sen Group of Vietnam, a steel maker, has confirmed its take over of the Guang Lian steel project in Vietnam’s Quang Ngai province. The project had been abandoned for a decade, but had attracted the attention of Japan’s JFE Steel Corporation and the E-United Group of Taiwan. Both have since relinquished their investment with the latter pulling out in July. JFE withdrew last year.

Hoping for steady reform in China Shoji Muneoka, chairman of Nippon Steel & Sumitomo Metal Corporation (NSSMC) and head of the JapanChina Economic Association, has told a delegation from the JapanChina Economic Association (JCEA) in Beijing that he hopes China will implement structural economic reform in a steady manner. He said China’s next five-year economic plan should address slowing growth. At the same meeting, Hu Zucai, vice minister at China’s National Development and Reform Commission, the man in charge of crafting the five-year plan, said Beijing would promote growth through innovation and ‘other measures’. November/December 2015

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INDUSTRY NEWS

NLMK boosts raw material quality Russian steelmaker NLMK has replaced the screening equipment at its Novolipetsk sintering plant with new high-efficiency screeners that boost the quality of raw materials used in blast furnace operations. The end result will be a reduction in the cost of pig iron production due to reduced consumption of expensive pellets and furnace coke. Konstantin Lagutin, vice president for investment projects at NLMK, said that the use of the new equipment will ‘noticeably boost the efficiency of hot-end operations that account for up to 80% of steel production costs.’ “This is one of many Strategy 2017 projects that allow NLMK to increase productivity, cut costs, ensure high product quality and remain one of the most efficient and competitive companies in the world,” said Lagutin. Screening iron ore raw materials is necessary in order to obtain high quality sinter.

Tangshan orders furnace plants Tangshan Iron and Steel Group in China has ordered two continuous furnace plants for two new hot-dip galvanising plants from Andritz. The two lines will have a combined annual total capacity of 670kt and are designed to produce high-strength steel for the automotive industry. Start-up is scheduled for Q1 2017. The furnaces are fitted with low NOx burners. A differential rapid jet cooling system (DRJC) is used to guarantee maximum cooling rates. DRJC, patented by Andritz, ‘sets new international standards compared to existing plants through highest cooling rates with constant and controlled cooling across the entire strip width’. Andritz explains that ‘the new technology adjusts to the respective strip width, thus helping to save energy’. “The scope of supply also includes automation equipment and key process components, such as zinc stripping air-knife system and shears,” says Andritz, adding that both lines are designed to handle strip thicknesses ranging from 0.18-3mm and widths from 8501,600mm. November/December 2015

Industry news nov.indd 3

MMK breaks the ice Russian steelmaker OJSC Magnitogorsk Iron and Steel Works – MMK – is a key steel supplier in the construction of nuclear ice-breakers, including a 60MW universal nuclear ice-breaker known as ‘Arctic’ which is currently under construction at the Baltic Shipyard, part of United Shipbuilding Corporation. Once built, Arctic will be capable of reaching speeds of up to 22 knots in open water. Equipped with two nuclear reactors the ves-

sel will be the largest and most powerful in the world, according to MMK, and will have a thermal capacity of 175MW. Arctic will be capable of breaking ice of up to three metres thick, opening up the Northern Sea Route all year round and enabling the delivery of hydrocarbons from their northernmost deposits. Sea trials are scheduled for 2017. MMK claims that it accounts for 50% of all metal supplies to the

Russian shipbuilding industry. Last year the company shipped 78kt of metal to domestic shipbuilders, up 37.2% year-on-year. Shipbuilding steel is produced at Mill 5000 and certified by Lloyd’s Register, Bureau Veritas of France, the American Bureau of Shipping, Det Norske Veritas in Norway and Germanischer Lloyd, as well as the Russian Maritime Register of Shipping and the Russian River Register.

voestalpine opens Chinese auto plant Austrian steelmaker voestalpine AG has opened a new plant in the Metal Forming Division of its production facility in Shenyang, China. The plant will produce ultra-high strength body-in-white parts for premium automotive customers and represents an investment of around EUR 25 million. The voestalpine Group currently generates around 32% of its revenue in the automotive industry, which is regarded globally as a long-term growth sector. In addition to the plant in China, significant investment is being made in phases two and three at the production site for ultra-highstrength body-in-white parts in Cartersville, USA, which opened last year. Wolfgang Eder, chairman of the management board of voestalpine AG (pictured) said, “With the new international sites, we are following our premium customers into the growth markets, thereby continually expanding our global pres-

ence. The technologies we have developed to produce ultra-high strength automotive components are in increasing demand worldwide.”

Voestalpine’s most recent Chinese site – owned by the voestalpine Stamptec Group (part of the company’s Metal Forming Division) – occupies almost 10,000 m2 in Northeast China. Built-in future expansion capability at the plant will enable ad-

ditional production areas of over 15,000 m2 to be made available at any time going forward. At the heart of the Shenyang plant is the award-winning phs-ultraform® technology, which stands for press-hardened steel components made of hot-dip galvanised steel strip, combining lightweight design, corrosion protection, and increased automotive safety to an extent hitherto unknown. Peter Schwab, also a member of the management board of voestalpine AG, said that China was an important future market for the company’s Metal Forming Division. “That’s why we are not simply investing in a further plant, but also making it the first Asian site equipped with our unique hot forming technology,” he said. Including joint ventures, the voestalpine Group recently generated over EUR 300 million revenue at 26 sites employing more than 2,200 employees, including joint ventures.

Alacero debates Chinese overcapacity More than 700 delegates were in Buenos Aires, Argentina, at a gathering opened by Martin Beradi, president of Alacero and CEO of Ternium Siderar (Argentina). Beradi said that the current crisis was rooted in Chinese overcapacity, which currently stands at 425Mt, 6.5 times the annual output of Latin America. “Chinese steel companies – state-owned and governed by a logic that does not respond to a market economy – have aggressively sought new destinations in international markets; even drawing upon unfair

trade practices,” argued Alacero. The Latin American steel industry is suffering, according to Beradi. The penetration of Chinese products along the value chain is replacing intra-regional trade and eroding regional integration, he said, calling on Latin American governments to prioritise the problem and reconsider the risks of market economy status for China. Alacero-56 focused on understanding the economy of the region and identifying how a context of economic recession is affecting

customers and suppliers. It also set out to improve delegates’ knowledge of the regional steel industry and share strategies developed in the region. Speaking at the conference, Ternium CEO Daniel Novegil said it was important to build more integrated value chains in Latin America, strengthen local businesses and exploit the industrial network of each country. “Investment in R&D and education are also key to the development of industries that generate quality jobs and productivity,” he said. www.steeltimesint.com

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INDUSTRY NEWS

Slash production, urges CISA Production control is the key to resolving China’s steel sector glut according to Zhu Jimin, vice president of the China Iron and Steel Association (CISA). According to Zhu, domestic steel demand has peaked and the steel industry has entered a new round of adjustment. Apparent consumption of crude steel in 2013 increased 7.1% yearon-year compared with 2014 when it was down 3.29%. During the first eight months of 2015 it was down 5.49%. Sharp increases in steel demand are a thing of the past and will fluctuate going forward, claims Zhu. He believes that the steel industry’s problems will not be solved by significant steel consumption and urged steelmakers to build up their brands and improve their performance during H2 2016 at the earliest, adding that the population increase should increase demand for basic necessities. Chinese steel producers experienced huge losses during the first three quarters of the year with aggregate losses from their main business amounting to 55.27 billion yuan (US$8.7 billion). CISA data shows that 22 out of 34 listed Chinese steelmakers were in the red during the first three

quarters of 2015 and 49 mills incurred losses over the period. “The economic slowdown has led to marked consumption declines in rolled steel,” according to Zhu. He attributed the lacklustre performance of the industry to falling steel demand and argued that the industry should slash production given the gloomy economic climate.

CISA data shows that the steel composite price index was 99.14 at the beginning of 2014 and fell 16.2% to 83.09 by the year-end. By September the index fell to 60.71.

• Ansteel incurred losses of 888 million yuan (US$139m) between January and September 2015 following profits of 923 million yuan (US$144m) over the same period of 2014. • Fushun Special Steel reported net profits of 184 million yuan (US$29m) for the first three quarters of 2015, up 714% when compared with the same period last year. The company attributed its success to innovations in product structure and technologies. • Baihetan Water power plant in southwest China – the country’s second largest water power station after the Three Gorges Dam facility – has entered into a steel supply contract with Hebei Steel. • Valin Steel has increased its investment in e-commerce by 38 million yuan. Source: China Metals.

Chinese company news • Chongqing Iron and Steel reported losses of 3.2 billion yuan over the period while MaSteel incurred a loss of 2.6 billion yuan. • Baosteel bucked the trend, making a 2.25 billion yuan profit, although it lost 920 million yuan in Q3.

Record September exports from China China’s steel exports during the month of September reached a record high while prices were at their lowest, claims China’s Economic Information Centre, part of the Xinhua News Agency. China exported 11.26Mt of steel in September, up 15.5% from August and an increase of 32% on the same month last year. Between January and September of 2015 China exported 83.2Mt of steel, up 27% year-onyear. China imported 1Mt of steel in September, down 1.2% from August and down 25.8% when compared to the same period last year. Between January and September, China imported 9.7Mt of steel, down 11.6% on the year. The average steel export price was US$507/tonne in September, down US$23/tonne on the month to hit the lowest recorded price www.steeltimesint.com

Industry news nov.indd 4

this year. The average import price per tonne was US$1,078, down US$16/tonne from August. The price gap between imports and exports surged to an historical high of US$571/tonne in September. China’s net steel exports in September reached 10.2Mt. Imports of billet and ingot reached 50kt and were converted into a net crude steel export figure of 10.85Mt, up 43% on the year. Between January and September, the foreign trade of steel was converted into a net crude steel export figure of 77.94Mt, up 35.4%. • Steel bar and wire rod exports from China grew by 58.3% on a year-on-year basis, accounting for 38% of the country’s overall exports during the January to September 2015 period. Steel plate accounted for 43.7% of total exports. • Exports from China to South

East Asia totalled 25.3Mt between January and September. Myanmar, Thailand, Singapore, Indonesia, Vietnam, the Philippines and Malaysia imports of Chinese steel was up over 50% year-on-year and accounted for over 30% of Chinese exports over the period. • China exported 10.1Mt of steel to the Republic of Korea, accounting for 12% of total exports and also exported to nine countries in the Middle East, accounting for just over 9% of total exports. • Exports to the European Union accounted for 6.7% of total Chinese exports over the January to September period while exports to South America made up 5.1% of total Chinese exports. Other nations receiving a share of Chinese steel exports were 10 major countries in Africa (4.3%) and India (3.9%).

DIARY OF EVENTS

January 2016 27-29 American Metal Market’s 21st Mexican Steel Forum Cancun, Mexico. Organised by Metal Bulletin Events The 21st American Metal Market Mexican Steel Forum is regarded as a long-established date in the Mexican steel industry calendar, attracting delegates from across North and Latin America and focusing on a variety of key subjects. This year’s topics will include automotive, anti-dumping and countervailing duties, Mexico’s energy reforms and the oil and gas price crash. For further details, log on to www.metalbulletin.com/events/

March 2016 1-3 China Iron Ore 2016 Grand Millennium Hotel, Beijing, China. Organised by Metal Bulletin Events Organised in conjunction with the China Minmetals Corporation, China Iron Ore 2016 looks at the pressures affecting the iron ore sector of the commodities market as prices fall and demand slows. How much of new supply will come on stream between 2016 and 2018? Will India resume its iron or exports? For further details, log on to www.metalbulletin.com/events/ 8-10 American Metal Market’s 9th Tube & Pipe Conference Doubletree Houston Greenway Plaza Hotel, Houston, Texas, USA. Organised by MetalBulletin Events. Billed as America’s largest gathering for the steel, tube and pipe industry, this event will examine the latest news on anti-dumping trade cases and debate how the industry can survive in an environment of lower prices. New projects and capacity will also be under discussion along with the latest trends and outlook for the American oil and gas industry. The last event attracted 416 delegates from 235 companies based in 20 countries. For further details, log on to www.metalbulletin.com/events/

For more steel industry news and features, visit www.steeltimesint.com

November/December 2015

11/17/15 3:11 PM

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NEWS FOCUS

Picture credit: ultrad.com.br

Market economy status? China? Get out of here!

The nine steel associations that released the statement on China’s continued treatment as a non-market economy were: • The American Iron and Steel Association (AISI) • The Steel Manufacturers’ Association (SMA) • The Canadian Steel Producers’ Association (CSPA) • CANACERO (the Mexican Steel Association) • Alacero (the Latin American Steel Association)

• EUROFER (the European Steel Association) • Instituto AcoBrasil (the Brazil Steel Institute) • The Specialty Steel Industry of North America (SSINA) • Committee on Pipe and Tube Imports (CPTI)

First it was open letters. Now it’s an official statement. As nine leading steel associations from around the globe put pen to paper again on China’s ‘market economy status’ ambitions, we ask what happens if the Chinese get their way. By Matthew Moggridge* THIS year steel industry associations from around the world have joined forces to compile ‘open letters’ to the Chinese expressing their concern over China’s unfair trading practices around the globe. As the growing problem of overcapacity bites harder, the international steel industry has been inflicted with job losses and plant closures, most recently in the UK. The problem isn’t rocket science. The Chinese economy has slowed, but China continues to produce vast amounts of steel that are surplus to requirements. The end result is ‘dumping’ on a massive scale and plummeting steel prices. It’s a global problem and one that needs to be resolved sooner rather than later. Recent media attention on the ailing British steel industry, following the announcement of job losses and plant closures at steel plants in Redcar and Scunthorpe, has kept

China ‘top of mind’ and now, as we reach the end of 2015, the issue of China being granted market economy status by the World Trade Organisation (WTO), weighs large on ‘rest of the world’ producers. China craves market economy status and yet granting it to them could be the worst mistake ever made by the WTO. China doesn’t act like a market economy for one reason: it isn’t one. Chinese steel producers, unlike those in the west, do not have to generate a return on capital and that means one thing: the level playing field craved by western steelmakers simply doesn’t exist. After the open letters from leading steel associatons earlier this year, there is now news that nine steel associations, including the US-based Steel Manufacturers Association (SMA) and EUROFER (the European Steel Association) have released a statement addressing the question of

China’s continued treatment as a nonmarket economy. In truth, it’s really a statement about the global steel industry’s concern over China being granted market economy status at the end of 2016 – a move that would be disastrous for the rest-of-world steel industry as it would simply open the floodgates to even more cheap Chinese steel landing at foreign ports. The nine associations believe that China is the predominant global contributor to the current overcapacity crisis afflicting the international steel industry. “China’s overwhelmingly state-owned and state-supported steel industry has an overcapacity ranging from 336 to 425 million metric tonnes and it is expected to grow in the coming years,” the statement reads. “This situation, together with declining steel consumption, has resulted in record levels of steel exports from China

* Editor, Steel Times International www.steeltimesint.com

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NEWS FOCUS

to the rest of the world in 2014 – and which are on track to exceed 100 million metric tons this year.” Steel producers in Europe, North and South America believe that China’s Protocol of Accession to the WTO does not automatically require governments to treat imports from China as if they were from a market economy as of December 2016. “While one small part of Section 15 of China’s Protocol (subparagraph 15(a) (ii)) expires on December 11, 2016, the remainder of section 15 will remain in effect.” It is these remaining provisions that count as they allow WTO members to treat China as a non-market economy country unless the Government of China or Chinese producers can show that they operate under market economy conditions. Going back to the statement, it reads, “…there can be no question that China remains very much a non-market economy today.” But is anybody listening? In the UK Prime Minister David Cameron seems more concerned with getting China dangerously involved in the country’s nuclear power supply. He’s not overly concerned about China’s abysmal human rights record so it is argued that he’s unlikely to be ruffling any feathers over growing Chinese steel exports. Bearing in mind that western governments generally appear to be doing nothing on so many fronts – in Europe it looks as if our foundation industries are being regulated into oblivion – it all begs the question: Will the World Trade Organisation grant China ‘market economy status’ in December 2016? “While some view the WTO protocol language as being an automatic trigger for granting China market economy status next December, we at the SMA do not. We are not alone and many groups believe strongly that the protocol language does not grant an automatic ascension of ME status to China,” said Philip K Bell, president of the US-based Steel Manufacturers Association. Bell argues that it is very important that all legal and policy arguments are made clear to officials and policy makers at the WTO, OECD and in the EU as well. He said that there are several groups already working on this. “Although there is no legal or market behaviour reasons for the WTO to grant ME status to China, I stopped handicapping these types of issues a long time ago,” he added. EUROFER spokesman Charles De Lusignan said it was down to WTO members to decide whether to give MES to China. “In the case of the EU November/December 2015

NEWS FOCUS.indd 2

and the US, both regions have imposed technical conditions which China must demonstrate are met. Nobody, not even China, considers that today these criteria are being met,” he said. With recent announcements of job losses in the UK steel industry and news that, within Europe, steel demand will be met largely by imported steel, surely the granting of market economy status would be suicidal for the steel industry? “Potentially the whole steel sector in Europe is under threat because of the sheer size of Chinese excess steel capacity, which alone represents 50% of global steel capacity,” said De Lusignan, adding that it could mean as many as 350,000 job losses. The SMA’s Bell says, “To cede such a vital industry to imported steel will undoubtedly impact jobs, profits and communities. I think the situation in the UK requires the government and labour to get together and truly understand what is at stake if this happens.” The European steel industry, says Bell, is at a critical inflection point. “Strong domestic steel production is important for

any country. I would hope that domestic producers continue to play their part in meeting EU steel demand,” he said. Will China relinquish state control of its steel industry? “For now it does not appear so,” said the SMA’s Bell. “China has consistently shown that it will not reduce excess capacity to the extent that it should based on free market business principles. The relationship between government and business is just too strong at both the Federal and Provincial levels,” he added. Bell believes that some amount of state ownership, questionable financing schemes and subsidisation of China’s steel industry is likely to continue. “If China does not take a more proactive approach to address overcapacity and inefficiency, then the unfortunate scenario of capacity reductions by those steelmakers who are efficient and subject to the discipline of free markets, like North America and the EU, will be hardest hit. This is already playing out,” he said, referencing the UK situation and increased lay-offs and mill idlings in the US. EUROFER’s De Lusignan said that China

currently only complies with one of five criteria set out by the EU in order to be granted MES at EU level. “EUROFER advocates free and fair trade. As such, we hope that one day China genuinely meets the criteria to be considered a market economy. However, if that day is ever to come, it is still some way off,” he said. If open letters and official statements, fall on stony ground, what is being done? The SMA’s Bell commented, “I know of a delegation of US trade lawyers and industry officials from North America, Latin America and Europe who recently travelled to Brussels to meet with WTO and EU officials,” he said. According to Bell, the delegation provided a formal presentation on China 2016 to WTO and EU decision makers. “The group also met with the European Parliament and other business leaders and policy makers in Geneva and Brussels,” Bell continued, adding that members from AEGIS Europe and Alacero, the Latin American Steel Association, also participated in these discussions. “The SMA will continue to raise awareness domestically at the US Department of Commerce and internationally at the OECD,” he concluded. EUROFER is engaging in a number of activities in order to ensure that its voice is heard. “This includes working with policy makers to inform them of the risks of granting China market economy status. Additionally, we are communicating regularly our concerns to media globally, to make sure that the risks of MES are weighed up adequately by policy makers and stakeholders,” De Lusignan said. It is argued that China ‘remains very much a non-market economy’ when the Chinese government’s ‘significant role’ in many key aspects of the Chinese economy – including its state-owned and controlled steel sector – is there for all to see. “For the steel sector, recognition or treatment of China as a market economy at the end of 2016 would coincide with the peak of Chinese excess steelmaking capacity, and record levels of exports to international markets, including the US, the EU and Latin America,” the nine associations claim. It is argued that premature recognition of China as a market economy would have enormous economic and social impact. “We urge governments around the world to undertake a comprehensive assessment of the continuing role of the state in the Chinese economy and industry, as well as an assessment of the impact on industries around the world, if China were to be treated as a market economy before it made the necessary reforms to ensure that market forces were in fact allowed to operate fully in the Chinese economy,” they say. t www.steeltimesint.com

11/18/15 2:49 PM

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JAPAN UPDATE

China shock increases Asian uncertainty ‘China shock’ by Yuan depreciation and an increasing demand and supply gap has weakened global commodity and manufacturing markets. The steel market is no exception, and China’s constantly increasing export drive will continue to have a negative impact on the regional steel market in Asia. By Nobuhisa Iwase* IN the first week of October, many Chinese tourists enjoyed visiting Japan for their happy holiday week commemorating the anniversary of the founding of the People’s Republic of China 66 years ago. The Chinese are keen shoppers and spent a huge amount of money in Japanese hotels, restaurants and retail stores. At the end of May this year, the global economic scene was also much brighter, when global financial markets peaked, in terms of value, at around US$77 trillion. However, following the depreciation of the Yuan by the Chinese government on 11 August, global financial markets have become weak and fragile, and total stock prices declined 17% (US$12 trillion) by the end of September. While Chinese shoppers in Japan might give the impression of booming economies, both China and Japan have experienced increasing uncertainty. Japan’s quarterly GDP growth rate between April and June declined to -0.3% (annual rate of -1.2%), and its index of industrial production (IIP) in August recorded only 96.3, which declined by 1.2% from the previous month (See Fig 1). (Note: The figure in 2010 is calculated to be a base of 100). The low level of the index was comparable to the recent bottom recording of 95.0 in June 2013. While shipments of manufactured products to the domestic market increased by 0.3%, exports of the same declined 5.1%. Shipments of machinery, parts and components to developing economies – particularly to China – were sluggish. For example, while the shipment of electronic parts and devices increased by 4.6% to the Japanese market, exports declined sharply by 7.1%. A slump in foreign demand, especially in China, not only has a negative impact on Japanese industrial production, but

also sharply cools down the commodities and manufactured goods markets in Asia. China succeeded in recording a relatively high rate of real GDP growth at 7% for the first half of 2015, which was planned by the Chinese government. Many global economists, however, are sceptical about the figure, and some estimate that the real growth rate hovered around 5%. Moreover, the demand and supply gap in manufactured products, including steel, is estimated to be huge, which constantly pushes down the market for goods in China and increases the country’s regional export drive. Asian steel markets have been weak since the last year. Total iron and steel exports by China to Thailand, Indonesia, Vietnam, Malaysia and the Philippines – as well as India – increased to 25Mt in 2014. Export volumes to Vietnam increased fivefold (6.6 Mt) in 2014 compared to the 2009 figure, and in the Philippines they increased 11 times (4.8 Mt). The growing trend towards Chinese iron and steel exports has become more intense this year. Export volumes reached 11.25Mt in September, which was a record high in a single month, and a 32% increase compared to September 2014.

Total iron and steel export volumes by China reached 83.11Mt between January and September this year, an almost 30% increase compared to last year. On 1 October Sahaviriya Steel Industries (SSI) in Thailand, a major steel producer in the country, in which Japanese companies, such as JFE Steel, held shares, went into bankruptcy. In Asia, the FOB price of hot rolled coil plunged to less than US$300/ tonne in August. While Japanese integrated steel producers kept their relatively high level of operational rates, good news for them is a continuous decline of raw material prices. Contracted prices of iron ore and coking coal for October-December 2015 between Japanese integrated mills and global mining majors were agreed to be US$51 and US$89 respectively. Prices have declined for the past five consecutive quarters, which became only 30% and 25% of their 2011 peaks, respectively. With an increasing global trend towards deflation in commodity prices and manufactured products, given the demand-supply gap in China, Asian steel producers, including the Japanese, will face increasing challenges and difficulties in their global operation and management. t

120 110 100

Fig 1. Japan’s IIP (Index of industrial production: 2010=100

90 80 70 60

2008

2009

2010

2011

2012

2013

2014

2015

* An independent steel economist, Karuizawa, Japan, E-mail: nobykaru@seagreen.ocn.ne.jp www.steeltimesint.com

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November/December 2015

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LATIN AMERICA UPDATE

Brazil’s stainless steel panorama Stainless steel is one of the most dynamic market segments in the world steel industry. The International Stainless Steel Forum (ISSF) says that between 1980 and 2014, stainless steel output experienced a 5.4% compound annual growth rate (CAGR), in contrast to 2.5% for carbon steel production. By Germano Mendes de Paula* BRAZILIAN crude stainless steel output grew from 307kt in 2000 to 461kt in 2004 and then declined to 324kt in 2009 (Fig 1). A partial recovery to 356kt in 2014 was observed. The sector registered, therefore, a 1.1% CAGR over the whole period, and there were considerable differences between the performance of flats (1.3% CAGR) and longs (-1.1% CAGR). In Brazil, the participation of flats enlarged from 88% to 91% between 2000

and 2014, while this proportion achieved 82% regarding the global volume last year. Aperam South America (formerly Acesita and ArcelorMittal Inox Brasil) is the only flat stainless producer in the country, while Gerdau and Villares Metals (a subsidiary of voestalpine) are long stainless steel products producers domestically. According to the ISSF, Brazilian stainless melt shop production (in ingot/slab equivalent) reached 450kt in 2005. After climbing to 491kt in 2006, it dipped to

500 450 400 350 300 250 200 150 100 50 0

324kt in 2009 and recovered slightly to 424kt in 2014. More importantly, as world production figures increased from 24.5Mt in 2005 to 41.7Mt in 2014, the nation’s share plummeted from 1.8% to 1.0%, respectively (Fig 2). In a report released by Credit Suisse in September 2015, Brazilian stainless steel output is destined to drop 5% in 2015, but will experience an upturn to 7% in 2016, 2% in 2017 and 1% in 2018, resulting in 1.4% CAGR between 2014 and 2018.

2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2000 01

03 04

06 07 Flat

2005

Production

Long

Fig 1. Brazilian crude stainless steel output

Consumption

Fig 2. Brazilian stainless steel melt shop production

450 400 350 300

2.5

250 200

1.5

150 100

1.0

2.0

0.5

50 0 2000 01

06 07 Flat

Long

Fig 3. Evolution of Brazil’s apparent stainless steel consumption

0.0 2000 01

03 04

09 10

Fig 4. Apparent consumption of stainless steel per capita

* Professor in economics, Federal University of Uberlândia, Brazil. E-mail: germano@ufu.br www.steeltimesint.com

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November/December 2015

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LATIN AMERICA UPDATE

160

70 60

140 120

100 80

40 30

0 2000 01

06 Flat

2000 01

Long

Fig 5: Brazilian stainless steel imports

Fig 6. Import penetrationratio

300 250 200 150 100 50 0 2000 01

06 Flat

Long

Brazilian stainless steel practitioners, however, view this estimation as optimistic. Over the same period global volumes will rise by 2.6% CAGR. Demand The evolution of Brazil’s apparent stainless steel consumption is demonstrated in Fig 3. Between 2000 and 2008, it climbed from 194kt to 368kt (or 8.3% CAGR). Afterwards, it registered a marginal enlargement to 396kt in 2014, implying a 1.2% CAGR. It is worth noting that the share of flats demand dipped from 91% in 2000 to 88% in 2014. Brazil’s share of world demand expanded from 0.9% in 2005 to 1.4% in 2008, but decreased to 1.0% in 2014 (Fig 2). It has been argued that there is a correlation between a country’s participation in production and its share of demand. The per capita apparent consumption of stainless steel in Brazil rose from 1.1 to 1.9kg/inhabitant from 2000 to 2008 November/December 2015

LA.indd 2

14 Fig 7. Exports

(Fig 4). After a temporary retraction to 1.4kg in 2009, it recovered to the 1.8-1.9kg/inhabitant plateau over the period 2010-2014. Considering ISSF’s data, for countries with approximately $15,000 GDP per capita in terms of purchasing power parity, (PPP) in 2014, Brazil is lagging behind against South Africa (~5kg/inhabitant), Thailand (~6kg/inhabitant) and China (~10kg/ inhabitant). Nonetheless, it is important to recognise that the relatively lower per capita consumption for a given level of income is not a hurdle that affects only Brazil’s stainless steel segment. On the contrary, it influences the country’s entire steel market. Flat steel consumption sectors Where flat steel products were concerned, Brazil’s 2013 consumption was distributed among the following sectors: household and commercial appliances (33.7%), capital goods (22.6%), automotive

06 07 08 09 Flat Long

(17.2%), small diameter welded tube (12.0%), construction (3.3%) and others (11.2%). Regional distribution is headed by the State of São Paulo (52.5%), followed by Santa Catarina (16.5%) and Rio Grande do Sul (14.0%). International trade Brazilian stainless steel imports skyrocketed from 27kt in 2000 to 106kt in 2008 (Fig 5), resulting in a substantial 18.6% CAGR. This impressive rate was mainly explained due to an initial low base level. It expanded further to 117kt in 2014, implying a 1.7% CAGR. The participation of flats in total imports retracted from 80% in 2000 to 62% in 2003, but reverted to 77% in 2014. The import penetration ratio for flat stainless steel in Brazil diminished from 12.1% in 2000 to 9.1% in 2003 (Fig 6). It rose to 30.5% in 2010 and has varied between 25%-35% ever since. For long products, the trajectory was predominantly upward, increasing from 30.3% in 2000 to 61.7% in 2012, with a minor drop to 59.7% in 2014. Exports followed two different trajectories. First, they improved from 138kt in 2000 to 254kt in 2003. Second, they weakened to 74kt in 2014 (Fig 7). The proportion of flats (and semis) hovered around 90%. International trade performance cannot be dissociated from world competition. Global overcapacity and the transformation of China into a net exporter of flat stainless steel were the key drivers behind Brazilian enlargement of imports and the decline of exports. Due to fierce competition with Indian products, longs producers are prioritising other types of steel. Summing up Brazilian participation in global steel production has declined from 1.8% to 1.0% between 2005-2014. Over the same interim period, the nation’s share of world consumption was around 1.0%. Another relevant trend is the increasing import penetration ratio, particularly regarding long products, which is equivalent to 60% of the domestic market. t www.steeltimesint.com

11/17/15 3:13 PM

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INDIA UPDATE

Producers and consumers at Primary steel producers and consumers are at loggerheads in India due to a sharp increase in imports over the last few years at substantially lower than prevailing market prices locally. While primary producers see rising imports as a threat to mills, end-user industries view the situation as an opportunity for global competitiveness. By Dilip Kumar Jha*

THE Indian steel industry has entered into a new stage of development from 200708, riding high on the resurgent economy. A rapid rise in production has resulted in India becoming the third largest producer of crude steel in 2015. The National Steel Policy 2005 had envisaged India’s steel production reaching 110Mt by 201920. However, based on an assessment of current ongoing projects, both greenfield and brownfield, the Working Group on Steel has projected India’s crude steel capacity to touch 140Mt by 2016-17 with the potential to reach 149Mt. India’s crude steel capacity was estimated at 109.85Mt in 2014-15 with the capability to produce a variety of grades of international quality standards. Industry players believe that India will become the second largest producer of crude steel in the world as soon as all the requirements for the creation of fresh capacity are adequately met. Interestingly, steel mills in India have continued to invest in ongoing projects resulting in 16Mt of capacity addition over the next two years. Macquarie forecasts that India’s steel production capacity will reach 134Mt by 2020. Steel mills are vouching on large infrastructure projects for future consumption growth. A recent analysis by Ernst & Young forecasts India’s steel consumption to rise 7% in the current financial year ending March 2016 as

against a marginal 2% growth in the previous year. Import dilemma Rising steel imports from China, Korea and Japan have been a bone of contention between Indian producers and consumers. Macquarie says that steel imports in India almost doubled in the financial year 201415 (April – March) to 9.3Mt from 5.4Mt the previous year. Going by this trend, total steel imports in India may touch 14.7Mt in the year to March 2016. Surprisingly, 50% of Indian imports come from Japan and Korea under the Free Trade Agreement (FTA) at less than 1% of import duty currently. Import duty, however, is set to become “nil” next year. Sudden increases in imports adversely affected domestic steel mills as their average capacity utilisation rates fell sharply to around 80% so far this year. The Centre for Monitoring Indian Economy (CMIE) has forecast average capacity utilisation of Indian steel mills at 82% for the 12-month period ending March 2016

as compared to 88% the previous year and 90% per cent in the financial year 2013-14. Steel mills, therefore, automatically adjust production in line with demand to avoid distress sales at a time when global prices continue to slide. Consequently, Indian steel mills went into the red between April – June 2015 with an average EBITDA (earnings before interest tax, depreciation and amortization) declining to the decade low of $62/tonne. “We are complaining about the unfair price at which steel is coming into India. With government support, China has been able to dump excess steel into India for years. Globally, fixed costs, including taxes on steel, come to $7-8/ton. For Indian players, however, it comes to about $41/tonne. Interest rates in India are between 10-11%, while in China, Korea and Japan, it is far lower. “There is no level playing field for domestic steel producers. Certainly, domestic steel players need protection,” said Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel.

Steel scene in India (million tons) Financial year (April - March)

Production

Import

Export

2014-15

91.46

9.32

5.59

2013-14

87.67

5.45

5.98

2012-13

81.68

7.93

5.37

2011-12

75.70

6.86

4.59

2010-11

68.62

6.66

3.64

Source: Joint Plant Committee

* India correspondent November/December 2015

INDIA UPDATE.indd 1

www.steeltimesint.com

11/18/15 10:32 AM

INDIA UPDATE

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at loggerheads

Industry sources believe imported steel is 15-20% cheaper than the prevailing price in Indian markets. Further, global steel prices have crashed 50% since September 2008 because of an unforeseen decline in global demand due to world recession. However, this happened after an unprecedented rally of 70-80% in steel prices during 2007. Chinese steel prices have been on a declining trend for the last three years falling by 50% since 2013 to unsustainable levels below $300/tonne in July this year. Demand weakness in China has led to an oversupply of steel in the global market. Weakness continued in domestic steel prices due to poor demand and higher supply, especially from rising imports. Duty protection Bearing in mind the import glut and the stress inflicted on the Indian steel industry, the Indian government recently increased import duty on finished steel by 5%. The government also imposed a 20% safeguard duty for a period of 200 days on specific grades of HR Coil comprising 35% to 40% of total production. Consequently, apart from restricting imports, these levies are set to arrest a prices free fall. Taking this opportunity, domestic producers raised steel prices by around $40/tonne with immediate effect. Meanwhile, consumer industries protested against the government’s duty hikes. “Only recently the Indian government increased basic customs duty twice by 2.5% making the effective rate 12.5% from 7.5%. With the 20% safeguard duty, the total effective levy would work out at 52% considering all other levies. So, the government is killing the rights of user industries to source cheap raw materials through imports,” said Mohan Gurnani, president of Federation of Associations of Maharashtra (FAM), a representative body of downstream user industries. Some claim that major Indian steel producers have made losses as a result of the steep fall in global prices and to make up for those losses have levied duties on steel users. The fact is that iron ore and coal prices have also fallen and production costs have gone down substantially. www.steeltimesint.com

INDIA UPDATE.indd 2

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China dominates agenda

Roughly 600 delegates attended the Brazilian Steel Association’s 26th annual conference in Sao Paulo in July, roughly the same as the previous year’s event. There were, however, fewer delegates from the financial sector, suggesting that the steel industry is less attractive for investors. As Germano Mendes de Paula* reports China took centre stage THE ancient Chinese used to believe that China was the centre of the earth and delegates might have been forgiven for thinking the same way as the word ‘China’ cropped up on more than one occasion. Ms. Haiyan Wang, a consultant from the China India Institute, delivered a presentation entitled China Steel Industry. It was divided into two parts: the first section dealt with macroeconomic performance, while the second was dedicated to the steel industry proper. Wang stressed that the ‘new normal’ concerning Chinese GDP growth is 6% per annum for the period 2015-2020, instead of 7% observed until 2014. However, India and China will continue to be the world’s growth engines in the coming years. Wang discussed Chinese demographics. For instance, the labour pool amplified from 756 million in 1980 to 971 million in 2010, but is expected to reduce marginally to 960 million in 2030. Meanwhile, the respective median age is 25.1, 34.5

and 42.5 years. The ageing population reached 202 million in 2013 (or 13% of the population and would reach 243 million (18%) in 2020 and 480 million (33%) in 2050. According to Wang, 40%-45% of Chinese debt relates to real estate, in which there is evidence of over-investment culminating in higher vacancy ratios and sharp growth rate reduction in terms of total floor space under construction (Fig. 1). It is worth remembering that 55% of Chinese steel consumption in 2013 was related to construction, followed by machinery (21%) and automotive (7%). Despite the retraction of automotive sales growth (Fig. 2), Wang predicts that passenger vehicle sales would achieve a 5% compound annual growth rate (CAGR) from 2014 to 2030. Wang highlighted that the Chinese steel industry was highly fragmented, with high excess capacity (~400 Mt/y), a low capacity utilisation ratio (64.5% in 2014)

25%

Year-over-year growth rate

Year-till-date change

20%

15%

0% May-12

and low profitability (0.85% gross margin). While the federal government determined guidelines towards consolidation, the outcome was a reduction in the degree of concentration. She mentioned that there were immense challenges to cut overcapacity, including the intention to maintain GDP growth targets; pressure on employment; and local government interests and support. By 2017 the federal government wants to cut capacity by 80Mt/yr. Of this amount, 60Mt/yr would be in Hebei Province. The consequences of the latter target will be a 10% diminution of tax receipts and 200,000 people unemployed. These two figures seem to be enough to magnify the difficulties of pushing ahead with capacity elimination. Wang also commented on increasing steel exports and depressing steel export prices, highlighting that Chinese steel exports skyrocketed 50.5% in 2014, in comparison with the previous year,

Nov-12

May-13

Nov-13

May-14

Nov-14

May-15

20%

15%

0% May-13

Sep-13

Jan-14

May-14

Sept-14

Fig 1. Total floor space under construction in China, 2012-2015 (y-o-y %).

Fig 2. Passenger car sales growth in China, 2013-2015 (y-o-y %).

Source: China’s National Bureau of Statistics

Source: China Automotive Information Net

Jan-15

May-15

* Professor in economics, Federal University of Uberlândia, Brazil. E-mail: germano@ufu.br www.steeltimesint.com

CONFERENCE REPORT Brazil.indd 1

November/December 2015

11/18/15 9:42 AM

CONFERENCE REPORT

while imports amplified by only 2.5%. At the same time, the average export price of steel products declined from $854/ tonne in 2013 to $755/tonne in 2014. Wang’s comprehensive presentation can be summarised as a discussion of the hurdles imposed by China on the global steel industry and how there is no easy fix solution. Raw materials Peter Poppinga, executive director of ferrous minerals at Vale, the Brazilian iron ore miner, analysed the global iron ore market. He said that world crude steel production (CSP) will grow at a slower pace, while iron ore supply has finally caught up with demand. Poppinga compared three periods: 2002-2007, when Chinese CSP enlarged by 21.9% per annum, in contrast to 3.5% for the rest of the world; 20082013, when the respective figures were 9.7% and -0.1%; and 2014-2019 in which

Vale is forecasting that China’s output will grow 1% while the rest of the world by 1.5%. In this new context, the potential supply of iron ore will grow faster than the respective demand, limiting the possibility of a considerable price recovery. Vale expects that iron ore prices will not decline further. Poppinga argued that historically this price has found resistance in the range of $45-50/dmt – dry metric tonnes – (Fig. 3). Nevertheless, he did not explain the reasons for this. Also, it seems that the price series considered nominal instead of real (deflated) prices. Another key feature mentioned by Vale’s director is the trend towards lower quality iron ore supply. As can observed in Fig. 4, the average iron ore content in sinter feed supplied by the ‘Big Four’ (Vale, Rio Tinto, BHP Billiton and Fortescue) in the Asian market dropped from 62% in 2000 to 60% in 2014. In his opinion, the issue of exhaustion of (high quality)

reserves has been underestimated. Thus, a considerable chunk of investments carried out by iron ore miners would substitute exhausted projects instead of adding new capacity. In other words, the global iron ore market will be less oversupplied than the current market perception. Stephen Duck, senior consultant of steel raw materials at CRU, examined the outlook for the global metallurgical coal market. He said that the Chinese coal industry remains oversupplied and that coal imports have been contracting sharply this year. The result? Intensified seaborne competition with Chinese producers and metallurgical coal spot prices that have fallen rapidly since January 2015 to the present day. The benchmark quarterly contract was settled at $93/tonne for Q3 2015, the lowest level since 2004. Duck explained that major seaborne suppliers in Australia and Canada have been announcing mine closures and cuts

200,0 180,0 160,0

140,0 120,0 100,0

80,0 60,0 60

40,0 20,0 -

Fig 3. Iron ore prices, 2008-2015 (US$/dmt). Source: Vale

Source: Vale

100

220

200

80 HCC

HCC

180

PCI

SSCC

160

140

120

SSCC

PCI

100

10 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig 4. Iron ore content average, Big 4’s sinter feed to the Asian market, 2000-2014 (%).

60 11

Fig 5. China’s metallurgical coal imports, 2011-2019 (Mt). Source: CRU

November/December 2015

CONFERENCE REPORT Brazil.indd 2

Fig 6. Metallurgical coal contract prices, 2012-2019 (FOB $/t). Source: CRU

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11/18/15 9:43 AM

CONFERENCE REPORT

of GDP growth rates between emerging and developing economies, which is bad for the business considering that emerging nations have spearheaded an increase in steel consumption in recent years. Worldsteel believes that Chinese apparent steel use will diminish slightly from 711Mt last year to 707Mt in 2015 and even 704Mt in 2016. Meanwhile, developing nations (excluding China) will achieve 415Mt, 425Mt and 442Mt respectively. The combined outcome will be a small improvement. In addition, developed countries will expand marginally

in recent months, in order to deal with the oversupplied market. However, from CRU’s standpoint, the drop in seaborne exports will not result in a significant price recovery this year. For the medium term, CRU predicts that China will experience zero growth in hot metal production until 2019 – reaching an 850Mt plateau. More importantly, the country’s metallurgical coal imports will plummet from 73Mt in 2014 to 50Mt in 2015 and even to 38Mt in 2019 (Fig. 5). Nonetheless, robust import demand growth from other markets – mainly India – will help to offset the decline from China. On the supply side, additional quantity from Mozambique, Mongolia and Russia will come online in the next five years. However, this trend seems insufficient to counterbalance the diminution of US exports by 40% between 2014 and 2019. The market is projected to rebalance between 2017 and 2019. CRU’s contract price forecast for hard coking coal (HCC) is roughly $100/t FOB in 2015, recovering partially to $150/t FOB in 2019 (Fig. 6). Worldsteel’s view Dr. Edwin Basson, director general of worldsteel, discussed the short-term outlook for the global steel industry, stressing first that the world macro environment remains difficult. In particular, there is a convergence in terms Mt 15

Dr Edwin Basson, director general of worldsteel

500

Net exports of steel products Indirect net exports of steel

from 412Mt to 413Mt in 2015 and 420Mt in 2016. This estimation is based on the short-term outlook released last April. An updated version was unveiled at the World Steel Association conference in Chicago earlier this month. Dr. Basson mentioned that world indirect exports of steel reached 315Mt in 2013. Of this amount, 67.2Mt came from China, which accounted for 21% of the global figure. Additionally, he stressed that world indirect exports expanded by 4.8% CAGR between 2000 and 2013, while steel products exports grew by 2.2% CAGR. The indirect trade of steel has been gaining greater importance and this trend will be reinforced in coming years. Fig. 7 shows that net indirect imports of steel in South America increased considerably, from zero in 2003 to 8.5Mt in 2013. This figure refers to the largest countries of the region (Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela), including intra-regional trade. It can be verified in the same graph that South America moved from a net surplus of roughly 12Mt of steel products in 2003 to a net deficit of some 2Mt in 2014. This is a significant change, which cannot be dissociated from the substantial amplification of Chinese exports. Dr. Basson revealed two interesting comparisons about the drivers of steel consumption. The first concerns fixed

ACSU per capita, kg

450 400

350 Argentina Brazil Mexico Thailand Malaysia Turkey

300

250

200

-5

100

150

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

50 -10

Fig 7. South America net exports, selected countries, 2003-2014 (Mt). Source: worldsteel. Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela. Intra-regional trade included.

100

Urbanisation, %

Fig 8. Apparent consumption of steel use (kg/inhabitant) and urbanisation (%) in selected countries. Source: worldsteel 800

1600

600

554

546

1200

443

400 200

800

290 189

154

219

224

200 51

123

400 -200 0

2005

2007

2008

2009

2010

2011

2012

-400

-164 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig 9. Brazilian flat steel imports from China, 2005-2015 (kt).

Fig 10. Brazilian net jobs at manufacturing companies, 2002-2014 (k).

Source: Ministry of Development, Industry and Foreign Trade (MDIC) and Usiminas

Source: Ministry of Labour and Employment

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CONFERENCE REPORT Brazil.indd 3

November/December 2015

11/18/15 9:43 AM

CONFERENCE REPORT

15 10

8.3

7,5 5

13,1

12 2,8

4,7

10,8 10

11,2

11,4

11,9 11,1

10,1

10,0

-2,6

-5

8 -10

7,8

-10,1 6

-15 2008

2009

2010

2011

2012

2013

2014

2015f

2008

2009

2010

2011

2012

2013

2014

Fig 11. Brazilian construction GDP, 2008-2015 (%). Source: Brazilian Institute of Geography and

Fig12. Brazilian apparent consumption of long steel products, 2008-2015 (Mt).

Statistics (IBGE) and ArcelorMittal

Source: Brazilian Steel Institute and ArcelorMittal

investment for the 2015-2030 period. It is expected to reach almost 8% per annum for India, which is preparing for growth due to renewed reform initiatives. A good performance (5% per year) is forecasted for ASEAN nations. In the Middle East and North Africa (MENA), the outlook – around 4% – is not as bright because of low oil prices and geopolitical instability. Russia, dogged by structural problems, will improve by 1% per annum while in Latin America, the disparity between Mexico (3.9%) and Brazil (3.2%) can be attributed to a strong reform agenda. This ratifies the current perception that steel market conditions in Mexico are better than in Brazil and will continue that way in the coming years. It is interesting to note that ArcelorMittal, ICH/ Simec, Gerdau and Ternium have plants in both countries and can counterbalance (at least partially) this disparity. Fig. 8 demonstrates that, long-term, the relationship between urbanisation and steel use per capita exists, but appears to be weaker in Argentina and Brazil than in Mexico and stronger in Thailand, Malaysia and Turkey. This reinforces the view that Brazilian steel consumption perspectives might not be so generous. Brazilian steel by locals Sérgio Leite de Andrade, vice-president of Usiminas, analysed the Brazilian flat steel market and focused on the problems affecting the domestic industry. He affirmed that Brazilian flat steel imports from China skyrocketed from 0.2kt in 2005, to 287kt in 2007 and to 1.3Mt in 2014 (Fig. 9). Considering the performance observed in the first five months of 2015, the volume is expected to reach 1.2Mt by the year-end. Andrade discussed the proliferation of trade protection measures adopted recently by the world steel industry and discussed those in place regarding steel products in Brazil. In Andrade’s opinion, trade protection measures alone are not enough, because the country’s indirect steel imports multiplied four times November/December 2015

CONFERENCE REPORT Brazil.indd 4

in 10 years, reaching 4.7Mt in 2014. The de-industrialisation process put serious constraints on expanding steel consumption in Brazil. The manufacturing industries accounted for 11% of Brazilian GDP in 2014. Fig. 10 demonstrates the evolution of net manufacturing employment in Brazil, during the period 2002-2014. It can be concluded that, in 2014, manufacturing companies sacked more people than they hired and that 164,000 manufacturing jobs were lost last year. Usiminas’ vice president contrasted per capita steel consumption in Brazil and South Korea. In 1970, the respective figures were 48kg and 51kg per inhabitant. In 1980, while Brazilian demand doubled to 100kg, South Korea climbed to 160kg. Since then, Brazil has hovered around the same plateau, declining to 93kg in 2000 and increasing to 126kg in 2014. In the interim, this index in the Asian nation rocketed to 818kg in 2000 and to 1,119kg in 2014. Andrade said that South Korea has highlighted high-tech industry. Investments in R&D as a proportion of GDP were higher than 2%, overcoming the European effort. Education, particularly engineering and ‘hard science’, was a national priority. Brazil has not followed the same agenda. Another Brazilian disadvantage is low infrastructure investment, which reached only 2.4% of GDP in 2014. The same ratio was 13% in China, 10% in Vietnam, 6% in India and 5% in Chile. To achieve the same level as the developed nations, an investment of between 4% and 6% is needed over the next 20 years. Jefferson de Paula, CEO of ArcelorMittal Long Steel, Central and South Americas, discussed the Brazilian long steel market. GDP growth has been fairly disappointing, during president Dilma Rousseff’s two terms (2011 to 2018). The construction industry is responsible for 65% of long steel demand and is expected to retract for the second consecutive year. After an impressive 13.1% expansion in 2010,

2015f

construction GDP growth declined to 8.3% in 2011, 2.8% in 2012, 4.7% in 2013 and negative figures of -2.6% in 2014 and -10.1% in 2015 (Fig. 11). Fig. 12 shows the evolution of apparent long steel products consumption in Brazil. It expanded from 10.1Mt in 2008 to 11.9Mt in 2013, but reverted backwards towards 11.1Mt in 2014 and is likely to decline further, to 10.0Mt, in 2015. ArcelorMittal believes that the peak demand of 2013 could be achieved again in 2021. Over the same period, long steel imports amplified from 0.8Mt in 2008 to 1.6Mt in 2013, with a marginal diminution to 1.5Mt this year and last. Accordingly, the import penetration ratio enlarged from 8% to 15% between 20082015. Mr. de Paula also mentioned that Brazil’s long steel capacity would rise 2.2Mt/yr in 2015 and 0.5Mt/yr in 2016, due to investments carried out by ArcelorMittal (1.05Mt/yr), Silat (belongs to Añón, 600kt/yr), GV do Brasil (controlled by Simec, 500kt/yr) and Sinobras (500kt/yr). The combined capacity will reach 16.1Mt/ yr in 2015 and 16.6Mt/yr in 2016. The utilisation capacity ratio will decline from 63% to 61%, respectively. This last value is quite low even considering the context of the sectorial crisis. The fact is that new capacity was planned during the bonanza times, but, unfortunately, the projects were concluded when the market was depressed. Overcapacity in the Brazilian steel market is not just a temporary hurdle. It will take some years to be solved. During this time, the domestic industry will continue to be pressed by direct and indirect imports. The strong currency devaluation, verified this year, will foster the Brazilian industry, in general, and the Brazilian steel sector, in particular. However, this relief seems insufficient to generate good profits. The Brazilian steel industry demands structural reform, but under an extreme political crisis, it is hard to believe that these issues can be addressed in the short-term. t www.steeltimesint.com

11/18/15 9:43 AM

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IRONMAKING

Low-cost steel from low-cost scrap Steelmakers worldwide, both integrated and ‘mini-mill’, are striving for increased competitiveness in today’s downturned economy. Using ‘low-cost scrap’ is not the solution. Rather a materials Value In Use (VIU) program must be defined and incorporated into the analysis. By Sara Hornby*

STEELMAKERS worldwide, both integrated and ‘mini-mill’, are striving for increased competitiveness in today’s downturned economy. For a Basic Oxygen Furnace (BOF) the ‘scrap charge’ is 10% to 15% of the conversion cost of one tonne of liquid steel in the ladle (exceeded only by hot metal (HM) impact). Optimisation represents the ‘biggest bang for the buck’ and, when focused on charge make-up, purchasing and real-time process control should help steelmakers reduce their liquid steel cost. This requires in-depth knowledge of steelmaking, metallics markets (worldwide and local), site specific operating data, and mill constraints. Using ‘low cost scrap’ is not the solution. Rather a materials’ Value In Use (VIU impact on consumables, environmental constraints, yield, chemistry) must be defined and incorporated into the analysis. Combining all this knowledge will allow the creation of a dynamic programme to assist mills in producing low-cost liquid steel with significant financial savings. Impact on metallics Today’s more competitive market necessitates that mills understand the impact of metallics on the melting system from the initial purchase price to the ‘conversion costs’ from charge to semifinished or finished product. ‘Expert’ programs created by mills and commercial vendors are available to help steelmakers produce “lowcost liquid steel” of the correct quality. These programs consider all the factors influencing the cost of producing a tonne of steel (for example, metallics, operations – oxygen, flux use, slag creation and disposal, melting and casting yields, mill constraints). Steel makers agree that low-cost steel doesn’t result from low-cost scrap. However, how many steelmakers truly quantify the effect of ancillary process

Fig 1. Cost Breakdown to Produce 1 Tonne of BOF liquid steel (1)

Interest: 10.86%

Depreciation: 8.99% Labour: 3.33% Electricity: 2.28%

Ore: 38,70%

Energy & by product credits: -10.30% Other: 2.7% Refractories: 1.34% Fero alloys: 4.33% Coke: 21.34%

Fluxes: 4.97% Oxygen: 1.32%

variables on the cost of liquid steel in the ladle? Enter industry suppliers. Considering a nominal 75% HM/scrap ratio in the BOF, savings of $0.50/tonne of liquid steel (Tels) in the ladle ($2/Tels from scrap charged) would represent millions of dollars/year savings and significantly improved competitiveness for an integrated mill. Success of an optimisation system is driven by the intimate knowledge of melting practices and metallics’ value in use (VIU). In BOF mills, pre-blended charges based upon recent, historical, hot metal (HM) chemistries are made up and finished once final HM chemistry is known. Programs allow rapid completion of final charges. In BOF steelmaking, scrap is approximately 10% of the cost of liquid steel, with 60% being ore and coke (Fig 1) (1). With 20% to 25% scrap charged to the BOF, considerable savings are available by optimising scrap charges. BOF scrap and alternative iron unit requirements were not included in Midrex’ 10-year forecast for future metallics

Scrap: 10.16%

balances (2). As scrap charging to reduce cost and/or compensate for low HM availability in BOFs was not considered, the increased future scrap shortfall will drive cost escalation (supply and demand), greater use of secondary scrap and more efficient use of returns. Such a market would increase further the value of optimisation programs. The use of a statistical process control tool is invaluable in assisting mills to operate when forced to use more secondary material, while satisfying chemistry requirements, and optimising their melting process. Further, nontraditional charge mix use requires a longterm consideration of future orders and statistically predicted HM availability and composition. Optimisation requires monthly assessment of the orders, inventory (in-house and en-route), site-specific constraints, and scrap market data. Coupled with the VIU of metallics, various charge mixes can be evaluated and a “buy-plan” defined. Plant constraints are a factor, related to residual elements,

* President, Global Strategic Solutions, Inc. 16317 Woolwine Road, Charlotte, NC 28278, USA Tel: 704-488-7969; shornbyanderson@carolina.rr.com www.steeltimesint.com

IRONMAKING s brown.indd 1

November/December 2015

11/18/15 9:52 AM

IRONMAKING BOF

User mix

known operational constraints – such as specific limits for scrap type or scrap size – and standard operating procedures (SOPs) for HM chemistry and temperature, oxygen blow, carbon turn-down, flux type and so on. Any optimisation programs must quantify their consequential costs individually or en masse. VIU is not a new concept (3, 4, 5, 6, 7), rather it forecasts the impact of ‘scrap’ on process costs (yield, environmental, slag etc.) precluding nefarious assumptions regarding materials’ costs and their impact on the bottom line semi-finished steel cost. Of course, best laid plans often go to waste. Any optimisation program must, therefore, be able to recalculate new charge mixes rapidly to compensate for unavailability of charge material(s) and still provide the next lowest cost steel solution. Constraints and optimisation Mills have experientially developed their own site-specific practices considering local market conditions. Site-specific constraints include HM chemistry, temperature, carbon end-point, oxygen, fluxes, coolant use and so on as well as scrap type and size. Charge mix constraints (minimums or maximums) often prevent operational issues such as meltability (slabs or heavy, dense, materials), smoke and environmental (total amount of no. 2 bundles), allocation of home scrap, residual fliers (heavy melt, unsegregated home scrap) etc. Examples have been given in previous papers (1, 7). With plant-specific constraints – operational and chemical – input to an optimisation model can be assessed and the charge mix optimised. Defining the ‘cost of each constraint’ is invaluable, often leading to practice changes. Table 18 considers a mill producing steel for appliances, oil pipe, automotive, tin plate, low quality flat and plate markets and shows how five different constraint cases affect the current BOF charge (user mix) when using Tube City’s Scrap OptiMiser® System. The optimised scrap mixes for some of these grades required two box charges: Case one restricted the use of higher residual scraps, such as #1 HMS and tin can bundles, resulting in savings of $1.84/t ($2.02/Te; $712k/month). Case two mandated a one-box charge (preferred by most shops) which reduced average savings to $1.14/t ($1.25/Te; $444k/month). In both cases, HMS and tin can bundles were not allowed to make the first four steel grades (appliance, pipe, auto, tin plate). In Case three, the one-box constraint was maintained and Table 1 . Mix summary showing various constraints and savings available 8

November/December 2015

IRONMAKING s brown.indd 2

Case#1

Case#2

Case#3

Case #4

2 boxes

Limit

HMS in

TC bundles in

2 box

1 box

low cu heats

charge

Optimised

User mix

Opitimised

Percentage Of Metallics Used

Case #5

Hot Metal 1

78.6%

78.60%

Iron Ore

0.0%

0.00%

Scrap Grades (% Scrap Only) Factory Bundles

17.3%

9.2%

10.10%

11.40%

10.30%

8.90%

#1 Dealer Bundles

25.8%

4.1%

4.80%

3.10%

1.10%

9.1%

9.10%

#1.5 Bundle

7.6%

Shred

3.5% 17.6% 18.40% 17.20%

17.90% 18.50%

5’ P & S

21.6%

29.3%

16.10%

12.50%

12.80%

24.70%

#1 HMS

3.1%

6.2%

6.20%

11.50%

13.10%

DRI/HBI

0.0% 0.0% 10.80% 10.80%

11.40% 0.00%

Tin Plate Bundles

1.6%

1.4%

1.40%

1.30%

Tin Can Bundles

0.8%

1.3%

1.20%

1.30%

Home Sheet

10.9%

12.7%

0.13

12.70%

7.9%

9.1%

9.10%

Pit/Skulls Revert

1.40%

Totals/Averages

100.0% 100.0% 100.0% 100.0%

100.0% 100.0%

Grand Total

383,400 383,719 384,276 384,300

384,360 383,820

Average Chemistry Copper

0.04% 0.04% 0.04% 0.04%

0.04% 0.05%

Nickel

0.02% 0.02% 0.02% 0.02%

0.02% 0.02%

Chrome

0.03% 0.03% 0.03% 0.03%

0.03% 0.03%

Moly

0.004% 0.004% 0.00% 0.00%

0.00%

Tin

0.005% 0.005% 0.01% 0.01%

0.01%

0.10%

0.11% 0.11%

Total (Cu, NI, Cr, Mo, Sn) 0.094%

0.107%

0.10%

0.01%

Mixture

0.094% 0.107% 0.10% 0.10%

0.10%

Carbon

0.13% 0.13% 0.13% 0.13%

0.13% 0.13%

Manganese 0.08% 0.09% 0.08% 0.08%

0.08% 0.09%

Sulfur

0.009% 0.010% 0.01% 0.01%

0.01%

Phosphorus 0.004% 0.004% 0.00% 0.00%

0.00%

Average Operating Variables BOF Yield,%

90.3%

Consumptions

90.2%

90.10%

90.00%

90.20%

Lime, Lb/nt steel

133

135

139

Dolo, Lb/nt ladle steel

118

120

123

124

121

2,244

2,261

2,259

2,260

2,262

2,265

Slag, Lb/nt steel

302

307

313

314

315

308

Dust, Lb/nt steel

120

121

123

124

122

Oxygen, Ft3/nt steel

Metallics and Heat Data Scrap Box Density (#/ft3) 69

136

Scrap Boxes per Heat

1.05

1.14

0.99

1.14

Blowing time, min

24.5

24.7

24.8

Tap to Tap Time, min

47.6

48.0

47.7

Ave. prod’n/BOF, nt/h

296.1

293.8

295.7

295.4

293.6

Days Required

27.3

27.5

27.3

27.5

111,392

111,484

111,651

111,660

111,673

111,510

Total HM Charged, nt 337,630

337,912

338,396

338,416

338,473

338,003

Total Scrap Charged nt 91,898

91,974

92,112

92,119

92,131

91,996

Total Metallics nt

429,528

429,886

430,509

430,536

430,604

429,999

Ladle Tons, nt

387,750

Charge weight, lbs.

Overall Cost Data Hot Metal

$245.64

Iron Ore

$0.00

Scrap

$70.69

$68.48

$68.19

$67.89

$67.64

$67.84

BOF Yield Loss

$34.08

Total Metallics Costs $350.41

$245.64

$34.13

$34.60

$34.59

$34.62

$34.16

$348.25

$348.44

$348.12

$347.91

$347.64

Conversion Costs, $/nt ladle steel

Lime

$7.99

$8.11

$8.32

$8.34

$8.36

$8.15

Dolomite

$7.08

$7.19

$7.38

$7.39

$7.42

$7.23

Oxygen

$4.49

$4.52

$4.53

Desulfurization

$2.65

Slag disposal

$1.53

Fume disposal

$6.01

$6.07

$6.17

$6.18

$6.19

$6.09

Total Conversion Cost $29.75

$30.07

$30.57

$30.62

$30.68

$30.19

Total Steel Cost

$380.16

$378.32

$379.01

$378.74

$378.59

$377.83

Other BOF Costs

$35.00

Ladle cost, $/nt

$415.16

$413.32

$414.01

$413.74

$413.59

$412.83

$160,976,954

$160,264,841

$160,533,266

$160,427,773

$160,369,698

$160,075,697

$1.84

$1.14

$1.42

$1.57

$2.32

$712,112.58

$443,687.88

$549,181.13

$607,255.91

$901,257.00

Total Ladle Steel $/mo. Saving vs. User Mix, /nt Monthly Saving vs. User Mix

www.steeltimesint.com

11/18/15 9:52 AM

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$1.50 $1.00

$20

$0.50 $0.00 -$0.50

User mix Case #1 2 boxes

-$1.00

Case #2 Case #3 Case #4 Case #5 1 box HMS in low TC bundles 2 box limit Cu Hts in low cu charge hts

$9.28

$10 $5.22 $5.78

-$1.50

$0.15 $0.81

-$2.00

Jan - Feb - Mar - Apr - May - Jun 12 12 12 12 12 12

-$2.50 -$3.00 -$3.50

$3.76 $1.77 $0.98

$4.80

$4.75 $0.11

Jul - Aug - Sep 12 12 12

Oct - Nov - Dec 12 12 12

-$10 Scrap cost

BOF yield costs

Conversion costs

Savings

Fig 2. Cost comparison of cases one to five versus the user mix in table 18

10% HMS was allowed in the four (4) steel grades. This increased the savings to $1.42/t ($1.56/Te; $549k/month). The cost of not using #1 HMS is $0.28/t ($0.31/Te). Adding 5% tin can bundles to the first four grades (Case four), increased savings to $1.57/t. Case five removed the one-box constraint, but maintained the use of HMS and Tin Can bundles in the first four steel grades, which increased the savings to $2.32t ($2.55/Te; $901k/ month). Constraining to one box costs $0.73/t ($0.80/Te). The ability to quantify costs related to individual constraints allows a shop to focus on practice improvements that most impact the bottom line. Trust relaxes constraints and presents substantial savings.

Fig 3. Monthly savings ($/GT) against RMDAS Flatroll Group

Metallics User Mix

SO SO with Mix Hi HM

% Hot Metal 74.1% Iron Ore

1.3%

BOF Yield

90.7%

90.9%

#1 Dealer Bundles

3.4% 0.0%

Rail & Wheels

1.1% 0.0% 6.5% 10.5% 11.3%

Shred

6.8% 12.3%

#1 HMS

2.2% 18.5% 22.3%

#2 Bundle

0.5%

13.6% 0.0%

Industrial Bundle

4.9% 0.0%

Muni Tin Bundles HBI

1.0%

1.2%

2.3% 0.0%

Burned Heavy

5.1%

Burned Slabs

5.9%

Burned Tundish

2.0%

Crop Ends

7.4%

0.0%

De-Tin Bales

2.3%

2.2%

Scrap availability and chemistry It is extremely important to determine and maintain scrap chemistry data, preferably by grade and supplier. Knowledge of local availability and purchase price blocks ensures the best ‘buy’. The cost must consider transportation and site-specific demand constraints, along with inventory, projected inventory and anticipated home revert generation (skulls, steel, any returns to the furnace(s)). Scrap chemistry and impact on yield, meltability and other process costs (VIU) might promote a more expensive scrap to offset low-cost scrap conversion, thereby lowering ultimately the liquid steel cost.

Kish 2.0%

November/December 2015

90.6%

5’ P & S

Mandrels Sheet

Results Table 2 shows Scrap OptiMiser® (SO) mixes versus the original BOF ‘User Mix’.

78.4%

Scrap Use

Low-cost scrap impact Table 1 and Fig 28 show scrap and total metallic costs are highest in the user mix though the conversion costs and BOF yield losses are the lowest. Fig 2 shows the non-linear inter-relationship between conversion, yield and scrap costs and savings. The best mix ensures the highest savings within chemistry and operational constraints.

IRONMAKING s brown.indd 3

$3.67

2.3%

6.1%

Pit Cast Iron

1.2%

Prep Coils

10.2%

Skull Pit

8.8%

Slabs 2.1% Slitter 3.1% #1 Bundle, BB & Home

4.9%

Mixed Maint.

1.1%

MD Piglet Iron

0.5%

High Sulfur Iron

1.9%

Fritz Reclaim

0.4%

Inter company

0.2%

100.0% 100.0% 100.0%

Table 2. Examples of original user mix versus the optimised mix 8

The major differences between the User Mix and Optimised Mixes are highlighted. The most significant changes are increasing #1 HMS nine fold (2.2% to 18.5%), doubling the shred (6.8% to 12.3%) and a 60% increase in P&S use (6.5% to 10.5%) while the #1 Dealer bundles, rail and wheel, #2 bundles, de tinned bales, industrial bundles and HBI are negated in the optimised mix. When %HM was increased to 78.4%, shred was reduced 5% (12.3% to 7.4%) and #1 HMS and P&S were increased by 4% and 1% respectively (to 22.3% and 11.3%).

As can be seen in Fig.3 below, the year’s average saving of $2.81/GT purchased was achieved by the mill as compared to the average scrap price defined by the Raw Material Data Aggregation Service (RMDAS) Flatroll Group. Monthly and annual savings will be dependent upon the optimisation program, operational learning curve, desired scrap availability and prices, grades produced, changes in shop productivity, order book and inventory as well as constraints in place. Summary An optimisation program will assist operating and purchasing personnel to make informed decisions that will impact directly, and significantly, the bottom line. Optimisation should be used to evaluate the market relative to the production plan on a regular basis due to scrap market volatility, changes in production tonnages, order book mix and steel chemistry requirements. In BOF mills, rapid charge finalisation on receipt of HM chemistry is a ‘must’. Any optimisation program must consider scrap availability, pricing blocks, inventory, materials’ VIU and be able to predict the cost impact of site-specific constraints. This will ensure required product chemistry at the lowest liquid steel cost is achieved. Savings can be between $2.2/Tels and $6.6/Tels, though mills have saved in excess of this (examples show up to $9.28/t ($10.21/Te) savings with the Scrap OptiMiser® System). Scrap chemistry is important in lowcost steel production. Typically, the lowest cost metallic input does not the lowest cost steel create! One should never underestimate the impact of the VIU and chemistry of a material, or the cost impact of constraints, when considering the charge mix (higher HM charge herein showed a loss of -$8.19/t ($9.01/Te) while a change in scrap produced a $2.30/t ($2.53/Te) saving. Changing the operating variables in the second example showed www.steeltimesint.com

11/18/15 9:52 AM

IRONMAKING

the optimised case to have the highest saving ($2.32/t ($2.54/Te; $910k/month)) while various constraints whittled savings down to $1.14/t ($1.25/Te; $444k/ month)). Conversion costs can turn low-cost scrap into more expensive liquid steel. Familiarity and trust in an optimisation program will challenge preconceived notions about scrap use, promote unbiased cost comparison of scrap input changes and allow more cost savings benefits to be reaped. t References 1. Steelonthenet.com – 2011 production costs for 1 Million Tonne / year EAF Steel Mill and a 3 Million Tonne/ year BOF Steel Mill in Japan. 2. Midrex Technologies Inc. – 2011 World EAF Metallics Balance. 3. Future Green Steelmaking Technologies – Impact of New AIS on Steelmaking Energy and Emissions; S. Hornby Anderson, G. E. Metius, ISS EF Conference, San Antonio, TX, November 2002. 4. Influence of AIS Chemistry on EAF Steelmaking Economics, S. Hornby Anderson, G. E. Metius, ISS EF Conference, San Antonio, TX, November HP 2002. AM5852_STI 11/11/2015 16:43 Page 1

5. Iron and Steel Society DRI and HBI Short Course, ISSTech, Indianapolis, IN, April 27th 2003 (www.iss.org). 6. Midrex Melting Seminar, May 2000, Tuscaloosa, AL. 7. Lowest Cost Metallics Input Does Not

Lowest Cost Liquid Steel Create!, S. Hornby, AIST Specialty Conference, Scrap Supplements and Alternative VI. 8. Low-Cost Scrap Does Not Low-Cost Steel Make, Sara A. Hornby, AISTech May 2013, Pittsburgh, PA

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CONFERENCE REPORT

Mining and raw materials Steel Times International sent Joe Poveromo* to Duluth, Minnesota, USA, to report on the combined Society of Mining Engineers and Canadian Institute of Mining conferences, held 13-15 April. He also reports from Metal Bulletinâ&#x20AC;&#x2122;s 21st International Iron Ore Symposium in Vienna, which took place 1-3 June SOCIETY of Mining Engineers (SME) 88th Annual Meeting â&#x20AC;&#x201C; Minnesota Section, 76th U. Of Minnesota Mining Symposium, Apr. 13-15, 2015, Duluth, Minnesota This annual meeting attracts the taconite pelletising plants in Minnesota and Michigan and the vendor base that supplies them. Conference attendance was again very high, > 500, but lower than last year as the local mining economy is feeling the effects of problems (excessive steel imports) facing its mainly BF/BOF customer base as well as very low iron ore prices. The strength and variety of the technical programme (four parallel sessions), helped to maximise the turn-out. Opening plenary: Mining industry outlook Steven Gardner, president of the Society of Mining Engineers (SME) outlined key mining issues: productivity, matching supply to demand and commodity pricing, capital availability and resource nationalism. The environmental opposition to existing and new mining projects for any commodity was outlined along with suggestions for engaging and educating the public. The role of direct reduced iron (DRI) and its impact on iron ore demand was outlined by the Natural Resources Research Institute (NRRI) via a comprehensive look at changes in the NAFTA steel industry and potential for DR grade and DRI production in Minnesota. As shown in Fig 1, taconite (magnetite)based pellet production currently serves only the BF/BOF steelmaking route, but the EAF route (partially fed by DRI) is

growing in the USA whereas over 12Mt/yr of BF capacity has been shut down in the past 10 years, reducing BF pellet demand by nearly 18Mt/yr. The focus of the technical sessions covered a wider range than iron ore, dealing with industrial minerals, non-ferrous metals and a variety of environmental, health and safety, educational and social impact issues; some highlights follow.

for industrial minerals were outlined by Karl Everett Associates. The general relationship between exploration results, mineral resources and mineral reserves is shown in Fig 2. Another focus was on frac sands, a rapidly growing market in the upper Midwest of the USA due to the sharp growth in fracking-based production of oil and natural gas.

Industrial minerals Professor Kenneth Reid offered some cause for optimism based on projections for global consumption of minerals. Average commodity growth was over five times population growth for 24 commodities. Resource evaluation and mine planning

Social license and responsibility The ERM Group provided a good overview of issues leading to mining opposition summarising the outcomes of high public opposition, all leading to delays and potentially project failure, as illustrated in Fig 3.

Electric Arc Furnace produces molten steel

Steel refining facility

Iron ore

Coal injection

Iron ore Continuous Casting:

Coal

Direct reduction produces solid metallic iron from iron ore

Slabs Thin slabs Recycled steel Basic Oxygen Furnace produces molten steel

Coke over

Blooms Billets

Coal by-products Limestone Blast Furnace produces molten pig iron from iron ore

Pig iron casting

Taconite pellets only serve this part of US Steel Industry

Fig 1. Processes used to make steel

* JJPoveromo, Raw Materials & Ironmaking Global Consulting; 1 (610)-974-9553; joe.poveromo@rawmaterialsiron.com www.steeltimesint.com

CONFERENCE REPORT poveromo.indd 1

November/December 2015

11/18/15 8:56 AM

CONFERENCE REPORT

Exploration results

Mining project delays (2008 – 2012)

Mineral resources

Delayed Increasing level of geoscientific knowledge and confidence

46%

Inferred No delay reported, project in progress

Probable

Indicated

Measured

Proven

Consideration of mining, processing, metallurgical, economic, marketing, legal, environmental, infrastructure, social and governmental factors (the “Modifying factors”)

Fig 2. General relationship between exploration results, mineral resources and mineral reserves. Reference: The SME guide for reporting exploration results, mineral resources and mineral reserves

Delivered on schedule 0%

Revenue sharing Technical challenges

30%

No details available 50%

Europe

China Africa (excluding S. Africa

India

SE Asia (excluding China)

Brazil South America (excluding Brazil) South Africa

Australia (including New Zealand

2013 World Production (42 leading Producing Countries) 3.060 Mt, gross weight

Fig 4. Global iron ore production in 2013 - by iron content,million metric tons (Mt)

Processing An excellent overview of the Canadian iron ore industry by Met-Chem included both future projects and some recently shut down: Bloom Lake, LIM. Other presentations covered selective flocculation, destructive vibratory energy in grinding, advanced control for grinding mills, advanced process simulations, tailings disposal and mine land reclamation, spiral concentration, grinding, maintenance, project management and boron addition to improve pellet properties. Environmental and policy There were presentations on air quality, environmental due diligence, environmental crisis management and tailings dam failures. The SHE Group examined a number of global tailings dam failures in South Africa (Merrispruit), Italy (Stava), Canada (Mt. Polley) and West Virginia (Buffalo Creek) followed by suggestions for both avoiding and dealing with imminent failures. Canadian Institute of Mining Iron Ore Symposium This was the second time (Duluth was the venue in 2013) that an Iron Ore Symposium November/December 2015

CONFERENCE REPORT poveromo.indd 2

42% 35% 23% 6% 6% 3%

Non technical causes 35%

6% 3% 6%

Other causes

* Does not sum to 100% due to multiple causes of delays

Fig 3. Less than a third of mining projects were delivered on schedule. Source: ERM Analysis

Central Asia

USA

Social opposition Environmental concerns Permitting issues Land access Health & Safety Extreme weather Commercial issues

24%

Russia

Canada

Mexico

Causes of delay*

Mineral reserves

was conducted jointly between the SME Duluth Section and the Canadian Institute of Mining (CIM). Conference attendance was only moderate as the participation was minimised by shutdowns in both Minnesota and Canada. Highlights follow: • Review of iron ore resources – The US Geological Survey outlined global iron ore production by region (Fig 4). Shortterm and five-year changes in iron ore spot prices were also discussed. • New project developments – The North American Iron Corp. (NAIC) advocated overcoming low iron ore prices by adding value to iron ore by producing merchant pig iron for foundry and steel sectors via a rotary hearth furnace/ submerged arc furnace combined process; they are exploring sites in either Ohio or Saguenay, Quebec. • The Oceanic Iron Ore Corp noted that its Hope’s Advance project (planning production of 10Mt/yr) claims low costs as it is located on the coast of Ungava Bay so no rail infrastructure is needed and significant CAPEX and OPEX savings are realised. • New Millennium Iron (NML) outlined its taconite project in the Labrador Trough, an ambitious project to produce

20Mt/yr (including 15Mt/yr of pellets) of magnetite concentrate with slurry pipeline connection to pellet plants and port on St. Lawrence River; OPEX would be low, but high CAPEX. • Carbontec Energy Corporation outlined its E-Iron Nugget Process, a plant to produce 100kt/yr of pig iron nuggets in North Dakota, using concentrate from Minnesota and biomass, natural gas from North Dakota; their process involves a linear hearth furnace. • Concentration and pelletising of iron ore – researchers from COREM, the Quebec provincial research lab, showed how applied mineralogy can be used to assess ore characteristics and to link them to the concentration processes. Plenary session Laura Brooks of CRU observed that:• drastic price reductions have focused on fines leaving lump ore and pellet producers not as badly affected; • currency changes have also benefitted lump ore producers in Australia and South Africa, and pellet producers in Canada and Brazil; • low prices have forced out nontraditional suppliers, high cost private coastal mines in China and junior miners everywhere; • cost-cutting at mines includes both controllable (strip ratios) and uncontrollable (currency, oil, freight) costs; • more capacity displacement from China is needed. ArcelorMittal Mines Canada’s presentation outlined the expansion of concentrate capacity to 24Mt/yr while the pellet plant produced over 9.2Mt/yr. Cost reductions of 30% (relative to 2011 costs) are being achieved. Adriana Resources’ project to produce 50Mt/yr of high quality concentrate is now relying upon a slurry pipeline and a government-built port to reduce OPEX and CAPEX, respectively, while also depending www.steeltimesint.com

11/18/15 8:56 AM

CONFERENCE REPORT

Iron ore is not in oversupply - fines are in oversupply The relative proportion of lump and pellets available to the market is decreasing - The proportion of pellet and lump supply available to the seaborne market is decreasing relative to fines yet remain broadly in balance throughout 2015 Proportion of lump/pellet in burden and pellet pellet supply

lump Pellet supply

Proportion of lump supply

Lump supply

Iron ore is not in oversupply - fines are in oversupply The increase in fines production compared to sinter proportion of the burden mix in Chinese BF’s correlated well throughout 2013... - The proportion of fines supply available to the seaborne market is increasing, however, the proportion of sinter used in Chinese BF’s is remaining consistent, extending this chart may show a bigger gap in years to come Fines Sinter

Reported proportion of fines production

76 39

75 74

upon WISCO in China as strategic partner for offtake. Innovations Autogenous grinding feed silo operation optimisation using a 3D vision system was outlined by COREM and ArcelorMittal Mines Canada investigators. Particle size distribution of crushed iron ore on conveyors is measured and the data is then related to grinding mill parameters. Met Chem provided a critical review of six key technologies for fine iron ore processing: HPGR (High Pressure Grinding Rolls), Derrick stack sizers, vertimills, flotation, reflux classifiers and pelletising. Metal Bulletin’s 21st International Iron Ore Symposium, Vienna, Austria, June 1-3, 2015 Metal Bulletin has organised this iron ore symposium for the past three decades at venues in Europe. With the sharp decline in iron ore prices, overall attendance dropped to below 200, although it had been declining from over 300 before the fiscal crisis when nearly all iron ore producers and European steel producers attended. The event is now European-focused with very few attendees from the AsiaPacific, the current centre of gravity of the iron ore world. Keynote presentations Fidel Blanco, Vale’s senior managing director for iron ore sales for Europe and North America, noted that global crude steel production will grow by 1.8% between 2014 and 2019, but that seaborne iron ore supply will grow 4.2% over the same period, thus intensifying oversupply and putting pressure on prices and higher cost iron ore competitors. Vale is moving aggressively to increase iron ore supply, quality and logistics by: • improving Southern system fines through upgrading to reduce SiO2 + Al2O3 to below 3% • developing a new sinter fines www.steeltimesint.com

CONFERENCE REPORT poveromo.indd 3

Apr 15

Jan 15

Oct 14

Jul 14

Apr 14

Jan 14

Oct 13

Jul 13

Apr 13

Jan 13

Oct 12

Mar 15

Dec 14

Sept 14

Jun 14

Mar 14

Dec 13

Sept 13

Jun 13

Mar 13

Dec 12

Sept 12

Fig 5.

Jun 15

Fig 6.

product known as BRBF, by combining fines from the Northern and Southern system to optimise Fe, SiO2, Al2O3 and P levels, • ramping up the Malaysia distribution centre to a capacity of 60Mt/yr • proceeding to complete the Carajas expansion, S11D, capacity 90Mt/yr, with start-up by H216. MacKinsey’s Dedrik Tas outlined the following:• About 500Mt/yr of new iron ore capacity will be needed (replacing depleting mines) over the next decade with most coming from the ‘Big Three’ and select new projects such as Roy Hill, leaving very little space for other new entrants. • Slowdown in China’s pig iron production combined with increased supply made iron ore prices fall to historic low levels throughout 2014 and into 2015. • Currency shifts and decreased energy costs have mitigated a portion of the crash in iron ore prices as the 90th percentile cash costs have decreased from $82 to $64/tonne from 2013 to 2015; over the past year a 35% drop in iron ore prices in US dollar terms translates to decreases of 22% and 11 % respectively, in Australian and Brazilian currencies. Anglo American Iron Ore’s presentation emphasised three standard products from two locations: Minas Rio in Brazil and Kumba in South Africa: • Kumba Standard High Grade Lump (64.0% Fe) and Standard HG Fines (63.5% Fe ) • Minas-Rio BF and DR Pellet Feed (67.2% Fe) Minas Rio started up in late 2014 and expects to ship 11-14Mt/yr this year and ramp up to 26Mt/yr. Kumba exported 42.5Mt over the past four quarters; Kumba production included 28.5Mt of lump ore. Quality session The Minerals Value Service presentation

showed how: • Chinese concentrate pricing has decreased at a slower pace than imported fines, but even with higher prices, local Chinese concentrates have decreased in supply far less than expected; it is presumed that “soft costs” (taxes, royalties) have decreased for local Chinese producers. • Tough new Chinese environmental regulations will mainly affect smaller and older Chinese mills that cannot afford environmental equipment; nearly all mills of 3Mt/yr capacity or more will continue to operate sinter plants but with SO2 capture facilities installed. • Fines are the only iron ore class to have significantly increased in supply over recent years from 460Mmt (metric tonnes) in 2010 to 690Mmt in 2014 averaging an approximate 7.5% increase each year while pellet supply increased from 180Mmt to 200Mmt in 2014 averaging an approximate 2.5% increase each year (Fig 5 and Fig 6) Samarco’s presentation outlined the evolution in a three-year period with the start-up of pellet plant IV in 2014.

2013 2014 2015e

Employees 2,899 3,050 2,970 Contractors

3,492

3,450

3,215

Pellet sales, MT

21.1

24.1

29.7

Increases in specific capital costs of Samarco’s pellet plants since 1997 follow from mine, concentrator, infrastructure and environmental investments: Year Capital cost, $/AT

1997 92

2008 2014 271

352

Hatch’s David Tucker, provided sizing definitions:Pellets: 8mm – 20mm diameter Lump: 6.3mm – 30mm Fines: <6.3mm, P50 1-2mm Concentrate 0.3mm – 0.1mm Pellet Feed: ~0.05mm,Blaine >1,200cm2/g. November/December 2015

11/18/15 8:56 AM

CONFERENCE REPORT

Imports increasingly from low-cost sources

110.0 100.0

Brazil-Rotterdam

90.0

Brazil-China

(%) 100 90

70.0

60.0

40.0

30.0

30 20

20.0 10.0

0.0

80.0

Fig 7 Source: CLSA, China, customs, CEIC

2003-2008 2011-2014 2015-2019

% growth EAF DRI

5.9

2.6

3.5

8.0

3.4

6.3

Session on China Oliver Ramsbottom, MacKinsey, showed that: •Slowing GDP and FAI growth is impacting China's finished steel demand, which will peak before 2020. •China's domestic iron ore production decreased (>50 MT in 2014) – in particular non-captive private mines – as iron ore prices have declined. • China’s domestic steel demand is shrinking in 2015 (ie. app. consumption has declined ~5% year-on-year in Q1 2015), spurring mills to sell more steel overseas. Ian Roper, CLSA, Singapore noted (Fig 7) how: • Imported ore increasingly displacing domestic Chinese ore with lower cost sources (Australia) gaining most new market share, but Chinese ore supply remains resilient as state-owned and/ or captive mines continue with closures focused on private, independent mines. • Globally, 2015 net iron ore supply growth may be zero as increased supply from Australia, Brazil and Africa is balanced out by decreased supply from all other regions. • Chinese mine ownership overseas is still well below China’s 40% target with ownership shares of total capacity only 2% and 4 % respectively, in Brazil and Australia, and only 13% of all imported ore. The Kudremukh Iron Ore Co (KIOCL), India, presentation outlined efforts to November/December 2015

CONFERENCE REPORT poveromo.indd 4

Jan 15

Jan 14

Jan 13

2014

Jan 12

2013

Jan 11

2012

Fig 8: Capesize iron ore spot rates from Brazil (monthly averages)

Ultrafine projects are coming to market – Minas Rio (26Mt/yr), Citic Pacific, Gindalbie, but all of these will require agglomeration, either by sintering or pelletising. There is, however, insufficient investment in new pelletising capacity to consume all these incremental ultrafines. Egyptian steelmaker EZZ Steel’s presentation summarised growth in MENA EAF and DRI production:

2011

Jan 10

2010

50.0

Jan 09

Others

Jan 08

2014

2012

2010

2008

2006

2004

2002

2000

Africa

Jan 07

India

Jan 06

Brazil

Jan 05

Australia

Jan 02

Share of domestic ore

$/t

100

Share of imported ore

Jan 04

(%)

Jan 03

Imported iron ore share of consumption has surged

restore its pellet plant operation by seeking imported pellet feed to produce pellets for export to Iran and elsewhere. The next two presentations concerned projects in Africa and Sweden where project promoters went to great lengths to explain how their projects were different from and superior to other failed and/or dubious projects in their respective regions. The presentation on Zanaga Iron Ore, made the case for diversification into Africa to: - Avoid domination by the Big Three. - Provide a region where outsiders can assume majority control. - Provide higher quality ore than coarse lower grade fines. • The Zanaga project is a 50:50 joint venture between Zanaga and Glencore, projecting 1st quartile OPEX, with the mine’s location about 300km from Port Noire in Congo; pipeline transport planned. • Phase I project: 12Mt/yr (2.5 B$) mainly hematite followed by Phase II: 30Mt/yr (2.2 B$) mainly magnetite; both phases would produce 66% Fe, 3% SiO2 pellet feed. Given the failures of other Nordic region projects, such as Northland Resources and Dannemora, the next presentation focused on what sets the Nordic Iron Ludvika project apart from these failed ventures: • Brown field – reopening some surface mines that operated some time ago. • Efficient mine and high grading process layout. • Access to existing rail and port logistics. • O product > 65% Fe at costs in the $30/ton range at a CAPEX of $130/AT, to produce 4.3Mt/yr. • Transparent legislation and permitting processes. IROPEX covered the Iranian iron and steel industry where:

- Iron ore production peaked at 50Mt in 2013 including exports of 23.6Mt, mostly to China; domestic concentrate production was used to produce 21Mt of pellets in 2014. - Iran is also the leading MENA steel producer (mainly DRI/EAF route); 16Mt in 2013. - Iran has competitive advantages for steel production in terms of iron ore and energy (oil and gas) resources. Logistics and shipping John Kearsey of SSY Consultancy & Research gave his usual fine presentation on logistics, outlining the relationship between freight and the fall in commodity prices. He highlighted a dramatic drop in freight rates over the past year (Fig 8); a portion is due to lower fuel costs, but of greater importance are market factors. The 2015 Brazil-Rotterdam Capesize rate, for example, matches the rates going back to the 1993 – 2003 period. Freight market negatives include the following: - faltering world demand for steel and key raw materials. - displacement of high cost iron ore and coal export capacity by low international prices. - limited offset for lost Indonesian mineral ores. - further new vessel buildings scheduled for delivery by end-2016. - reduced port congestion. - more effective Valemax utilisation. Pricing The conference concluded with the purveyors of various financial products (derivatives, futures, options, clearing) outlining their progress, which increased sharply over the past year after a long, slow ramp-up period. t For further coverage of steel industry conferences from around the world, keep reading Steel Times International. www.steeltimesint.com

11/18/15 8:56 AM

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PERSPECTIVES: ABB

Staying on top of the game ABB, the leading power and automation group, has many new global steel industry projects in the pipeline and believes that India promises to be a lucrative market for the company going forward. Christer Skogum, global head of marketing and sales*, believes that the steel industry will recover from its current woes and continue to be a positive force in the world 1. How are things going at ABB? Is the steel industry keeping you busy? While there has been a slowdown due to the global overcapacity situation, ABB has many new projects in the pipeline and is looking at the Indian market where, in the medium term, there has been a major increase in steel production, servicing infrastructure and automotive projects. Our business is predominantly engaged with servicing and revamps of brownfield projects. It is a fairly steady business at the moment and, despite the problems surrounding China, ABB’s business levels have stabilised on a new level. 2. What is your view on the current state of the global steel industry? While the global industry is currently depressed and most companies are making losses, ABB is in a good place and is a very strong organisation. However, while the current situation will linger for a while and will adversely affect capital expenditure, we believe that India will be a big market for ABB. 3. In which sector of the steel industry does ABB mostly conduct its business? As I mentioned, servicing and revamping is very big business for ABB at the moment and the company has always been a strong performer in this respect. Our key strengths are in rolling mills where there is plenty of technology. The more technology, the stronger we are, especially in areas such as electromagnetic stirring. ABB Metallurgy Products’ ArcSave technology, for instance, enables steelmakers to reduce tap-to-tap time by 5%, contributing to energy efficiency, productivity and much more. 4. Where in the world are you busiest at present? We are still very busy in and around Europe due our huge installed base in the region,

but also in China and India, South East Asia and Latin America. Wherever there are projects in the world, we will be there and have a major presence.

5. Can you discuss any major steel contracts you are currently working on? We are currently working with major steelmakers around the globe including ArcelorMittal in Algeria and other leading players in different regions of the world. In India we work a lot with JSW, Tata and Jindal on both brown and greenfield sites. We deliver everything that is electrical and have worked with major European mill builders as well as mill builders in China, India and Turkey. Complete tandem cold rolling mills are one of our key specialities. 6. Where do you stand on the aluminium versus steel argument? These are very much decisions that are made by the manufacturers, particularly those in the automotive industry where the use of either steel or aluminium is concerned. Theoretically, aluminium should become stronger in car manufacturing, but the majority of cars are steel-intensive because the cost of the

former is prohibitive in the mass market. ABB is well positioned in both steel and aluminium to be able to serve the market. 7. “While there will be increased aluminium penetration, vehicles will continue to be predominantly steel,” said Ducker Worldwide’s Dick Schultz. Is he right or wrong? I am not an automotive expert, but based on the latest designs [of cars] there is an increasing amount of advanced high strength steel (AHSS) being used in automotive production. There will be more aluminium and more carbon fibre used in car manufacturing to meet energy efficiency targets both in Europe and the USA, but it is price and cost sensitive at the moment. And in the same way that electric cars have yet to filter down to the mainstream market, it’s a similar story with aluminium. 8. “Within the next 15 years or so there could be a nearly even split between steel, aluminium and carbon fibre content in the average North American produced light vehicle.” So said Jay Baron, president of the Centre for Automotive Research. Who is closer to the truth – Dick or Jay? I don’t know the answer to that question, but I do know that there are many different uses for steel outside of the automotive industry, such as construction and infrastructure, where there will be long-term increased consumption going forward. 9. It is always claimed that aluminium is the ‘greener’ metal when compared to steel. What’s your view? Both aluminium and steel production are highly energy-intensive industries, but both metals are infinitely recyclable. 10. “…any hint of doubt when it comes to predictions of climate

* Global head of marketing and sales, Process Industries, ABB. November/December 2015

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PERSPECTIVES: ABB

doom is evidence of greed, stupidity, moral turpitude or psychological derangement.” This is a quote from Bret Stephens writing in The Wall Street Journal. Do you sympathise with his view? Today we are all convinced that we have global warming and the means of controlling it. At ABB we aim to make our processes more energy efficient as we take climate change very seriously and believe we must all participate in solving it. 11. In fact, talking of ‘green issues’ and emissions control, how is the steel industry performing in this respect? Improved energy efficiency and minimal capital expenditure are high on the agenda for most of ABB’s customers. The steel industry certainly is getting greener, but it’s a slow, step-by-step process that is helped by steel’s 100% recyclability. 12. In your dealings with steel producers, are you finding that they are looking to companies like ABB to offer them solutions in terms of energy efficiency and sustainability? In many steel plants there is plenty of low hanging fruit, such as changing fixed speed motors to variable speed models. It would be fair to say that these issues are high on the agenda, especially when you consider that legislation in this area is getting harsher and harsher. Greenfield developments offer greater potential in terms of developing green solutions. ABB is well positioned to improve energy efficiency solutions, including energy efficiency audits.

medium term in relation to the global steel industry? In China we will always be engaged in greenfield and brownfield developments, but elsewhere in the world we expect to move more towards the service and revamp markets, particularly in Europe and the USA. ABB is a highly adaptable company that can adjust itself to any market anywhere in the world. ABB has also had a long-standing presence in North and South Africa and are now expanding into projects in sub-Saharan Africa. Of course, before any major industrial development [in sub-Saharan Africa] you need to fix power generation and that’s what’s taking place now. 16. What is ABB’s experience of the Chinese steel industry? Many of the most modern and technologically advanced steel plants are being built in China. The quality of steel produced in China has improved dramatically since the late nineties, where steel output is of increasingly higher quality, although I still think that the best quality steel is produced in Europe, North America and Japan. While the Chinese steel industry has come a long way there is still a big gap to close where top quality grades are concerned. The drive to produce higher quality steel is good news for ABB.

13. How quickly has the steel industry responded to ‘green politics’ in terms of making the production process more environmentally friendly and are they succeeding or fighting a losing battle? The steel industry has responded well and is definitely moving in the right direction in terms of meeting its legislative obligations. 14. Where does ABB lead the field in terms of steel production technology? ABB leads in many things and considers itself to be in the forefront of technology with products such as electromagnetic stirrers and brakes for steel and aluminium, and low or medium voltage drive systems. 15. How do you view ABB’s development over the short-towww.steeltimesint.com

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17. Where do you see most innovation in terms of production technologies? Steel production is a very mature industry, but there are continuous gradual improvements and fine-tuning being made to the process. There have been some major technological improvements to the rolling process over the years,

which have enabled the implementation of mathematical modelling in process design. 18. How optimistic are you for the global steel industry going forward? While short-term overcapacity issues will mean less greenfield projects, the steel industry will rebound from its current difficulties and will remain a potent force throughout global societies in terms of its role in infrastructure, transportation, the energy industries and, of course, the automotive market. Three or four tough years lie ahead before additional capacity will be added to drive the manufacturing of high strength steels. India will add significant new capacity going forward. Steel will continue to be a very important ‘foundation’ industry on the world stage. 19. What exhibitions will ABB attend in 2016? ABB has a strong presence at many exhibitions and conferences throughout the world, but is also very selective about the events it attends. We also run our own event, Automation and Power World, where we bring together our global management and customers to discuss new products. Our last event, held in Delhi, India, earlier this month attracted 4,500 customers. 20. ABB is based in Sweden, but what’s happening steel-wise in the country? Sweden is suffering like everybody else, but a huge portion of the Swedish steel industry – around 60% – is dedicated to specialised steel production, thanks to companies like Sandvik. 21. Apart from strong coffee, what keeps you awake at night? ABB wants to be close to its customers and understand what they want. We aim to be flexible in the way we deliver our services and we want to ensure that we remain on top. If we’re going to be successful we must have our finger on the pulse and constantly service our customers’ needs. If anything was going to keep me awake at night it would be ensuring that we are continually at the top of our game. 22. What is needed to improve the global steel industry? Greater consolidation would be good for the steel industry and the environment, but national interests and the fact that everybody wants to be a steel exporter means that the steel industry is lagging behind in this respect. t November/December 2015

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HISTORY

The railway contractors When the railway age began after the Rainhill Trials of 1830, the emphasis was on building better locomotives, but problems lay ahead that would test civil engineering to its very limits. By Harry Hodson* AS the railway network began to spread across the whole country in the 1840s, the railway builders’ main problem was how to construct a long-span bridge that would support the weight of a locomotive. A few cast iron bridges were already in use at the time following the principles of the world’s first cast iron bridge of 1779 – but they did not carry locomotives. Cast iron was known as the “new material” for building purposes and nobody had demonstrated this better than Thomas Telford (1757-1834). Telford had died at the beginning of the railway age believing there was no future in rail transport. The new breed of engineers did not trust cast iron when placed in the horizontal position under tensile stress. Wrought iron beams were the answer to this problem. It was costly and difficult to produce in large quantities, but it was the preferred choice of railway builders – with a few exceptions. Robert Stephenson (1803-1859) was appointed chief engineer to oversee most of the expansion of the rail network of Great Britain on behalf of the government. Stephenson had spent his earlier years working alongside his father George in the production of locomotives in Tyneside. His change of career led him to become one of the foremost civil engineers in the history of the nation, ranking alongside Thomas Telford and Isambard Kingdom Brunel. One of Stephenson’s main problems was the choice of a suitable material to construct long-span bridges that would support the weight of a locomotive. He decided to use wrought iron because its tensile strength solved the problem, but as previously stated, was costly. In 1847 Stephenson constructed a cast iron bridge over the River Dee in Chester as part of the rail network to North Wales. The bridge failed when a locomotive and three carriages were crossing, resulting in the loss of two lives. The engine and two carriages had reached firm ground but the third carriage plunged into the river. Stephenson found himself in court on a manslaughter charge. He tried a new idea of strengthening the cast iron beams with

wrought iron trusses to reflect the tensile stresses to the top flanges of the beam. His defence was that his instructions had not been properly carried out, and the trusses had been fixed in such a manner that they reversed the stresses onto the bottom flange. After this incident the government passed a law that the bottom flange of a cast beam had to be seven times “en masse” greater than the top flange. Stephenson was exonerated with little more than a reprimand as the government needed him for important work. Private contractors Brunel was appointed chief engineer to the Great Western Railway in 1836. He favoured the seven feet gauge of rail track against Stephenson’s four feet 8.5 inches, which became standard gauge. Brunel had little faith in cast iron for bridge building and chose wrought iron or masonry. While rivals in business, Brunel and Stephenson were best of friends and often shared ideas. Brunel was involved in shipbuilding and other grandiose schemes, but his greatest work is the wrought iron masterpiece that carries his railway over the River Tamar from Devon to Cornwall. (STI May-June 2007). Samuel Morton Peto (1809-1889) was an entrepreneur and chancer most of his life. He became involved in railway construction at the beginning of the railway age and made vast sums of money, but usually lost it or gave it away. At the same time of his railway building he was an MP for Bristol. Thomas Brassey (1805-1870) had a similar career to that of Peto. They formed partnerships on some projects. Further reading is highly recommended. A remarkable feat of engineering Andrew Handyside, a Glaswegian born in 1806 was apprenticed to the shop floor of a local ironworks. In 1848 he moved to Derby and took control of the Britannia Ironworks. The works had specialised in ornamental ironwork, but he successfully tendered for railway contracts. By the 1860s the company took advantage of

the widespread availability of cheap steel to become world-renowned structural engineers. Handyside’s products in iron, steel and brass ran into thousands, including steam engines and conservatories, one of which was erected at the home of Henry Bessemer. In 1893 Handyside’s was called upon to replace a railway bridge over the River Don near Derbyshire. The existing bridge required upgrading to carry four lines instead of two. There was little room to work without obstructing river traffic. Piles were driven into either riverbank to support a gantry on which ran movable

hydraulic jacks. The new bridge was a trussed girder weighing 700 tons. It was erected across the gantry and rested on bogies carrying the jacks. The existing brickwork of the old bridge was extended to accommodate the new one, which was complete with four sets of rails inside it. Handyside’s was now ready to finish the project, but the Victorian directors were not in the business of closing the railway, certainly not for any length of time. On the appointed day, they agreed to close the railway – but only after 10.30 am. When the hour came, Handyside’s workers disconnected the rails and the old bridge was lifted from its foundations by the hydraulic jacks running on the gantry. The same method was used to place the new bridge into position, and the rails were reconnected. The whole operation took one hour and 40 minutes and the railway was re-opened shortly after midday – what would health and safety say today? t

* The author is a former employee of John Grundy Ltd November/December 2015

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