Steel times international september 2014 by Quartz

September 2014 – Vol.38 No.6 – www.steeltimesint.com

STAINLESS STEEL ROLLING STEEL SUCCESS STRATEGIES XXIX

STEEL TIMES INTERNATIONAL – September 2014 – Vol.38 No.6

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CONTENTS SEPTEMBER 2014

September 2014 – Vol.38 No.6 – www.steeltimesint.com

STAINLESS STEEL ROLLING STEEL SUCCESS STRATEGIES XXIX

Front cover image courtesy of Midrex. Midrex has recently started-up Jindal Steel and Power Limited’s (JSPL) Angul I combination MXCOL® DRI plant in Angul, Odisha, India. It is the world’s first DRI Plant using a coal gasifier to supply reducing gas. Syngas produced via the gasifier is used in the MIDREX® process to make DRI products for various steelmaking applications. GLOBAL BUSINESS REPORT: MEXICO

EDITORIAL Editor Matthew Moggridge Tel: +44 (0) 1737 855151 matthewmoggridge@quartzltd.com Consultant Editor Dr. Tim Smith PhD, CEng, MIM Production Editor Annie Baker

4 Leader 6 News 12 USA update Politicians hear industry’s concerns. 14 Latin America update Nearing the end of the third boom. 16 China update Too much iron ore. 18 Japan update Lots of work at home and abroad.

21 21 Country report: Mexico The steel industry in Mexico.

SALES International Sales Manager Paul Rossage paulrossage@quartzltd.com Tel: +44 (0) 1737 855116 Area Sales Manager Anne Considine anneconsidine@quartzltd.com Tel: +44 (0) 1737 855139

Sales Director Ken Clark kenclark@quartzltd.com Tel: +44 (0) 1737 855117

Stainless steel 51 Taking quarto plate to the next level.

Advertisement Production Martin Lawrence SUBSCRIPTION Elizabeth Barford Tel +44 (0) 1737 855028 Fax +44 (0) 1737 855034 Email subscriptions@quartzltd.com

56 Stainless steel producers unite. Rolling

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58 Digital control of shear motors at the Durgapur merchant mill. 65 New technology increases capacity

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69 Conference report Steel Success Strategies XXIX. 72 Perspectives Making progress on emissions. 74 Technology A review of the latest new products.

ISSN 0143-7798

www.steeltimesint.com

76 History Early blast furnaces in Ireland. September 2014

LEADER

Once upon a time in Mexico... “Whenever I hear the word ‘culture’ I reach for my revolver,” said Hermann Goering, although it is widely believed that what he really said was: “Whenever I hear the word ‘culture’, that’s when I remove the safety from my Browning.” Well, whenever I hear the word ‘Mexico’, I think of chimichangas, refried beans and the dreaded Montezuma’s Revenge, not forgetting Tequila and Mezcal (the drink with the worm) and the wonderful beaches of Cancun and Puerto Vallarta. Mexico is where Neal Cassady, the Beat Generation icon and Jack Kerouac’s inspiration for On the Road’s Dean Moriarty, was found dead, in 1968, on the railroad tracks in San Miguel de Allende. He was 43. It’s also the place where countless celluloid American ‘felons’ supposedly flee to escape the law along the lines of R Dean Taylor’s Indiana wants me, Lord I can’t go back there. I found myself in Mexico in 1994 at a conference attended by – of all people – the late Yasser Arafat (and his tiny revolver). When I returned I rather flippantly described the country as ‘India with

Matthew Moggridge Editor matthewmoggridge@quartzltd.com

American cars’ and then dined out for many years on the fact that I was in the same room as the former PLO leader. The image of Mexico – generated largely by the media – as a dusty old place full of sleepy men in sombreros answering mañana to any request made of them, is, today, far removed from reality. In this issue we carry a comprehensive report on the Mexican steel industry at a time when Mexico is said to be ‘moving out of the economic doldrums thanks to structural reforms to strategic segments of its economy and renewed levels of dynamism’. That big names in the global automotive industry, such as Audi, Daimler-Nissan and BMW, have established a foothold in Mexico, can only be good news for the country’s developing steel industry. Throw in the fact that Mexico has long been a signatory to the North American Free Trade Agreement (NAFTA) – and is well-placed geographically in relation to North America, South America and Canada – and you have a recipe for success that might even rival that of chilli con carne or chicken fajitas.

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“Others are experimenting. We are producing. In endless mode.” Giovanni Arvedi, inventor of the Arvedi ESP process, trains the next ESP operators in his plant that's operated successfully since start-up in 2009 – implemented with Siemens VAI. siemens-vai.com

Evolution of the ESP process 1992 – Start-up of ISP plant 2004 – ISP caster upgrade by Siemens VAI 2006 – Order for first ESP plant to Siemens VAI 2009 – Start-up of first ESP

After five successful years of operation at the patented ESP plant in Cremona, Italy, the Arvedi ESP technology rollout starts now with the next two installations in China. At these new plants the operators will undergo comprehensive training at the plant in Italy, and Arvedi experts will support a smooth ramp-up to high-quality production in the first year of operation.

Highlights since 2009: t Certified API X70 production t Attested 131.6 kWh/t energy consumption t Only five breakouts per year t 0.1% cobble rate t 98% yield from liquid steel to coil t Thin strip down to 0.8 mm at full width and productivity 2013 – Order for next two ESP plants from Chinese customer

Answers for industry.

6 NEWS IN BRIEF

INDUSTRY NEWS

Tata Steel – improvements ‘across all geographies’ Tata Steel’s Q1 FY15 financial results for the period ending June 30 2014 point to improvements across 'all geographies'. The company's Indian operations continue to perform strongly and there are improvements over the previous year 'on all parameters'. In Europe, turnover was £2 billion (€2.52bn, $3.45bn) and EBIT was £13.2 million (€16.5m, $22.6m), up from last year's figure of £1.3 million (€1.5m, $2m).

Baosteel freezes prices for second month in a row Leading Chinese steelmaker Baosteel froze prices on its main sheet steel products for orders delivered in August. The move is a result of soft demand and high production levels causing oversupply issues that won't be remedied overnight. Policies to stabilise economic growth have been initiated, which should go some way towards alleviating Chinese steel demand on a domestic level.

China’s daily average crude steel output rises China’s daily average crude steel output rose month-by-month during H1 2014, despite falling steel prices. During the first six months of the year, the daily average output stood at 2.2Mt. Total crude steel output for 2014 is estimated to be 828Mt. Steel mills failing to meet local government environmental protection requirements were subject to higher power and water prices. Some steel mills were forced to suspend production due to a sluggish steel market.

Nippon Steel’s Indonesian joint venture Nippon Steel & Sumitomo Metal Corporation and PT Krakatau Steel have entered into 'a definitive agreement' concerning their joint venture, PT Krakatau Nippon Steel Sumikin (KNSS) in Indonesia. KNSS is to build a galvanising, annealing and processing line which is claimed to be equivalent to the state-of-the-art equipment currently in operation at NSSMC's steelworks and capable of producing highgrade, high-quality cold-rolled, hotdip galvanised and 'galvannealed' steel sheets, including steel sheets for automotive outer panels and high strength steel. September 2014

South Korea is not happy Following on from the US International Trade Commission's decision to impose anti-dumping duties on six nations exporting oil country tubular goods (OCTGs) to the USA, one the affected countries – South Korea – has vowed to take action against the ruling. The South Koreans stand accused by the USA of dumping OCTG at unfair prices and have been handed down punitive tariffs of up to 16%. While the ruling by the ITC is viewed as a victory for the US steel industry – and in particular US Steel – officials in South Korea argue that US steelmakers charge higher market prices than foreignimported steel products, according to a report by the Wall Street Journal. But with US OCTG imports

doubling in 2013 and accounting for almost two thirds of the US market, according to the American Iron & Steel Institute, it is clear that something had to be done. US Steel’s president and CEO Mario Longhi said that his company was pleased with the ITC decision and the final vote, which saw anti-dumping orders imposed against six of the nine countries identified as responsible for dumping OCTG in the USA. “The International Trade Commission's diligent and conscientious investigation and affirmative final vote clearly recognised that these six countries, which represent more than 90% of the unfairly traded imports that entered the US market in 2013, imported OCTG using unfair methods and market distorting pricing,” Longhi said.

The South Koreans have been weighing up various options including filing a complaint to a US court and trying to get the World Trade Organisation to have the USimposed tariffs invalidated. Hyundai Hysco's Kim Byung-gyu said that he hopes the South Korean government will file a complaint with the WTO, although it seems more likely that the government will take a softer approach based on examining the likely effects of the tariffs. In 2013, South Korea exported just under 1Mt of tubular steel into the USA. Trade rows between the two countries are not new as antidumping tariffs were slapped on South Korean washing machines last year. The USA is currently engaged in a similar row with Russian steelmakers.

ArcelorMittal invests US$267m ArcelorMittal has invested US$267 million in its Duisburg plant in Germany, with US$180 million spent on a state-of-the-art wire rod mill capable of processing high strength and ultra high-strength steels. According to ArcelorMittal, the wire rod mill relies upon thermomechanical rolling technology and is supported by an adjacent quality control laboratory. The company’s Ruhrort site has also been subject to investment by the steel giant with a view to

satisfying automotive customers looking for high quality steel ingots for forgings. ArcelorMittal has invested US$8.6 million switching to a symmetrical format for its continuous casting line number two. “After construction of the new wire rod mill, this is the next step towards securing the future of jobs and steel production in Duisburg,” said Thorsten Brand, CEO at ArcelorMittal Duisburg. The company claims that its planned investments will change

the mould format of continuous casting line number two from the current 265x385 mm (rectangular) to 320x320 mm (square) and will improve the rolling tolerance. ArcelorMittal says the new format will extend its product range and increase the flexibility of its customers who process steel to make forged parts such as gearboxes and crankshafts, predominantly for commercial vehicles. The plant refit will take place in mid-2015.

Severstal mill creates 1,100 jobs Russian steelmaker OAO Severstal has opened its Balakovo Long Product Mill in Russia’s Saratov region. It will produce long products for the construction industry. The ceremony was attended by the Governor of the Saratov region, Valeriy Radaev and Severstal’s CEO, Sergey Toropov, who said that the mill was a ‘cutting edge production plant designed to meet all the requirements and challenges of

modern steel manufacturing’. According to Toropov, maximum cost efficiency on site was ensured by the mill's strategic location, which offers efficient access to raw materials and infrastructure as well direct access to favourable markets. The Balakovo mill is the first of its kind in the Volga Federal District. Valeriy Radaev, governor of the Saratov region, said that the mill would create 1,100 new jobs and accelerate economic

development. The 1Mt capacity mill operates a closed water rotation cycle and a gas cleaning system with a 99% efficiency rating. Dust content in waste gases will not exceed 5mg/m3, claims Severstal. The mill will initially supply the Volga Federal District and the Southern Federal District. Some products will be shipped to markets in the Central Black Earth Region and the Central Region, according to Severstal. www.steeltimesint.com

INDUSTRY NEWS

US DRI plant on schedule Austrian steelmaker Voestalpine is on track to complete construction of its DRI plant in Corpus Christi, Texas, USA. The company has undertaken extensive environmental impact assessments and has now finalised a supply agreement with Mexican steelmaker Altos Hornos de Mexico (AHMSA) to supply 400kt of hot briquetted iron (HBI) along with a further optional 250kt. According to Voestalpine, interest in high-quality sponge iron continues to be high. It said that negotiations, some at an advanced stage, are currently underway with a series of steel manufacturers to purchase Voestalpine HBI. The Corpus Christi DRI facility – which becomes operational in 2016 – will be the Voestalpine Group’s largest ever foreign investment at a cost of EUR550million ($753 million). The plant, which will employ

150 people, will produce 2Mt of HBI annually and will have direct deep-sea access to the Gulf of Mexico. Half of the HBI produced will be used at Voestalpine’s production sites in Austria and the rest will be sold to long-term partners in the high quality sector of the steel Wolfgang Eder, Voestalpine’s chairman of the Management Board and CEO

market. Wolfgang Eder, Voestalpine’s chairman of the management board and CEO, said, “The

execution of this agreement is the beginning of a long-term business relationship. We are delighted to be part of AHMSA’s quality offensive as a key supplier.” AHMSA, based in Monclóva, near Monterrey, will be using the HBI in a recently installed electric arc furnace for the production of higher-quality steel grades. It will also enable the company to be independent of what Voestalpine describes as Mexico’s volatile scrap market. According to Voestalpine, the first deliveries will begin directly after the scheduled launch of the DRI plant in early 2016. “Long before completion of the plant, a long-term supply agreement for a significant quantity of the available HBI was executed,” said Voestalpine. Negotiations are ongoing with other interested companies in the NAFTA region and in Europe.

SAIL plans capacity expansion Steel Authority of India Ltd (SAIL) is planning to double its capacity to 50Mt/yr by 2025 in what is being described as the biggest expansion drive in the company’s history. The expansion will embrace two phases, taking SAIL’s production capacity from a projected 23.5Mt per annum in 2015 to 35Mt/yr by 2020 and then 50Mt by 2025/26. Funding for the expansion would be a mix of cash generated through its operations and raised debt. There are no plans to divest

shares to raise capital, claims SAIL chairman CS Verma. For the company’s current expansion plan SAIL raised almost two thirds of the required funding from internal accruals. Verma claims that SAIL can 'easily generate cash for at least 50% of the capital required internally, claiming that the Indian steelmaker’s debt equity ratio is very healthy and adding that there would be ‘no shortage of lenders’. A report in the Hindustan Times

claims that SAIL has already started issuing tenders for some of the enhancement work and that it wants to ‘hit the ground running in 2016’. Fortunately for SAIL, the company does not suffer from a lack of land or raw materials – major stumbling blocks for Indian steelmakers. There is around 20,000 acres of land available to SAIL and it has captive iron ore reserves of 3.5 billion tonnes. Source: Hindustan Times

Tata signs offshore contracts Tata Steel has signed a series of contracts, worth a total of £10 million, with Subsea 7, a leading offshore industry contractor. The contracts – to supply undersea pipes to four separate North Sea projects – were signed over the past year and will mean that Tata Steel supplies in excess of 55km of pipe. The two companies have signed a global framework agreement to formalise their long-standing partnership of 25 years, which has seen Tata Steel supply 83kt of piping for 37 global projects. www.steeltimesint.com

With the latest contracts, Tata Steel will supply around 28km of carrier pipe, more than 27km of sleeve pipe, girth welding and triple jointing and the application of glass flake epoxy pipe coating. The pipes will be manufactured at Tata’s UK-based pipe mills in Hartlepool where they will be welded and coated at the company’s offshore processing centre. Tata has worked closely with Subsea 7, particularly in the North Sea oil and gas industry, which has become a major market for both

Tata Steel and Subsea 7. Under the contracts, the company will supply around 28km of carrier pipe, more than 27km of sleeve pipe, girth welding and triple jointing and the application of glass flake epoxy pipe coating. The pipes will be manufactured at Tata’s Hartlepool pipe mills in the UK, before being welded and coated at its offshore processing centre, also in Hartlepool. Tata Steel forecasts high growth over the coming years in the subsea, umbilicals, risers and flowlines markets.

NEWS IN BRIEF 7 Paul Wurth acquires Schalke coke oven technology Paul Wurth Italia SpA and the German company Schalker Eisenhutte Maschinenfabrik GmbH (a subsidiary of the Eickhoff Group) have signed an asset agreement transferring the latter's coke oven machine segment to the Paul Wurth Group.

The deal means that the patents, references, drawings, licences, brand name and knowhow of the Bochum-based company are all taken over by Paul Wurth.

Kobe Steel to expand Chinese joint venture Japanese steelmaker Kobe Steel has announced plans to expand its Chinese joint venture, Kobe Special Steel Wire Products (KSP) to meet increasing demand from the Chinese automotive industry. KSP increased capacity in 2012 and is now planning to expand further by adding three wire drawing machines to the company's existing five units. Production will increase from 2,500 to 3,500 metric tonnes per month. According to Kobe Steel, 'the expanded production capacity and larger facilities will enable KSP to strengthen its supply capability in step with customer needs."

Northwest Indiana – steelmaking jobs plunge 33% The Northwest Indiana steel industry has lost a third of its jobs since the turn of the 21st century, according to an online news report. Employment in primary metals manufacturing has declined by 8,700 jobs since the year 2000, a plunge of 33% and due in part to the domestic industry's struggles and automation in steel mills on Lake Michigan's southern shores.

Process improvements Baosteel Desheng

Baosteel Desheng Stainless Steel has contracted Hatch Ltd to conduct a process improvement study at its FeNi plant in Fuijan Province, China. The study will examine opportunities to reduce the flux in its operations. The FeNi plant has four rotary kiln – electric furnace (RKEF) lines with an annual nickel capacity of about 20kt.

For expansion of these stories and other news visit www.steeltimesint.com September 2014

8 INDUSTRY NEWS

Import tariffs abolished on Chinese steel China has abolished tax preferences on 78 different types of imported steel products. Hot-rolled sheet, cold-rolled sheet, wire rod, section steel and electric steel now have import tariffs in addition to VAT and consumption tax. China imports between 15Mt and 18Mt of steel annually. With tax preferences abolished, imported steel destined for processing will not be exempt from 13% VAT and other categories of tax. The now abolished tariff was in place to encourage foreign trade and investment, but was viewed as unfair on domestic steel producers. The China Iron and Steel Association has been campaigning for the import tariff's abolition. Source: China Metals.

Severstal sells to American steelmakers OAO Severstal has announced plans to sell its Severstal Columbus LLC and Severstal Dearborn LLC subsidiaries to Steel Dynamics Inc and AK Steel Corporation. Alexey Mordashov, OAO Severstal's CEO, said that the US$325 million sale 'unlocks substantial value to Severstal's shareholders'. Completion of the sale is subject to the customary closing conditions, including expiration of the Hart Scott Rodino Antitrust Improvements Act waiting period. It is hoped that all will be signed, sealed and delivered by year-end 2014. AK Steel is a leading American global producer of flat-rolled carbon, stainless and electrical steel products. Steel Dynamics is one of the USA's largest domestic steel producers and metals recyclers. For more steel industry news and features, visit www.steeltimesint.com September 2014

Ebola disrupts mining ops ArcelorMittal’s iron ore mining operations in Liberia, West Africa, are being disrupted by the Ebola virus outbreak, prompting the company to declare force majeure and begin the process of moving people out of the country. At present, the steel giant is mining and shipping 5Mt of iron a year in Liberia from its phase one operations in Yekepa and Buchanan, but the company is planning phase two development with a view to mining and shipping 15Mt and with first production scheduled for the end of 2015. ArcelorMittal is currently assessing the potential impact of the crisis on the expansion project schedule, but claims it is fully committed to Liberia and intends to re-start construction ‘at the earliest opportunity’. Bill Scotting, CEO of ArcelorMittal Mining, said that the

clear priority for Liberia was to contain and stop the current outbreak of Ebola. He said that ArcelorMittal was providing full support to the Liberian government and was taking every precaution to protect its employees on the ground in Liberia. According to Mr Scotting, the company has made a long-term commitment to Liberia. “While the recent developments are very concerning, at present we believe that the emergency procedures and other measures developed and currently in place at all ArcelorMittal sites in Liberia, make it possible to continue our phase one operations,” he said. Among the various measures taken by the company to protect its employees from the Ebola virus are the provision of thermflash scanners to test for fever in all employees and visitors to the company’s sites in Liberia. It has

distributed 500 full sets of personal protective equipment to ArcelorMittal hospitals and other hospitals and clinics in Nimba, Buchanan and Monrovia and has provided training for healthcare workers and employees. A leading prevention and control expert has conducted Ebola awareness sessions, and the company has employed an infectious disease nurse to serve as ArcelorMittal Liberia’s in-house expert. The company is also in regular contact with ISOS (International SOS) and Liberia's Ministry of Health. According to ISOS, the largest ever Ebola outbreak is underway in several countries in West Africa. “The epidemic continues to grow and spread into new areas, threatening more lives and potentially the economies of affected countries,” it said.

China’s Latin American exports China exported 4Mt of finished steel to Latin America during the first half of 2014, according to Alacero, the Latin American Steel Association. Latin America was the second biggest customer of Chinese finished steel manufacturers next to South Korea. The 2014 figure of 4Mt was 65% higher than in 2013. World Chinese finished steel exports reached 36.9Mt during the period, which was 39% higher year-on-year than in 2013. Latin America accounts for 5% of global finished steel consumption and 11% of Chinese

finished steel exports (9% in 2013). While South Korea is the main destination for Chinese finished steel products, the gap between it and Latin America is decreasing. During the first half of 2013, South Korea accounted for 18% of Chinese finished steel exports. In 2014 the figure dipped to 17%. In June Latin America imported 687kt of Chinese finished steel, 25% less than in May (855kt) but 4% more than June 2013 (569kt). Brazil received the lion's share of Chinese finished steel between January and June 2014 (1.1Mt) followed by Chile (615kt) and

Central America (506kt). Paraguay increased its Chinese finished steel imports by 242% followed by Mexico (+155%), Columbia (+121%), Argentina (+120%) and Brazil (+84%). During the first half of 2014, Latin America imported 2.7Mt of Chinese flat steel, which accounted for 67% of all Chinese finished steel imported. It imported 978kt of alloyed steel sheets and coils (37%), 558kt of cold-rolled coil (21%) and 552kt of hot galvanised steel (21%). Latin America imported 1Mt of wire rod (597kt) and bars (375kt).

Heavy artillery forces closures Damage caused by heavy artillery has cut electricity transmission lines to the Ukrainian cities of Yenakiieve and Khartsyzsk, leading to the complete shutdown of production at Yenakiieve Steel, Enakievskiy Koksohimprom and Khartsyzsk Pipe. Avdiivka Coke is also cut off from electricity. Parent company Metinvest claims it is impossible to carry out repair work due to ongoing military activity, but claims it is doing ‘everything possible to

create a ‘green corridor’ for repair teams’. Yenakiieve Steel is a major producer of square billet. Khartsyzsk Pipe is a leading pipe manufacturer and Avdiivka Coke is billed as one of Europe's largest high-tech coking enterprises. According to Metinvest, “the shutdown of these large metallurgical enterprises and the major employers in these cities affects the entire Ukrainian economy, and 15,000 employees

and their families. In addition to the social and economic consequences, the residents of Southeastern Ukraine are now at risk of man-made disasters.” Avdiivka Coke was fully cut off from electricity supply and production at Yenakiieve Steel was suspended. On 16 August armed representatives of the Donetsk People’s Republic hijacked Yenakiieve Steel’s newest shunting diesel locomotive. www.steeltimesint.com

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10 DIARY OF EVENTS September 10-12 12th China

International Coking Technology and Coke Market Congress Organised by CISA and MC-CCPIT www.mcchina.org.cn 10-12 The Coal Association

of Canada Conference and Trade Show Vancouver, BC. Organised by the Coal Association of Canada. www.coal.ca 15-17 European Steel Environment & Energy Conference Teesside University, UK. Organised by the Institute of Materials, Minerals & Mining www.iom3.org 15-17 Korea Metal Week Organised by Korea Trade Fairs. Advanced metal technologies event. www.kintex.com 24-26 China International Steel and Raw Materials Conference Shangri-La Hotel, Dalian, China. Organised by the CISA. www.ironoreconference.com 24-25 World Stainless Steel Duplex Seminar & Summit Palazzo Dei Congresso, Stresa (VB) Italy. Organised by KCI Publishing BV www.stainless-steelworld.net/duplex2014

October 12-14 Coal Trans World Coal Conference Bella Centre, Copenhagen. For further information, www.coaltrans.com 14-16 China International Heat Treatment Expo Shanghai New International Expo Centre. www.htifexpo.com 21-25 EuroBlech 2014 Hanover, Germany. www.euroblech.com

For more information on steel industry events, visit www.steeltimesint.com September 2014

INDUSTRY NEWS

World crude steel production up 1.7% World crude steel production for July 2014 increased by 1.7% to 137Mt, according to figures released by worldsteel and based on submissions by the 65 countries reporting to the organisation. China’s crude steel production for July 2014 was 68.3Mt, up by 1.5% compared to July 2013. Elsewhere in Asia, Japan produced 9.3Mt of crude steel in July, the same as for the same period last year. South Korea produced 5.9Mt, up by 6.2% on July 2013 figures.

In the European Union, Germany produced 3.4Mt of crude steel in July 2014, an increase of 1.5% compared to July 2013. The UK produced 1Mt of crude steel, down 4.4% compared to July 2013. Austria’s crude steel production was 0.6Mt, a decrease of 5.2% on July 2013 and the Netherlands produced 0.6Mt of crude steel, down 0.5% compared with July 2013. Turkey’s crude steel production for July 2014 was up by 1.0% on

July 2013 figures to 2.8Mt. Russia produced 6.2Mt of crude steel, up 8.1% over July 2013, and Ukraine produced 2.5Mt of crude steel, a decrease of 11.7% compared to the same month last year. The US produced 7.6Mt of crude steel last month, an increase of 2.3% compared to July 2013. Brazil’s crude steel production for July 2014 was 2.9Mt, up 0.5% on last year's figure. Source: worldsteel

For a full country by country listing visit: www.worldsteel.org/statistics/crude-steel-production.html

US steel shipments down 1.3% In June 2014 US steel mills shipped 8.2Mt (net tons), down 1.3% from May 2014 when the figure was 8.3Mt (net tons), according to figures released by the American Iron and Steel Institute (AISI). The June 2014 figure was,however, an

increase of 6.2% on June 2013 when US mills shipped 7.8Mt (net tons). Year-to-date shipments in 2014 stand at 48.7Mt (net tons), a 2.9% increase over the 2013 figure of 47.4Mt (net tons) for H1 2013.

According to the AISI, a comparison of June shipments to the previous month of May shows the following changes: hot dipped galvanised sheets and strip, up 0.1%, hot rolled sheet, down 2% and cold rolled sheet, down 4%.

US steel imports up 6% The USA imported 3.8Mt (net tons) of steel in July, including 3.05Mt (net tons) of finished steel – up 6.1% and 11.9% respectively over June 2014 figures. According to the American Iron and Steel Institute (AISI) year-todate total and finished steel imports are 24.9Mt (net tons) and 18.6Mt (net tons) respectively, which is up 37% and 30% respectively when compared with 2013. Annualised total and finished steel imports in 2014 are estimated at 42.8Mt (net tons) and 31.9Mt (net tons), up 33% and 29% respectively when compared with 2013 figures. The AISI claims that key finished

steel products with a significant import increase in July compared to June are plates in coils (up 99%), sheets and strip (up 50%), heavy structural shapes (up 39%), line pipe (up 30%), hot rolled sheet (up 27%), hot rolled bar (up 16%) and oil country goods up 11%). In terms of year-to-date major import increases versus the same period last year, plates in coils were up 84%, wire rods were up 83% and cold rolled sheets were up 74%. Sheets and strip galvanised hot dipped were up 58%, ‘sheets and strip all other metallic coatings’ were up 54% and cut lengths plate were up 48%. Hot rolled sheets were up 43%, mechanical tubing was up 38%

and heavy structural shapes were also up 38% while oil country goods were up 33%, tin plate up 21% and rebar up 13%. The largest volumes of finished steel imports from offshore were from Asia and Europe, claims the AISI. South Korea supplied 560,000 net tons, up 22% on June 2014 figures. China exported 269,000 net tons, up 17% and Russia came in third with 203,000 net tons, up 112%. The Japanese exported 199,000 net tons, up 44% and Turkey exported 133,000 net tons, down 34%. During the first seven months of 2014, South Korea was the biggest offshore supplier to the USA, up 54% to 3.1Mt (net tons). China was up 66% to 1.7Mt (net tons) with Japan in third place at 1.19Mt (net tons) which was up 8%. Turkey was up 37% at 1.09Mt (net tons) and Russia up a staggering 480% at 799,000 net tons. Source: American Iron and Steel Institute www.steeltimesint.com

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12 USA UPDATE

Politicians hear industry’s concerns As the US steel industry’s anger over rising foreign steel imports mounts, the country’s politicians are taking heed of its concerns. By Manik Mehta* SENATOR James Brewster of McKeesport, Pennsylvania, has introduced three bills to support the steel industry. “Brewster’s bills”, as some call them, will apply on three fronts: the first one (SB1458) requires the use of domesticallymanufactured steel for transporting natural gas; the second one (SB-1459) requires domestic steel to be used in well safety devices, and thirdly (SB 1460) calls on the Department of Environmental Protection to closely monitor the supplying sources by maintaining a searchable, easily-accessible database regarding the country of origin of products used in well drilling. US Steel recently announced that it would idle indefinitely its McKeesport tubular operations. While many experts attribute this to excessive supply in the US because of rising imports, US Steel said the idling of its operations in Bellville, Texas, and McKeesport was driven by the objective to achieve “sustainable profitability.” The US International Trade Commission has already heard out steel dumping testimony by steel executives and workers, along with politicians, who called for punitive measures against those countries engaged in steel dumping that hurts US steel companies and causes layoffs in the industry. Prior to their testimony, the US Department of Commerce had named South Korea and eight other countries for either exporting under-priced steel to the US or benefiting from large government subsidies. The controversial imports relate to Oil Country Tubular Goods (OCTG), for which there is high demand in the US oil and fracking industry and which were supplied at prices 6% to 36% below costs. Besides South Korea, other nations include India, Vietnam, Turkey, Ukraine, Taiwan, Saudi Arabia, the Philippines and Thailand. In addition to the representations made by over 160 Congressmen to the US government to take action, hundreds of taconite miners and factory workers from the Iron Range organised protests in Virginia, Minn., joined by thousands of steel workers, factory owners, union officials, manufacturers and others urging

the government to stop the dumping. According to industry estimates, steel dumping caused losses of $1.2 billion last year to the US industry, causing some steel mills in Pennsylvania and Ohio to lay off workers. Another senator, Amy Klobuchar, testified before the commission and called for action against the suppliers so that jobs are not lost in the Minnesota Iron Range, a designated economic region in the northeastern corner of the state which has been affected by cheap imports in the past. Klobucher urged the ITC to impose penalties against Korean companies against whom there was “clear evidence” resulting from the investigation. Though the energy sector uses steel tubes, its buying behaviour is not fully known to the steel industry. Energy companies may find foreign steel tubes cheaper than American products, but they also risk getting a bad image because imports destroy American jobs. “We will continue to fight unfair trade by foreign competitors who are creating a detrimental impact and threat to middleclass manufacturing jobs,” US Steel president and CEO Mario Longhi said when he announced the plant closures. Pennsylvania lawmakers started some years back requiring companies operating wells and pipelines in the state to disclose the source of the steel used by them. However, the requirement turned out to be a bureaucratic exercise having little influence over the energy concerns’ buying patterns. Pennsylvania’s energy producers profess to be strong supporters of the US steel industry, although their behaviour repudiated this claim. The American Iron and Steel Institute (AISI) said that OCTG imports had captured nearly half of the US market; imports of all types of steel into the country account for 27% of the US market, the AISI said. But energy producers have questioned the basis on which the agency arrived at such a number, with a Range Resources spokesperson, for example, claiming that the company’s Marcellus region wells are constructed with domestic steel supplied by US Steel Corp. The company says that all of its Marcellus wells are serviced with 98% domestic steel.

However, US Steel and others have not publicly commented on such claims. Meanwhile, Severstal created a stir by announcing that it was selling its two steel plants in the United States for $2.3 billion. Severstal is retreating from the US, allegedly, amid rising tensions between Russia and the West over the situation in Ukraine, and is concentrating on its domestic business. Severstal, according to a company statement, is selling its subsidiaries Severstal Columbus in Mississippi, and Severstal Dearborn in Michigan; buyers of these two plants are Steel Dynamics and AK Steel Corp respectively. The two plants produce steel mainly for automotive. The Columbus plant is one of the newest mini-mills in North America with a production capacity of 3.4Mt. Through this acquisition, Steel Dynamics’ annual capacity will increase to 11Mt, while AK Steel’s purchase of the Dearborn plant, an efficiently-run blast furnace, will eventually increase AK’s total shipments to more than 7.5Mt. The result of the still-to-be-finalised sale will mean that buyers could face a hardening on the price front, attributed to less competition, an increase of monopolistic tendencies and higher prices for consumers. Severstal’s North American operations accounted for 30% of the group’s revenue. The retreat is in sharp contrast to the aggressive manner Severstal conducted itself on its global shopping spree in early 2000. Major steelmakers have been cutting down production and jobs and idling or selling plants in recent years in reaction to oversupply, weaker steel prices and sluggish demand. The US steel market has been characterised by excessive capacity and declining prices since the financial crisis began. The AISI says that some 21% of the steel industry’s capacity remained unused as of 14 July. Severstal’s retreat may make sense, but some experts argue that the sale may prove to be a strategic mistake at a time when the US market is staging a recovery. Also, the two plants are considered to be “good assets” and there was no rush to sell them off.

* USA correspondent September 2014

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14 LATIN AMERICA UPDATE

Nearing the end of the third boom If investment in the Brazilian steel industry is characterised by a series of boom periods, then it appears to be at the end of its third wave of investment. The current situation, however, is considerably worse than when the cycle started in 2005. By Germano Mendes de Paula*

THIS article is based on data unveiled by the Brazilian Steel Institute and the Brazilian Geography and Statistics Institute (IBGE). The evolution of Brazilian steel investments over the last 56 years is shown in Fig 1 highlighting three main cycles that this sector has experienced (STI, April-May 2003, pp. 52-53). The first large wave of investment occurred between 1974 and 1983, when the average annual investment reached $2bn. In this period, the nation’s installed capacity jumped from around 10Mt to 22Mt (120% expansion), mainly led by state-owned enterprises. This

period can be termed as a ‘quantitative growth approach’. Nonetheless, in the years 1984-1993, the average annual investment dropped to $476M, despite the fact that two new greenfield plants that began construction in the mid-1970s were commissioned: Mendes Jr (in 1984, which now belongs to ArcelorMittal) and Açominas (in 1986, which is currently controlled by Gerdau). The large Brazilian state-owned steelmakers were privatised in the 19911993 period. The second boom of investments occurred in the period 1994-2004, when

5,000

Brazilian steel companies invested $1.27bn per year. More important than the resumption of investments was the change in their use. During these years, 30.6% of all investments were dedicated to rolling mills (Fig 2). This provides a good proxy to indicate that an enhancement of the product mix was the highest priority of the Brazilian steel industry (a ‘qualitative growth approach’). In the period 1994-2004, annual installed capacity increased by 5.8Mt (from 28.2Mt to 34Mt) – an enlargement of 21%.

25 Others 33%

4,000

Rolling 30%

3,000

20 15

2,000

10 Reduction 16%

1,000

0 58

63 68 73

83 88

08 13*

Input 6% Steelmaking 7%

Fig 1

Fig 2

Rolling 26%

40 20 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Input 11%

Carbon flat Carbon long Special & seamless tube

Steelmaking 9%

Fig 4

10 1112 13 * * * *

9 8 7 6 5 4 3 2 1 0

80 60

Reduction 22%

Fig 3

100 Others 26%

Casting 7%

2000 01 02 03 04 05 06 07 08 09 10 11

Casting 6%

Fig 5

Fig 6

* Latin America correspondent, professor in economics, Federal University of Uberlândia, Brazil. E-mail: germano@ufu.br September 2014

www.steeltimesint.com

LATIN AMERICA UPDATE 15 Third boom

The third investment boom was verified from 2005 onwards and the recent trajectory suggests that it is nearing the end. Indeed, it achieved its maximum value of $4.5bn in 2009 and since then has decreased to $2.1bn. Nonetheless, it is important to stress that CSN’s (Companhia Siderúrgica Nacional) figures have been excluded from the Brazilian Steel Institute’s investment estimation since 2010, but this fact does not totally explain the retraction because CSN’s participation in Brazilian crude steel production diminished from 16.5% in 2009 to 13% in 2013. Investment ratio is demonstrated in Fig 3, which means the investment as a proportion of net sales, mitigating the distortion of values derived from inflation. CSN’s figures are excluded during the 2010-2013 period for both investments and net sales, eliminating the problem mentioned above. During the second boom, this ratio amplified from 7.5% in 1994 to 21.9% in 1998, reducing afterwards to 5.4% in 2004. On average, the investment ratio was equivalent to 11.4% during the second boom. During the third boom, the investment ratio enlarged from 8.4% in 2005 to 15.9% in 2009, diminishing subsequently to 7.2% in 2013. Meanwhile, the investment ratio reached 10.1% on average.

The Brazilian Steel Institute interrupted the disclosure of investment destinations and the type of market, ie flat, long or special steels in its Annual Statistical Yearbook from 2010 onwards. Fig 4 shows that, during the 2005-2009 period, rolling mills continued to receive the bulk of the money (26%), but the reduction and input areas each gained roughly 5.5 percentage points compared to the previous investment wave. In other words, companies invested more in blast furnaces and inputs, enabling them to expand capacity. Moreover, the named capacity enlarged 14Mt, reaching 48Mt (up 41%). In this way, the third boom can be understood as a ‘mixed growth approach’, because it pursued expansion and modernisation simultaneously. The allocation of the investments among the market segments (carbon flats, carbon longs and specials) has varied significantly over the years, as verified in Fig 5. For example, the participation of carbon flats oscillated between 30% and 83%. During the second boom, there was the following distribution: carbon flats (67%), carbon longs (20%) and specials and seamless tubes (13%). In the period 2005-2009, the composition changed to: carbon flats (46%), carbon longs (30%) and specials and seamless tubes (24%).

Diminishing investments ahead?

The last statistical information is extracted from the Brazilian Annual Industrial Survey, carried out by the IBGE. This is the most accurate method of investigating the investment performance of the steel industry vis-à-vis other industrial sectors. Fig 6 shows that, in the years 2000-2002, when the global steel business faced an intense crisis, the steel sector’s share of the nation’s manufacturing industry was, at most, 2.4%. During the good times (2003-2008), with the exception of 2004, it was equivalent to at least 6%. Afterwards, it declined to 4.4% during 2010-2011 based on the latest available information. There are no signs that this trend will be reverted soon. Summing up, the Brazilian steel industry seems to be at the end of its third steel investment boom. The current situation is considerably worse than when this cycle started in 2005, due to both macroeconomic and sectorial conditions, abroad and domestically. If this interpretation is correct, it is wise to expect that the aggregate investment, the investment ratio and the relative importance of steel investments regarding Brazilian manufacturing continue to diminish or, at best, to stabilise. The engagement in a fourth investment boom is not foreseeable in the near future.

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16 CHINA UPDATE

Too much iron ore In China, the serious imbalance between supply and demand of iron ore has pulled down the market considerably, according to Shi Lili * THE price of iron ore has witnessed its largest downturn in market history and is now below US$100 per tonne. The feedstock of steel making has dropped 22% from its highest point since October 2012. Things have been made worse by an unstable domestic financial market in China, which has led to banks tightening up on loans, especially to companies active in energy-intensive industries like steel. As a result, the domestic iron ore market in China has stalled, port stockpiles have increased and the overall industry has been clouded by a strong sense of pessimism for the future. From the point of supply, China’s domestic iron ore output has grown by 12.29% since November 2013. Imports have also witnessed growth since last year. In April this year imports reached a record high of 833.9Mt, an increase of 24.18% over the same period last year. Stockpiles at different ports began to go up and, since May, have hovered around the 110Mt level. The high stockpiles of imported iron ore were mainly due to low consumption in China, and negative demand for iron ore financing. The supply of iron ore in China, therefore, bears no relation to actual demand. Where steel demand is concerned, key end user sectors – infrastructure, real estate, and automotive – are on the decline. Investment in railway construction since April 2014 has dropped from 14.37% to -0.8% and house sales have fallen from -0.749% to -14.27% – their lowest point since March 2012. While newly developed real estate projects have increased, low sales volumes point to a flat housing market. In April this year, domestic automobile output increased by 8.07%, up from 7.3%. Low consumption from infrastructure, real estate and automotive have dampened iron ore demand and this is projected to continue for a long time.

At present, downstream consumption of steel has not recovered, blast furnaces have been out of operation and stockpiles remain high at the ports. Due to a lack of positive macro economic and industrial factors, iron ore prices will continue to remain flat, unless back-up economic policies from the Chinese government are introduced. First, the release of production capacities could expand the global supply of iron ore. The output of iron ore by the Brazilian mining giant Vale (CVRD) during Q1 2014 was 71Mt and the company plans to increase this figure to 450Mt by 2018. Currently, the company’s annual production is around 306Mt. BHP Billiton declared that it planned to raise iron ore production during 2014 by 5Mt to 217Mt. In the domestic market, while most Chinese iron ore mines have suffered financial losses, production still went up by 12% from the end of last year until April 2014. The present production figure, therefore, is far from the peak and future production will far exceed global demand. Secondly, China’s imports of iron ore have increased dramatically and stockpiles have remained high. Since the beginning of 2013, China’s iron ore imports have grown steadily. Based on China Steel Association statistics, China’s imported iron ore stockpiles at the port remained at 112.63Mt up until the end of April, an increase of 44.6Mt over the same period last year. Iron ore production in China in April went up by 7% to 20.25Mt year-on-year. Imported iron ore jumped 36.01Mt, up by 19.4% from last year. Due to huge imports and flat consumption, China’s iron ore stockpiles at the port will remain high in the short term and will put pressure on the iron ore spot market price. Thirdly, while iron ore production

rebounded, it was slow to get off the ground. As the steel demand markets, such as real estate, began to recover gradually, consumption warmed up. Since April, downstream consumption stepped into the high season and production began to rebound. Up until April, crude steel production in China reached 271.86Mt, up 2.73% on last year. However, volatility in Chinese real estate stunted steel production growth. Low raw material costs improved the profitability of steel mills, but downstream demand slowed dramatically leading to heavy pressure on surplus supply on the spot market. Steel prices took a downward path and iron ore was dragged down too. Most iron ore remains at the port

While there are constant inbound shipments of iron ore to different ports, it doesn’t mean that the steel market is flourishing in China. On the contrary, most of these shipments remain at the port. China’s domestic steel mills reduced their purchases of iron ore from overseas and most adopted a policy of keeping their stocks low and purchasing only when necessary. This showed that overseas supply was way too large and that domestic demand could not hope to catch up with it. Crude steel production was 296Mt from January to May this year, up by 2.2% from last year, while iron sand witnessed growth of 19% to 382.66Mt during the same period. Inflows of iron ore to China’s domestic market have put heavy pressure on Chinese ports, some of which are not equipped to handle such large volumes. High levels of iron ore shipments to China this year have pushed up port stockpiles, and traders have begun to sell their stocks at reduced prices. The situation has, no doubt, put pressure on an already depressing iron ore market.

* China correspondent September 2014

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18 JAPAN UPDATE

Lots of work at home and abroad

The Japanese steel industry will benefit from growing domestic demand for steel products triggered by increased capital investment. It will also find plenty of work outside of Japan, particularly from Japanese OEMs who are increasing overseas production capacities. By Nobuhisa Iwase*

THE negative impact on personal consumption brought about by the recent increase in Japan’s consumption tax has not dampened the Japanese economy. According to an annual survey of major companies regarding their plans for plant and equipment expenditure for fiscal 2014, the Japanese manufacturing sector is expected to increase total capital investment by around 6% compared to the 2013 figure. While many industrial sectors expect to increase spending outside of Japan – in order to cope with increasing demands in North America, China and other emerging countries – they also expect to spend more domestically in order to revitalise their mother plants for further innovation and continuous productivity improvement. According to the Japan Economic Journal’s annual survey, 1,254 major Japanese companies intend to increase their capital expenditure for the fiscal year 2014 by 7.6% to 27.235 trillion yen (around US$267 billion) in total (Table 1). Among them 661 manufacturing companies responded that they plan to spend 15.148 trillion yen (around US$149 billion) in total, an increase of 6.1% from the previous year. The iron and steel sector and the auto sector are no exceptions to the rule. Toyota, the leader of the Japanese auto industry, plans to spend more than 1 trillion yen on plant and equipment for the

fiscal year 2014, of which more than 500 billion yen – almost half of the total value – is expected to be spent on factory revitalisation in Japan. Last year Toyota Group produced more than 10 million cars worldwide, taking the top market share in global new car sales. The company plans to slightly increase its global auto production to 10.43 million units in 2014. While Toyota/Lexus, major brands of the Group, are expected to increase their foreign production to 6.01 million units – a 9% increase – domestic production by the two brands is estimated to decline by 6% to 3.15 million. However, the company plans to introduce new hybrid models, such as the Prius, into the market with its domestic production in 2015. With this in mind, the management decided to invest more on the revitalisation of its “mother” factories in Japan in order to lead further Product

product and process innovations. While the eight Japanese OEM car manufacturers produced 9.38 million units in Japan in fiscal year 2013 (+3.6% over the previous year), they also increased overseas production of car assembly to 16,365 million units in the same year (+6.9% over 2012). The Japanese auto sector intends to increase investment abroad, particularly in some strategically important global supply bases in different regions of the world. The USA, Mexico, China, India and a couple of southeast Asian countries are targeted destinations for the Japanese automotive industry. The USA is recording stable growth and, thanks to the North American Free Trade Agreement (NAFTA) Mexico is a strategically important production base for Japanese auto producers targeting the large and growing North American market and the emerging

FA* 2013 actual

FA2014 plan

Change %

Number of companies surveyed

Total major companies

25.305

27.235

7.6

1,254

Manufacturing sector

13.279

15.148

6.1

661

Iron and steel

0.635

0.726

14.3

Automobile

3.501

3.618

3.4

Other sectors

11.026

12.087

9.6

593

FA: Fiscal Year (April 1-March 31, next year) Source: Japan Economic Journal (Nikkey Shimbun)

Table 1 Capital expenditures by the Japanese major companies (trillion yen, 2013 vs 2014)

* An independent steel economist, Karuizawa, Japan. E-mail: nobykaru@seagreen.ocn.ne.jp September 2014

www.steeltimesint.com

JAPAN UPDATE 19 market in Brazil. Nissan has been a traditional Japanese auto producer in Mexico. The company’s current total production capacity in Mexico is 850,000 units per annum. Honda and Mazda recently established new, largescale car assembly plants in Guanajuato State. With an annual assembling capacity of 200,000 units, Honda also constructed an engine manufacturing plant, which requires more integration into the automobile production chain. Mazda’s capacity for car assembly is estimated to reach 230,000 units in 2015. Major Japanese auto component manufacturers – so-called Tier-1 and Tier-2 – have been following every move of Nissan, Honda and Mazda. Japanese steel producers have also accelerated their investments in North America. In Mexico, Nippon Steel and Sumitomo Metals Corporation (NSSMC) in a joint venture with Techinto Group, inaugurated a new continuous galvanising line for steel sheets with an annual capacity of 400kt in September 2013. In November 2013, the company announced that it had signed an agreement with ThyssenKrupp and ArcelorMittal under which they jointly purchase ThyssenKrupp Steel USA with an estimated investment

cost of US$1.55 billion. The modern plants, located in Alabama and inaugurated in 2010, include a hot strip mill, a continuous pickling line, a tandem cold rolling mill, a continuous annealing line and three hot-dip galvanising lines for steel sheets, including for automotive use. When realised, the venture will be the largest buy-out by a Japanese integrated steel producer. Expanding Chinese car market

China has remained one of the most important markets both for Japanese automobiles and steel producers. In 2013, annual new car sales in the country exceeded 20 million units for the first time. The figure was 21.98 million, the world’s largest, with a 13.9% increase over the previous year. The Chinese automotive industry is already four times that of Japan and 1.4 times that of the USA, occupying almost one fourth of the global car market, which embraces an estimated annual figure of 80 million units. The Chinese car market is expected to expand even further – to more than 30 million unit sales annually by 2030. Currently, Volkswagen and General Motors compete to take the top share in China, selling more than 3 million units

each annually (a share of 11% and 14%, respectively). While Japanese OEMs combined accounted for a 16.4% market share in 2013, the figure was almost half of the 2008 peak of 30.8% due to a deteriorated relationship between China and Japan since then. However, the Japanese share has been revived gradually and new policy measures to prevent air pollution by the Chinese government are expected to create a tailwind for Japanese OEMs . The Chinese government currently provides subsidies for consumers to purchase electric vehicles and plug-in vehicles. It is reported that the Chinese Government now plans to include hybrid vehicles where the Japanese lead both in terms of technology and market share. Japanese automobile and steel producers will continue to invest in expanding their production capacities in the constantly growing and giant automotive market. All the major Japanese steel companies expect to spend more both on revitalising their domestic production capacities and increasing capacity in targeted, global supply bases, particularly for automotive steel sheets, in order to strengthen their global supply chains.

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COUNTRY REPORT: MEXICO

Mexico is moving out of the economic doldrums thanks to structural reforms to strategic segments of its economy, renewed levels of dynamism and the increased purchasing power of Mexican consumers. Alice Pascoletti, Nathan Allen and Brent Johns for Global Business Reports HEADING eastward out of Monterrey the landscape flanking the dried-up Santa Clara river offers little to write home about. What was once anonymous scrubland has now been supplanted by equally anonymous suburban sprawl. The scattering of warehouses and shopping centres does little to liven up the scenario. Then, out of nowhere, rises an iron giant. This is Alto Horno 1, Latin America’s first blast furnace. Built in 1903, the facility continued to operate throughout the 20th Century before finally being decommissioned in 1986. Today, the furnace forms part of a museum and tourism complex where visitors can learn about the history of the steel industry and the contribution that it made to Mexico’s – and particularly Monterrey’s – path towards development. Just as steel production played a large part in Mexico’s development, so too did the country help to drive the industry forward. It was a Monterrey-based producer that gave the world its first commercial scale gas-based direct reduction plant in the form of the Hylsa1M facility. The arrival of this technology paved the way for one of the most profound changes to hit the world steel scenario since the 19th Century invention of the Bessemer process. Direct Reduced Iron (DRI) plants have now taken root around the world and thanks to the continuing downward trend in natural gas prices the process is becoming even more popular. Fast-forward 50 years and Mexico remains a key player in the global steel industry. The North American nation is the 13th largest producer in the world, and the second largest in Latin America. After a dramatic drop in production in 2009 following the great financial crash, volumes are back up to healthier levels, and in 2013, the country broke all previous records with gross production coming in at 18.21Mt. The sector provides employment for some 720,000 people and generates 2.7% of total GDP. Mexico’s largest integrated producer is still Altos Hornos de México (AHMSA), but the last 10 years have seen the arrival of a range of new international players. ArcelorMittal has an important presence on the West Coast, while the Argentine Ternium operates a range of facilities across the country. Meanwhile, the Brazilian company Gerdau has recently finalised a deal to expand its footprint through a joint venture with local producer Corsa. www.steeltimesint.com

Levels of investment are impressive and steel imports continue to fall, but this does not mean that local mills can afford to rest on their laurels. Competition from low-cost producers in China and India continues to put pressure on margins and has forced producers to reign in costs wherever they can. Furthermore, Mexico still suffers from relatively high energy costs, particularly when compared to the highly-subsidised rates that steel mills in the USA pay. Poor economic growth in recent years has also led producers to worry about overcapacity issues as they struggle to find a market for their products, particularly those destined for the construction industry. Nevertheless, the forthcoming structural reforms to strategic segments of the economy will help bring Mexico out of the economic doldrums. The opening of the oil and gas sector combined with the meteoric growth of automotive manufacturing should go some way to

providing a strong foundation for increased demand. In parallel, we should see renewed levels of dynamism in the broader economy and increased purchasing power for Mexican consumers. “Disposable income rates are rising and this is intrinsically linked to steel consumption levels,” said Luis Reyes, vice president NAFTA for Vesuvius. “If a person sees a rise in their income then they are likely to switch from riding a bicycle to riding a motorbike. If he earns still more money, he will probably buy a car.” Mexico is an exciting place to be and, if the local mills can capitalise on the country’s natural competitive advantages of close proximity to the USA and a highly skilled workforce, then it seems that they have a very bright future ahead of them. The challenge now is to improve levels of technology and develop the level of expertise in the production of more sophisticated grades, and bring more value to the sector overall.

September 2014

22 COUNTRY REPORT: MEXICO While the Mexican economy is highly susceptible to external economic fluctuations, the economies of its main trading partners are in much better shape today. Mexico’s Secretary of the Economy, Ildefonso Guajardo Villareal, says better structured domestic policies will mean stronger growth in 2014 AFTER GDP growth of just 1.1% in 2013 the bank of Mexico has cut its forecast for this year’s Gross Domestic Product (GDP) growth from 3% - 4% down to 2.3% 3.3%. What are the reasons behind this anaemic growth? The Mexican economy is highly integrated with the global economy. Our ratio of total trade to GDP is approximately 66%. This makes our economy highly susceptible to economic fluctuations outside of Mexico. Thus, if the United States faces a bad year economically and Europe’s growth remains stagnant, we are disproportionately affected. Looking at the internal factors here in Mexico, 2013 saw the transition to the new government. When you have a starting government it takes time to adjust policies. When the new Administration came to power, certain sectors had been mis-managed and it was necessary to rethink how entire systems were managed. Today, the economies of our main trading partners are in much better shape and our own domestic policies are better structured. As such, we are expecting to see stronger growth in 2014 than we saw last year. The numbers are already improving with second quarter statistics showing improvement over the first quarter of the year. Decision making in the private sector is not looking at the short term, as we see from the high level of foreign direct investment (FDI) coming into Mexico. This is proof that investors have faith in Mexico, not just in the short term, but looking to the long term as well. There is an obvious split between Mexico’s large formal network of businesses and smaller informal SMEs. How does the government aim to address these stark contrasts in the Mexican business environment? Twenty years ago we integrated our country into the global market and opened up our borders to foreign trade by signing NAFTA (North American Free Trade Agreement). Since that time, we have multiplied our exports by seven and FDI inflows have increased four-fold. We have September 2014

Secretary of the Economy Ildefonso Guajardo Villareal

Fair trade prospers in Mexico signed free trade treaties with 45 other countries that have directly connected Mexican producers to over one billion consumers across the world. At the same time, the economy has stabilised well since the 1990s and both inflation and interest rates have come down. However, none of this translated into strong growth for Mexico. This is because the underlying mechanisms governing how business operates were in dire need of reform. The structural reforms aim to level the playing field for all businesses. One goal is to provide a regulated economy in which SMEs have access to more and more competitive financial resources and cheaper energy. How can companies flourish if they are paying 35% more for telecommunication services? How can companies flourish when they do not have access to financing? At the end of the day, the reforms, paired with a strategy to directly target sectorial developments, will help make the business environment more attractive for all players. Through INADEM (Instituto Nacional del Emprendedor), with a budget of MXN$10 billion, we are further pushing for the development, innovation and growth of entrepreneurs and micro, small and medium businesses. The automotive industry continues to be a key driver for the economy, but foreign players dominate the supply chain. Will we see Mexican companies make the transition from simple product supply to more knowledge-based participation? Ideally, the arrival of new investments into a country will lead to the domestic development of technologies and valueadded capabilities. This process has already taken root in Mexico and the country can boast a number of firms that contribute high-level processes and products to the industry. We now hope to see a similar skill transfer take place within the aerospace industry. Mexican aerospace exports have grown approximately 15% in the past seven years largely due to the proven expertise that has been built up in the automotive sector. We furthermore want to see the SMEs develop alongside this

industry as tier 2 and 3 players. Mexico is now in a privileged position with regards to manufacturing. There are three pillars to succeed in manufacturing. The first pillar is human capital. Countries such as China and Korea will see their labour force diminish by 30% by 2050, while Mexico’s will increase by 30% in the same period. The second factor is energy. Thanks to energy reform, this resource will become cheaper, allowing companies to be more competitive on cost. Innovation is the third pillar. To this end, we are investing heavily in boosting IT capabilities, and we have recently launched out PROSOFT 3.0, our revamped public policy aimed at developing the IT sector in Mexico. Where does the steel industry fit into the business environment in Mexico? As a key component in the Mexican manufacturing environment, steel is a sector highly dependent on innovation. Leading steelmakers, such as AHMSA, are investing in new capabilities in order to decrease dependency on imports and meet rising demand from new arriving industries. Currently, steel production accounts for 12.6% of manufacturing GDP. When I came into office, a number of key players in the industry wanted me to increase tariffs, but this will not happen. We have struck a good balance between looking out for domestic players and fostering an open economy where fair trade prospers. Increased protectionism would negatively impact downstream companies and would decrease our competitiveness in final products. That being said, we have been highly efficient in utilising the tools that we have available to avoid unfair competition. Throughout North America we are looking for more integration within the markets. NAFTA is not only about trade, but is about creating an integrated production process. In order to do this, it is important to have efficient rules that allow you to be competitive as a region. The rules of international trade have to be monitored accordingly to avoid highly protectionist communities in the North American region. www.steeltimesint.com

COUNTRY REPORT: MEXICO

Komatsu’s tandem transfer line

While Mexico has managed to attract a number of high-profile, international companies to its shores, such as Audi, DaimlerNissan and BMW, their presence hasn’t translated into strong economic growth

A two-tiered economy OVER the past year or two, Mexico has garnered international attention for the high volume of world-class companies that have chosen to set up shop in the country. The automotive sector in particular can be singled out as the recipient of unprecedented levels of foreign direct investment (FDI). In 2014 alone, Audi, Daimler-Nissan and most recently BMW have given the green light to billion-dollar investments in new production bases. The Bajío region in Northern Central Mexico, which encompasses the states of Aguascalientes, Guanajuato, Jalisco and Queretaro, has been converted into a hightech manufacturing hub and is now seeking to promote itself to players within the aviation industry. Nevertheless, these high-profile developments have failed to translate into strong economic growth. In 2013, the first full year of President Enrique Peña Nieto’s term of office, Mexico’s economy grew by just 1.1%, barely outstripping the beleaguered economies of the Eurozone. In May of this year, the Bank of Mexico cut its forecasts for GDP growth from 3% to 4% down to 2.3% to 3.3%. According to many commentators, this is still highly optimistic. Some estimates are as low as 2%, with the most pessimistic economists suggesting that Mexico may actually enter a recession. It is difficult to reconcile these two opposing trends. Indeed, looking solely at FDI figures, the outside observer would imagine that Mexico should be experiencing bonanza growth. The explanation lies in a duality that defines the whole Mexican economy. “The reason we have not seen enough growth is that Mexico is essentially split into two different countries,” said Mario Arregoytia, audit partner and head of mining and metals for Mexico and Central America at EY. “One part of Mexico is very modern and can compete on a global level… while the rest of Mexico is made up of small companies with very low efficiency and low competitiveness. Foreign investment in Mexico is mainly allocated within the most modern sectors,” he said. September 2014

SMEs, or PyMES as they are known in Mexico, dominate the economy. Small firms employ 60% of Mexicans and this figure is even higher in certain sectors, such as construction. Many of these companies are local, family businesses, characterised by a high degree of informality. This stands in stark contrast to the technologically advanced multinationals now flocking to Mexican soil. Most estimates suggest that between 1982 and 1992 Mexican productivity barely grew at all. The growth rate rose to just below 1% after NAFTA was signed in 1992. However, closer analysis reveals a more nuanced picture. According to research conducted by McKinsey, productivity within large, modern firms has improved by an average of 5.8% per year. Yet among traditional, family-owned businesses this level has been dropping at an annual rate of 6.5%. Clearly, poor performance from the PyMES is having a strong, adverse effect on Mexico’s economic potential. This is a headache for government because the high level of informality has a direct correlation with the country’s low tax revenues. A large proportion of these firms are not officially registered and, therefore, do not pay any taxes. It has been suggested that current social security policy and labour laws actually serve to perpetuate this situation. Formal sector employers contribute to their employees’ pension and healthcare provision through a direct payroll tax, equivalent to approximately 30% of salary, a high cost for any SME to bear. However, there is a secondary framework designed to cater to informal sector workers, which is paid for out of general government revenues. The quality of this latter system is now so high that many small businesses consider themselves better off staying under the radar and letting the government look after their staff. On top of this, the recent fiscal reforms, which were supposed to remedy some of these maladies, have proven to be highly unpopular among the business community. For many small enterprises, the standards demanded by the new

legislation constitute still more entry barriers to formality. “The reforms will mean more taxes and more complex compliance issues for these smaller organisations,” said Oscar Lizcano of Mexico City-based tube maker Conduit. “At the end of the day, medium companies may grow, and the large organisations will become much larger, but it is my belief that these reforms will actually hurt the smaller players in the industry.” In spite of this skewed incentive scheme, there are, of course, many businesses that wish to grow, become more professional and profit from the development of Mexico’s dynamic, growing industries. Unfortunately, there are more hurdles ahead for these companies—the lack of access to affordable finance is perhaps the most significant. “Banks in Mexico are not very well prepared to cater to small and medium-sized companies. They see loans to small companies as extremely risky and so often they charge exorbitant interest rates,” explained Juan Carlos Herrera, regional sales manager of the press technology division of Komatsu. According to figures from the World Bank, more than half of Mexico’s SMEs lack access to financial services, which has led to an estimated $60 billion credit gap for small and mid-size businesses. As a result, smaller companies involved in Mexico’s steel processing and metalwork sectors tend to suffer from a lack of advanced technology. There is an overreliance on used machinery, which is usually not able to deliver the quality and consistency demanded by Mexico’s more developed industries. Hector Morales, director of steel trader and equipment supplier Aceroteca, believes that the time has come for a change. “This situation cannot persist, especially when you consider the high standards that Mexico’s main growth industries such as automotive and oil and gas demand from their steel products,” he said. This low level of technology often prevents local firms from integrating into multinational supply chains and further widens the gulf between the two streams. www.steeltimesint.com

26 COUNTRY REPORT: MEXICO Rosario Soto Barrionuevo, president of Disma

However, there are some positive signs on the horizon. Disma is a leading provider of machine technology to metalworkers and steel transformers. The company’s president, Rosario Soto Barrionuevo, who has been in the market for over 20 years, has witnessed a shift in the buying habits of the smaller companies within her client base. “In the past, Mexican manufacturers usually acquired second-hand machines from the USA. Over the years, this situation has changed thanks to the growth of local companies that now see the value in purchasing new equipment,” notes Barrionuevo. The company has recently begun to stock cutting-edge laser cutters and bending robots from Japanese manufacturer Amada. “Twenty years ago it would not have been possible to sell this type of equipment in Mexico,” said Barrionuievo. “We have had to develop the market by building credibility and demonstrating the value of advanced technology.” This sentiment is echoed by Israel Gonzalez, country manager for Hypertherm, a developer and distributor of advanced cutting technologies. “Plasma technology is not well known in the country,” said Gonzalez. “Companies are still selling and using technologies such as friction or oxy-

September 2014

fuel cutting. We use ionised gas to cut materials, which is a big step forward in terms of safety when compared to older technologies,” he explained. While Gonzalez acknowledges that there is still a need to educate the market, Hypertherm’s sales figures would suggest that there is a real demand for this higher level of quality. In the last four years, the company has quadrupled its revenues and substantially increased its market share. In parallel with this new demand for advancement, more flexible payment options and alternative finance avenues are starting to open up. These are mostly initiatives taken by equipment producers and distributors working in concert with finance companies. As of yet, it seems that Mexican banks are not interested in offering more attractive options to help smaller companies develop. This could prove to be damaging in the long term. Mexico’s economic woes will not be solved if large financiers continue to ignore the needs of their smaller clients. Ruben Rodriguez, director of Cokes Industriales, a key supplier of metallurgical coke and coal to the steel industry, sees SMEs as pivotal to ensuring more equitable development across the country. “It is vitally important to stimulate this sector of the economy rather than to

just focus on the big headline investments,” said Rodriguez. “More work for small companies means more employment, which would help to bring down poverty and unemployment levels, which would ultimately have a positive impact on crime rates too.” As many of these companies are highly localised operations, programmes being implemented on a state level may be the way forward. In Nuevo León, Rolando Zubirán, the Secretary for Economic Development, is rolling out a unique scheme to help small companies bring a greater level of professionalism to their business. “We have developed a centre for entrepreneurship that is the only one of its kind in the country and certified by the OECD,” said Zubirán. “We provide a onestop shop to foster entrepreneurship to help with registration, taxes and accounting, as well as market development.” Such innovations are surely a step in the right direction, but it will take more than a few isolated initiatives to help bridge the gap and bring Mexico’s faltering economy up to speed.

www.steeltimesint.com

COUNTRY REPORT: MEXICO

Mexico’s place in the global market Mexico is a firm believer is free trade and a signatory of the North American Free Trade Agreement (NAFTA) but it too is concerned about opening the floodgates to cheap steel from China FOR some years now, the world has been dealing with overcapacity of 20% to 30% within steel production. This is largely a result of the state-sponsored development of new capacity in China, which finally caught up with the colossal spike in demand that the country experienced in the early noughties. Now, excess output from Chinese producers is finding its way to far-flung markets and putting serious pressure on local producers to bring down their prices. Mexico is no exception to this global phenomenon. Despite this worldwide surfeit of crude steel, Mexican mills have been investing heavily in new plants. According to figures from the Mexican Iron and Steel Industry Chamber (CANACERO), steel producers invested $10.8 billion between 2001 and 2014, and it looks as though this level of activity is set to intensify, as the investment portfolio for 2014 to 2019 now stands at $11.5 billion. This may seem counterintuitive under the circumstances, but it is important to understand that Mexico actually suffers from a regional shortage of steel, particularly when it comes to speciality materials. In fact, Mexico remains a net importer of the metal. Gerardo Treviño, of financial services at Deloitte, identifies two principal drivers for these new facilities: “The first is to substitute imports and deliver to the domestic market at more competitive prices,” explained Treviño. “The second forms part of the bigger picture of foreign companies arriving in Mexico… naturally it makes sense for steel mills to cater to this new wave of customers.” Obviously, it will only be possible to substitute imports if the local producers can deliver their products to market at lower prices than the Chinese. Given the heavy subsidies that the Chinese government awards its mills, particularly for exports, this would be almost impossible without similar intervention here. While the Mexican government is not prepared to offer incentives to domestic producers, it has introduced a series of tariffs and entry barriers to prevent dumping of cheap Asian and Eastern European materials, specifically targeting China. Thanks in large part to these controls, Mexico was able to reduce imports by 12% between 2012 and 2013. These laws may not go as far as some in the industry might hope, but Roberto Benavides, audit partner at Deloitte, recognises that it is a difficult situation in www.steeltimesint.com

which legislators find themselves. “Steel makers may wish for more protective measures, but the reality is that it is very tough to strike the right balance between opening the country to foreign trade and protecting our domestic producers from unfair practices,” he said. Since the late 1980s, when the Salinas administration began to privatise many state-owned entities, successive governments have tended to veer toward free trade rather than protectionism. This propensity toward openness is frequently identified as one of the reasons why the country has been so favoured by foreign investors. Today, Mexico participates in over 40 free trade agreements (FTAs), the most important of which is NAFTA. Maintaining an open border to the North is extremely important to Mexico’s steel producers. “Ever since NAFTA was implemented, more stabilisation and better regulations have made it easier to cross the border between Mexico and the United States,” said Alfredo Garcia, president of Mexico City’s Lavisa, which imports high quality carbon steel pipe for clients in the oil and gas sector. “Pre-NAFTA it was often an obstacle transferring products across the border. Today as we are shipping consistently across the border this is no longer seen as an obstacle and is actually done quite efficiently and easily.” While it used to be the case that most steel shipped within NAFTA took the form of goods produced in the USA and Canada destined for the south, Mexican exports are beginning to pick up. At the end of 2013, exports reached 6.01Mt, a 16.3% increase on 2012 levels. The largest external buyer of Mexican steel by far is the United States, but they are also starting to buy an increasing volume of finished products. This is particularly evident in the case of the automotive sector as coils of speciality steels brought in from Canada and the USA are turned into light vehicles, which are exported northward by the thousand, predominantly via rail. Nevertheless, when it comes to steel trading within the North American region, the relationship between Mexico and the USA does not quite live up to the image of seamless integration that their respective leaders seek to project. Beneath the harmonious exterior, a battle is raging over supposed dumping of cheap rebar by Mexican mills. “Mexico has always produced a huge surfeit of rebar, which has led the local producers to export their

products at ludicrously low prices to the USA,” explained Ricardo Fernandez, CEO of Ferrecabsa. “This has provoked legal action from the North and once again we are seeing anti-dumping suits being brought against Mexican mills.” The USA already imposes strict tariffs on rebar imported from a range of low-cost producing countries, including China, Ukraine, Latvia and Poland. Now, US legislators have set their sights on Mexico and Turkey. The case against Mexico began in September 2013, with a petition filed by a consortium of American producers headed by Nucor and Commercial Metals USA. They claimed that cheap exports from south of the border constituted unfair competition and should be treated as a threat to the national industry. As of April 2014, the United States Department of Commerce has recognised the legitimacy of the claims brought by the consortium and has imposed preliminary duties on all rebar crossing the border. The organisation has set a provisional margin of 20.59% for Mexican producers, but also singles out three producers in particular: Grupo Acerero, which faces a margin of 66.70%, DeAcero with 20.59% and Grupo Simec, which has fared slightly better, with a margin of 10.66%. Mexican producers were swift to register their disapproval at this decision. In a piece for the Houston Chronicle, Raul Gutierrez, co-CEO of DeAcero, one of the companies that will be most affected by the legislation, makes a strong case against the Commerce Department’s move. He points out that Mexican products account for just 4% of the total US rebar market, while mills within the USA enjoy nearly 90% market share. He accuses the department of violating the basic principles of cooperation and fair trade that are at the core of the NAFTA agreement. His claim that the litigation process could derail NAFTA is probably overblown, but it carries with it a kernel of truth: steel is a highly politicised industry within the USA, and such disputes only serve to sour relations between the two countries on a broader level. Mexico is petitioning US producers and government representatives to negotiate with Mexican mills outside of court in order to find a more mutually beneficial solution. However, for now, it seems that the preliminary measures will be converted into de-facto tariffs, and Mexican producers will have to look elsewhere to offload their excess capacity. September 2014

COUNTRY REPORT: MEXICO

Compania Minera Autlan

Raw materials in Mexico Illegal iron ore trading, a need to import scrap from the USA, limited domestic coke production and highly professional integrated steel producers – four elements of Mexico’s raw materials industry llegal iron ore

THE rich iron ore deposits of Michoacán state have attracted the attention of artisanal miners for centuries, and were initially explored by the local indigenous communities long before the arrival of Cortés in 1519. Over the centuries, the methods used to exploit the mineral wealth became more and more sophisticated and a substantial mining industry built up. In the early 1970s, the government of President Gustavo Diaz Ordaz ordered the construction of the colossal Lazaro Cardenas steelworks, precisely in order to take advantage of the large ore bodies located just inland, which were state-controlled at the time. Today, Michoacán is still the biggest producer of iron, but a new group has begun to muscle in on the production chain. In April 2014, the Mexican Navy seized a ship containing 68kt of illegal iron ore bound for China. The seizure came as part of a targeted operation to put a stop to illicit mining activity carried out by organised crime rings. Facing increasing competition within the drugs trade, the Knights Templar cartel began to integrate iron ore into their existing business operations several years ago. Michoacan has long been one of Mexico’s most lawless areas and the cartels have a significant influence over the local communities. Criminal fingerprints can be found all the way through the mining chain. It is thought that their first incursion into the industry came through extorting transport unions involved in the shipping of the ore. They then began to take advantage of their hold over local government figures to determine which prospectors would receive exploration permits and mining licenses; those who refused to pay were refused their license. Eventually they September 2014

entered into the extraction itself, sending personnel into the pits to receive a cut from the more legitimate operations and actually operating their own mines as well. Victor Cairo, CEO ArcelorMittal

It is estimated that in 2013, approximately half of all iron ore produced in the area was mined without the necessary permits. Over the course of 2013, the going rate for iron ore hovered between $105/mt and $110/mt, less than 0.0001% of the $250 million price tag commanded for a ton of cocaine. Nevertheless, exporting iron ore to China is now reckoned to be the main area of income for the criminal gang. In November 2013, in an effort to control the situation, the government sent in federal troops to take over the port of Lazaro Cardenas. Local police were disarmed and sent for evaluation and retraining programmes. These measures were widely regarded as a failure and it fell to loosely organised bands of vigilantes to fight back against the cartel activity. In an embarrassing situation for the government, the informal forces had more success than the might of the federales, and there are now efforts underway to

formalise these disparate groups into an organised rural police force. For now, however, the prevalence of illegal mining is not going to disappear. Integrated producers

Needless to say, Mexico’s steel producers are highly professional organisations and have extremely exigent demands on all their suppliers. Raw materials used in mills require exceptionally high levels of traceability and so domestic producers will only work with thoroughly vetted providers. The three heaviest users – AHMSA, ArcelorMittal and Ternium – are all fully integrated and use their own mines to meet internal demand. AHMSA’s Hercules Mine in Coahuila is the main source of unprocessed ore for the company. Operated by AHMSA’s subsidiary, Minera del Norte, the complex incorporates both open pit and subsurface operations and produces approximately 3.2Mt/yr of iron concentrate, as well as further important production of lump iron. Proved and probable reserves at the site come to 40Mt and under current exploitation rates, the mine life will extend for another 14 years. Ore from the mine is transported via a 382km mineral pipeline to a pelletising plant at the company’s Monclova production complex, which can process 3Mt/yr. Minera del Norte also owns substantial deposits in the states of Jalisco, Michoacán, Colima and Oaxaca. Looking to the future, the company has developed an ambitious plan to begin exploiting these reserves with a view to exporting them to China. An agreement has already been formalised with the Xingxing Hanfang Mining Investment Co. to supply 10Mt/yr of iron concentrate over a period of 20 years. ArcelorMittal runs fairly substantial mining operations in the country. “We have three iron mines: El Volcán in Sonora; www.steeltimesint.com

COUNTRY REPORT: MEXICO 29 Novocast

Peña Colorada, which is a joint venture with Ternium; and Las Truchas in Lazaro Cardenas,” explained CEO, Victor Cairo. “These three operations provide us with a combined total of 6.5Mt/yr iron ore, which is used to produce our crude steel.” The company has recently entered into a five-year agreement with Canadian based Evrim Resources to explore for iron ore around Mexico. The Peña Colorado mine, jointly operated by Ternium and ArcelorMittal, produced 3.9Mt in 2013, slightly less than total output in 2012. This slowdown has been attributed to lower grades within the open pit. At the end of 2013, it was predicted that the operation had 18 years of useful life ahead of it, and both operating partners are investing in delineating new resources in the immediate area surrounding the mine. Ternium is also the sole owner of the Las Encinas mine in Colima, which can deliver a total of 1.9Mt/yr in the form of pellet feed. While all of these operations are boasting healthy production figures and have an assured mine life of over a decade, the outlook for the future of Mexico’s mining industry in general is not so positive. The increase in mining tax to 7.5%, coupled with the country’s already high energy costs, has had a serious impact on the country’s competitiveness when it comes to attracting new mining projects. According to statements from ArcelorMittal, the arrival of this new tax could cost the company up to $65 million and it is expected that exploration investments will drop off as of next year. Elsewhere, the continuing downward trend in global iron ore prices has had a direct impact on steelmakers, but the miners are now in a much stronger position than their clients in the steel business. “Twenty years ago, most of the profit margin in finished steel went to the steel producers. Now, the situation is different. The participants with the highest margins are now in minerals and raw materials”, explained Gerardo Treviño of Deloitte. Evidence of this can be seen elsewhere in Latin America as Brazil’s Votorantim Group has decided to reign in its steel production www.steeltimesint.com

in favour of focusing on its more profitable mining unit. The challenge for steelmakers now is to determine and forecast price fluctuations in order to secure the best possible supply deals with miners. In the current situation, however, this can be difficult, as miners tend to hold the upper hand in such negotiations. If miners believe that the iron ore price is about to rise, then they will push for a short-term contract and then try to renegotiate based on the higher price some months down the line. Scrap

While iron ore has been trending towards ever-lower prices, the value of ferrous scrap continues to increase. At the moment, the Mexican scrap market processes between 6Mt/yr and 8 Mt/yr, which is not enough to meet growing local demand. Further pressure is being put on supplies by increased levels of activity in the foundry and forging sectors. As is the case with steel production, Mexico runs a substantial scrap deficit and relies heavily on imports from the USA, particularly within speciality grades, to satisfy domestic requirements. By far, the most important participant in the scrap market is Deacero, which purchases approximately 250kt to nourish its string of melt-shops around the country. With the exception of this large conglomerate, the market is highly fragmented and populated in the main by very small, informal scrapyards that turn over a maximum of 10,000 mt/m. A high percentage of these minor operations eventually end up feeding into Deacero’s extensive supply chain. This dramatic split in the market has unsurprisingly led to some resentment towards the largest operator. Independent merchants resent Deacero’s clear predominance in the market, and accuse it of distorting market prices and cutting off business opportunities for smaller players. Meanwhile, mid-size companies are looking to professionalise and for alternative strategies to grow and develop. “Because it is a deficit market, we do not have to make any effort to sell. We operate at the price paid by the mills, which are September 2014

30 COUNTRY REPORT: MEXICO

Roca Acero

competing among themselves for the material,” said Mario Tijerina, director general of Roca Acero, a mid-size scrap recycler based in Monterrey that is looking to professionalise its operations. In this scenario, the potential for scrappers to grow is dependent on their ability to source waste materials at competitive prices. They are seeking to differentiate themselves to suppliers by bringing a new level of sophistication to their services. Some waste collectors are streamlining their logistics to coincide better with Just-In-Time (JIT) manufacturing programmes at stamping plants, while others are bundling additional services such as industrial cleaning and hazardous material handling into their offering. The high degree of fragmentation is similar to the dynamic that prevailed in the USA 20 years ago. This all changed after Nucor bought out the scrap company DJJ, and the market saw a process of consolidation and integration. It seems likely that as mills grow in capacity and look to secure metals on a longer term, we may see a similar transformation take place in Mexico. A number of North American scrap dealers have recently set up shop in Mexico and are looking to establish their position. However, given that many of the enterprises with which they will be interacting are small, family-run businesses, it seems likely that Mexican operators, with their long-standing personal relationships, will have an advantage, at least in the short term. On the demand side, buyers are starting to re-evaluate their purchasing programmes. “Instead of going to the spot market, we are negotiating with suppliers and scrap generators to establish a formula based off of American Metal Market prices so that we can secure steel scrap,” said Raul Lopez, managing director of grey iron foundry, Novocast. As a subsidiary of the large American firm Grede, Novocast may be able to leverage its substantial weight to arrive at September 2014

more favorable terms with providers, but given the current imbalance between supply and demand, this will remain a seller’s market for some time. For now, scrappers can effectively name their price and be sure of finding a buyer. Coke and coal

Overall, Mexico is not a large producer of carbon. Domestic coke production is highly limited, and the little output that is generated within the country is mostly absorbed by state energy producer Comisión Federal de Electricidad (CFE) to drive its power-generation turbines. AHMSA owns and operates coal mines in Palaú, Coahuila. The coal extracted is processed at its coke ovens and incorporated into the blast furnaces in Monclova. The Sabinas region has been an important source of coal for the company for over 70 years and today its mines extract approximately 4Mt/yr. Independent coal production is mostly centered in the state of Coahuila and is dominated by a spread of small operations. Consistency, both in terms of supply volumes and quality, is fairly patchy from these players, and as a consequence, heavy users tend to import their own supply or work with local distributors. In the past, consortiums of major mills have collaborated to bring over entire shipments of metallurgical coal from China. Local distributors, on the other hand, may not be able to bring in the volumes to make this type of operation economically viable. “We import most of our coke, petroleum coke and graphite from the USA,” said Ruben Rodriguez of Cokes Industriales. “We occasionally import materials from China but the problem here is that the freight cost is very high. Although the product itself is much cheaper, the total cost works out slightly higher. In a good year we will import some 3,000 mt of material, but Mexican suppliers also play a key role in our supply chain, particularly when it comes to graphite and anthracite.” www.steeltimesint.com

32 COUNTRY REPORT: MEXICO

Mexico’s major mills Deacero’s worker

Mexico plays host to five major steelmakers AHMSA

SINCE its establishment in 1942, Altos Hornos de Mexico, S.A. de C.V. (AHMSA) has become the largest integrated steel plant in Mexico. The company operates two steelworks that recorded crude steel production of 4.14Mt in 2013, up 7.1% year-on-year, according to the National Chamber of Iron and Steel Industry (CANACERO). The vertically integrated organisation starts with the extraction of coal and iron ore and finishes with the manufacturing of high value-added steel products. With a workforce of 19,000 people, including its subsidiary companies, AHMSA is a national leader in the production and commercialisation of flat steel products including hot-rolled coil, wide plate, cold-rolled coil, and tin-free steel. The company ownership has varied between a variety of public and private investors, but in 1991 it was privatized and was purchased by Grupo Acerero del Norte (GAN). AHMSA has felt the volatility of the Mexican steel market over its long history. As a consequence of plummeting international steel prices and the financial crisis that began in Asia at the turn of the millennium, AHMSA was forced to file for bankruptcy protection on a $1.86 billion debt in 1999. AHMSA has since taken advantage of outdated bankruptcy laws in Mexico to enable an orderly suspension of payments ahead of the eventual liquidation of troubled companies. The old law does not stipulate term limits on procedural hearings, does not limit the use of litigation by opposing parties, and allows debtors to remain under court protection indefinitely. The law also discourages creditors from pushing for the liquidation of a corporation in default. Thus, after defaulting on the $1.86 billion, AHMSA business has continued unaffected for the past 15 years. The company continues to invest in further production capabilities. The most September 2014

recent of these investments is an $83 million injection that aims to produce steel for the oil and gas industry. The mill, which is expected to start operating in October 2015, will have the capacity to process 2Mt/yr of liquid steel and will focus on the production of high-tensile steel with a low hydrogen content—the type of steel demanded by the oil industry and manufacturers of pipelines, among other users. Ternium

Ternium is a leading Latin American manufacturer of steel products and has a specific focus on the Mexican market, as it accounts for the majority of its total shipments. Ternium produces and processes a number of value-added steel products, including galvanised and electrogalvanised sheets, pre-painted sheets, tinplate, welded pipes, hot-rolled flat products, cold-rolled products, bars and wire rods, as well as slit and cut-to-length offerings through its service centres. These products aim to serve a wide variety of needs for the construction, home appliance, capital goods and energy industries and, increasingly, the automotive industry. Despite a weaker domestic demand for steel goods in the Mexican market at the beginning of 2014, which was largely due to a 4.5% contraction in the domestic construction industry, Ternium achieved a record shipments volume of 9Mt/y and was the leading supplier of flat steel products in Mexico. The company notes that the less developed southern region of Mexico played a big role in accomplishing these records as industrial activity and construction actually improved in this area. In 2014, Ternium and Tenigal, a company in which Ternium and Nippon Steel & Sumitomo Metal Corporation hold 51% and 49% respectively, began ramping up production at its newly inaugurated mill in Pesquería, Nuevo León, Mexico. The two

cutting-edge production lines combine Ternium’s cold rolling mill and Tenigal’s hot-dipping galvanising mill in order to provide high-end steel primarily for the automotive industry. With a processing capacity or 1.5Mt/yr of cold-rolled steel and 400kt/yr of galvanised steel, the company expects this investment to pay out large dividends in the long term and increase market share within Mexico’s growing automotive industry. In addition to further penetration into new markets, Ternium is also focusing on controlling more of its raw materials through supply chain integration. Techgen, a company that Ternium has a 48% stake in, along with Tenaris (22% stake) and Tecpetrol (30% stake), is launching a $1 billion energy system project. The new natural gas-fired combined-cycle power plant in Mexico is expected to be completed in the fourth quarter of 2016 and will deliver a total generation capacity of between 850 and 900mW. Ternium’s supply agreements with Techgen will enable it to purchase 78% of this power output. Integrated systems such as those mentioned above, demonstrate Ternium’s growing commitment to the Mexican market. In 2013 alone, Ternium’s capital expenditure in the country amounted to $486 million. ArcelorMittal

ArcelorMittal is the world’s leading integrated steel and mining company. By employing an aggressive acquisition strategy, ArcelorMittal, itself the result of a merger between Mittal Steel and Arcelor in 2006, has continued to expand and in 2013, produced nearly double the total amount of steel as its closest competitor Nippon Steel & Sumitomo Metal Corporation. With sales of $79.4 billion in 2013, global steel shipments of 84.3Mt, and crude steel production of 91.2Mt, ArcelorMittal is the leading supplier of steel products in all major markets, including www.steeltimesint.com

COUNTRY REPORT: MEXICO 33 Alfonso Carmargo, commercial director for profiles at Deacero

automotive, construction, household appliances and packaging. ArcelorMittal sells its steel products to customers in over 170 countries, is present in more than 60 countries, and has an industrial footprint in over 20 countries – including Mexico. ArcelorMittal is Mexico’s largest steel producer and slab exporter. Its industrial footprint consists of a 4Mt/yr pelletiser plant, a 2.3Mt/yr HYL DRI plant, a 1.5Mt/yr Midrex DRI plant, four 220Mt electric arc furnaces, two twin-strand continuous slab casters, and a thermal power plant. The main facility, which employs over 5,500 people, is located in Lázaro Cárdenas, Michoacán where the total production of steel is 3.8Mt/yr. The adjacent port on Mexico’s Pacific coast gives ArcelorMittal maritime access to North American, South American and Asian markets. The company further increased its Mexican operations through the acquisition of Dofasco and taking over its Mexican tube welding facility in Monterrey. The tubes produced here contribute to the growing automotive, agriculture and construction industry in Mexico. ArcelorMittal is the only slab producer in the world utilising the direct reduced iron – electric arc furnace (DRI-EAF) continuous casting method for its entire production of steel products. The process boasts higher

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quality slabs that have a uniform grain structure and superior finish. This allows for a finished product that can be used for more sophisticated applications such as the automobile, appliances, petroleum and gas, and shipbuilding industries, as well as structural and commercial grade steel for the construction industry. Deacero

Deacero began its operations in the 1950s as a producer of steel mesh for fencing. Over time, the privately owned, 100% Mexican company became increasingly dominant in the production of mesh and other wire and, as a result, began to focus on the vertical integration of its supply chain. In 1980, Deacero established its first steel mill, gaining the capability to process billets and manufacture steel wire, the primary raw material for the wire derivatives that Deacero currently produces. Today, Deacero has continued integrating and has its own scrap metal collection and processing infrastructure, steel mills, product manufacturing plants and distribution centers across Mexico and the United States. Alfonso Camargo, a director at Deacero emphasized the strategic importance of further integrating the company. “The fact that we are fully

integrated and produce our own raw material allows us to work with a wide variety of different alloys, depending on the particular application we are looking at,” he said. The fact that Deacero has experienced continuous growth, doubling in size every 10 years, and currently employs over 6,500 people, attests to the strategic success of such integration. With a total production capacity of 4.5Mt/yr and over 60 years experience, Deacero has become one of the largest manufacturers in North America. The company offers a diversified portfolio of over 3,800 products that can be subdivided into 90 categories. This includes a wide assortment of finished goods, such as fences, meshes, nails, and wire ropes. Industrial goods, such as galvanised or black annealed wires, wire rod, merchant bars, shapes and beams for

September 2014

34 COUNTRY REPORT: MEXICO

ArcelorMittal Mexico

value-added resellers such as equipment manufacturers, fabricators and the construction industry, continue to constitute a large percentage of Deacero’s current business. In addition, it continues to operate as a non-ferrous recyclable metals supplier for mills, foundries, smelters and traders. Deacero’s most recent plant, inaugurated in 2013 in Ramos Arizpe, has allowed the company to produce rebar for the construction industry. The bilateral selling of low-cost rebar across borders remains a highly controversial topic in Mexico, and Deacero’s co-CEO Raul Gutierrez has been vocal in expressing his annoyance with recent “dumping” accusations from American steel producers. As a fully integrated leader in North America, Deacero has started assessing the potential of other markets worldwide and has named South America and Central America as exciting prospects for future operations. “We do not have any firm plans yet,” said Camargo, “but we plan on setting up joint ventures with local partners in order to strengthen our footprint in new locations moving forward.” Gerdau

Brazilian steelmaker Gerdau is the Americas’ leading company in the production of long steel and a major global supplier of speciality steel. The company has an installed capacity of more than 25Mt/yr and more than 45,000 employees worldwide. Through a vertically integrated network of mini-mills, scrap recycling facilities, and downstream operations, the company serves customers throughout North America and offers an assorted product mix of merchant steel, rebar, structural shapes, fabricated steel, flat-rolled and wire rod. The company’s products are generally sold to steel service centres, distributors, steel fabricators, or directly to the OEMs for use in a variety of industries including commercial, industrial and residential construction, manufacturing, mining, September 2014

cellular and electrical transmission and the automotive industry. The company’s penetration into the Mexican market occurred in March 2007 with the acquisition of Siderúrgica Tultitlán (Sidertul), a Mexican company with more than 50 years of national experience in manufacturing rebar for construction. The mini-mill, located in the metropolitan area of Mexico City, had the production capacity of 350kt/yr of steel and 330kt/yr of laminated product and was purchased for $259 million. At the time, André B. Gerdau Johannpeter, CEO of Gerdau, stated: “Mexico is a priority market for Gerdau,” and this acquisition was a pledge to this prospering market. The company has since increased production capacity at the facility to 500kt/yr and 430kt/yr, respectively. The company made further commitments to the Mexican steel market with a 49%, $110.7 million acquisition of Corsa Controladora that concluded in 2008 and led to the formation of Gerdau Corsa. “The partnership strengthens the Gerdau Group’s presence in the third largest steel consumer market in the Americas and allows us to continue as one of the agents in the consolidation process of the global steel business,” stated Johannpeter. Today, Gerdau Corsa operates two mills producing crude and rolled steel located in the state of Mexico with aggregate installed production capacity of 500kt/yr of crude steel and 400kt/yr of rolled steel products. In Hidalgo there is another unit producing structural profiles. It also has three scrap processing and collection units and seven distribution centres. Gerdau Corsa products are primarily sold on the domestic Mexican market. More recently, through the joint venture with Gerdau Corsa, Gerdau has purchased the main equipment for the installation of a new structural shape mill for which construction is fully underway. The new mill has an annual installed capacity of 1Mt/yr of steel and 700kt/yr of rolled products and will negate the need for imports of this product in Mexico. www.steeltimesint.com

COUNTRY REPORT: MEXICO Mirroring the trend for expansion and advancement within the mills themselves, service centres have had to formalise their operations and improve the level and range of services they offer in order to stay relevant within the market. Distributors that still adhere to the old model of simply holding inventory for small users are rapidly disappearing

Plesa steel leveller

Bridging the gap between supply and demand STEEL distribution is big business in Mexico. In other Latin American nations such as Brazil or Argentina, mills tend to operate their own distribution networks and maintain fairly direct interaction with their end clients. This is not the case in Mexico. Here, producers invariably sell only to independent distributors or service centres. This situation has led the subsector to grow to extremely large proportions. Member companies of the National Confederation of Steel Distributors (CONADIAC) provide employment for over 40,000 people and sell more than 50% of all the steel produced in the country. It is unclear how exactly this dynamic came about in the first place, but it seems likely that it was born of necessity. Traditionally, the companies involved in Mexico’s metal processing sector were small, highly localised operations. The original idea of a service centre was simply to buy steel and keep inventory for small customers who lacked the purchasing power to go directly to the mills. Today, many heavy consumers of steel – major construction companies, stamping plants and forges, for example – are now large, professionally run operations that could potentially buy their materials from the original producer, but the strength of the distributor still persists. This does not mean that the sector has remained stagnant. We are seeing a variety of different strategies take shape as distributors alter their business models to adapt to the demands of the changing economy. In order to follow the rationale behind these strategies, it is first necessary to understand that a broad division exists within the sector. “It should be noted that companies focus on either commercial or www.steeltimesint.com

industrial, and that industrial steel has a much larger growing demand at the moment,” explained Mauricio Morales, director of Galvaprime, a fairly new player among Monterrey’s thriving community of service centres that prides itself on the early adoption of modern technology. “Commercial steel, such as that used in the construction industry, has seen stagnant or very low growth.” In this context, those operators with a focus on commercial steels have had to differentiate themselves primarily through the sheer scale of their inventory. “Ferre Barniedo is one of the largest suppliers of structural steels to the construction industry and has built up a strong reputation behind its brand with over 40 years in the market. Ferre Barniedo’s slogan is “En Acero, Todo,” which roughly translates as “Everything in steel.” This idea underpins our philosophy and we aim to keep an extremely large inventory across a wide range of different products,” commented, José Calixto Perez del Blanco, the company’s director. Across its five different warehouses, Ferre Barniedo manages stocks of approximately 200kt. Clearly, this is not a feasible strategy for everyone, as the costs associated with building up such an inventory are very high. As such, an increasing number of service centres are shifting their approach to appeal more to clients involved in Mexico’s booming automotive and manufacturing industries. Now, the main thrust is towards adding value to the base steel being sold. This is generally accomplished by incorporating increasingly complex processing technologies to existing plants. A large number of service centres have been acquiring new slitting lines, multiblanking lines and automated cutting equipment. One name that is emblematic

of this new direction is Plesa Steel. The company recently completed a $50 million investment in a state-of-the-art process plant in Monterrey. “More and more of our clients are looking for better quality processed material, which is why we made the new investment into our facilities. All of the machinery we brought in is providing much higher quality, particularly when it comes to the flatness of the material,” explained director Eduardo Zundelevich. Moving forward, Zundelevich is very optimistic about the future of the sector and plans to roll out further investment programmes over the next two to three years. Still others have chosen to push even further down the value chain towards the delivery of final products. Aceros del Toro started out as a small scrap trader, before moving into distribution and processing. Although its service centre still constitutes the most important part of the operation, director Francisco Vargas sees huge potential opening up through the fabrication of large metallic pieces. He said: “Rather than selling steel, the idea here is to move further downstream and sell components. This area currently makes up about 5% of our total revenues but the eventual goal is to export.” To capitalise on this growing demand for fabrication services, the company has recently purchased a laser cutter to shape thick steel plates for use in their workshop. However, amidst this flurry of new investment, some are sounding a note of caution. “There is a huge overcapacity problem within the service centre sector. Across the country, service centres are running at as low as 30% capacity,” warned Ricardo Fernandez, CEO of distribution chain Ferrecabsa. September 2014

36 Rather than investing in its own process capacity, Ferrecabsa’s management has opted to pursue an entirely different course of action. “We have looked at this possibility many times, but after analysing in great detail the potential consequences, we concluded that it is simply not a worthwhile investment.” Recognising that demand for commercial steel has been underperforming, they have moved to compensate lower sales in their traditional wholesale business by entering the retail market. Selling small volumes with much higher margins has allowed them to prop up their core business until market conditions improve. This strategy may be paying off for Ferrecabsa but it is not without risks. Crossing over into retail means stepping on hotly contested territory. In addition to the plethora of micro-distributors that exist in every Mexican city and cater to neighborhood construction firms, entrants to the retail market will have to take on high-volume international behemoths such as Home Depot. “When it comes to steel, Home Depot destroys prices. As they have such a huge range of different products they are able to offer simple materials like cement and rebar with margins of just 1% or 2%,” cautioned Jorge Zarick, director of Puebla’s Tycsacero, a distributor focusing on construction materials. This squeeze on margins has effectively closed the door on retail rebar to small, independent players, which generally need to sell at a 6% or 7% mark-up to stay afloat. That being said, there is still room for manoeuvre in other commercial profiles, such as beams, which are not usually manufactured within Mexico. Looking to the future, it seems certain that Mexico’s distribution sector is here to stay. The growth of foreign producers such as Ternium and Gerdau, which are used to running their own distribution networks in their home countries, may shake up the scenario to a degree, but large distributors are so entrenched within the market that it will prove difficult for the new mills to dislodge them. Francisco Ponton, director general of American service centre, Steel Warehouse, believes that the current overcapacity will give way to a new wave of mergers and acquisitions: “In terms of market, I hope that we see more consolidation. Currently there are too many players fighting for the same space . . . just look at how many slitters are around the Monterrey area. With so many players, consolidation is bound to occur.” This seems like a fair assessment, although given that most local players are currently investing as much as they can in a bid to outdo each other, we may not see any activity in this regard for some years. September 2014

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COUNTRY REPORT: MEXICO 37

Mexican manufacturing shifts into high gear There are many reasons why Mexico is becoming so popular for the automotive industry. First, its proximity to the USA and Canada. Second, its status as a signatory to trade agreements with over 40 different countries and third, the high number of parts manufacturers in the country “EVERYBODY wants to be in Mexico.” This is how Raúl Lopez of Novocast sums up the automotive industry’s current sentiment toward the country. It would seem that Mr. Lopez is entirely correct in his assessment. The past five years have seen extremely high levels of investment from new entrants and established players alike. Daimler AG and Nissan Motor Co. have just announced a new $1.36 billion facility in Aguascalientes to produce premium small cars, which will be located alongside Nissan’s existing plant in the area. This comes hot on the tail of BMW’s confirmation of a $1 billion investment in San Luis Potosí to manufacture 150,000 vehicles per year by 2019. In 2013, Mexico produced just over 3 million cars, or approximately 18% of all the cars made in North America. By 2020, this figure is expected to climb to 25% as Mexican plants steal market share from producers in Canada and the Southern United States. Since 2009, employment in the sector has risen by 46% and now provides jobs for some 580,000 people, principally in the central Bajío region. Why has the country suddenly become so popular for automakers? Low labour costs play an important role, as is the case in any manufacturing industry. According to numbers from the Centre for Automotive Research, the average Mexican worker earns approximately $8 per hour, compared with $37 in the USA. However, in the longterm, an over-reliance on low wages could prove to be shortsighted; as Mexico’s economy develops, wages and living standards should see a commensurate improvement. As such, promoters of the industry within Mexico are keen to point out the country’s other competitive advantages. Oscar Albín, president of the National Autoparts Institute (INA), emphasised four key factors that play in Mexico’s favour. The first is the country’s geographic situation. Next door to the USA and Canada and in close proximity to growing markets within South America, producers in Mexico are in an advantageous position when it comes to distributing their products. “Vehicles are expensive products www.steeltimesint.com

Oscar R Albin, executive president of INA

to transport, so being positioned close to end markets is very important for manufacturers,” he pointed out. While China or India may be able to offer even lower labour costs than Mexico, when total shipping costs are taken into account, it is cheaper to deliver a car from Mexico to the USA. The second key advantage is derived from Mexico’s status as a signatory to trade agreements with over 40 different countries. 90% of Mexican vehicles eventually find their way to these destinations. The third attribute is the high number of part manufacturers present in Mexico. The country is home to over 1,100 part makers, which helps bring down costs for the assembly lines located here. The final point is the level of automotive Fausto Cuevas, director general of AMIA

expertise concentrated within the country and particularly within the central region. Forty years of significant car production has contributed to a very deep talent pool. Mexican plants have a good deal of experience in lean manufacturing, quality control and supply chain management. It is a peculiarity of the Mexican industry that, despite its lengthy association with auto production, there are relatively few truly Mexican players involved. The big name OEMs are based out of Europe, the USA and Asia, and so too are the major parts producers. “In order to gain a foothold in this market, Latin American part makers must have a very high level of internationalisation,” explained Albin. “But in the 1990s most major Latin manufacturers were acquired by larger, global corporations.” Nevertheless, there is a solid core of small and medium-sized Mexican operations that are building up off the back of automotive producers and beginning to integrate themselves into the supply chain. Unicar is a tier-two supplier to the sector, producing small, stamped pieces that eventually find their way to VW’s Puebla assembly line. Director Teodoro Bordas believes that a high level of quality control is of paramount importance to be considered as a supplier: “When producing for the automotive industry it is important that you are ISO TS certified, as we became in 2009/2010. ISO TS is connected directly to the automotive industry and has more specific regulations than simply ISO 9001.” While this was previously only a requirement for tier-one suppliers, demands from the OEMs are becoming increasingly exigent, which is exerting a positive effect on quality levels throughout the supply chain. Looking forward, it is without a doubt that Mexico’s automotive sector will play an ever-increasing role in the Mexican economy, but it is not without its challenges. The country suffers from relatively weak domestic demand, which has still not recovered from the 2008 financial crash. A high export volume can be healthy, but the current level of 80% is too high, according to some analysts. September 2014

38 The primary contributing factor to this low Mexican demand is the high number of cheap, used cars coming in from the USA. “It is estimated that seven million used vehicles have been imported into Mexico from the United States since 2005. The problem with these imports is that they cannot get circulation plates in the States anymore due to environmental or safety problems,” said Fausto Cueva, president of the Mexican Automotive Industry Association (AMIA). As Mexico has no real controls over emissions or mechanical standards, vehicles that would be illegal to operate in the USA are routinely being shipped across the border and sold off cheaply. AMIA is currently lobbying the government to introduce regulations similar to those seen in the USA, thereby reducing the number of dangerous vehicles on the roads and stimulating demand for Mexican produce. The need for specialities…

Increased automotive activity will have a profound effect on the steel production profile. While aluminum is gaining favour among luxury car manufacturers, steel remains the material of choice for the vast majority of light vehicles. However, the steels used within auto manufacturing are extremely specialised and, at present, Mexican mills are more geared towards commercial grades, which are only sufficient for some interior parts and chassis components. A shift is underway though. Steel is a conservative industry and not one given to rapid change, but even the most stubborn of CEOs cannot fail to see the value of catering to Mexico’s biggest growth sector. Since 2012, it is estimated that steelmakers have invested $3 billion in developing their auto-grade steel production. In June 2013, Korean producer POSCO completed construction of its second continuous galvanizing line in Tamaulipas. “The new plant is able to produce 500kt/yr of galvanised and ‘galvannealed’ steel coils,” said POSCO Mexico’s president, Hwangbo Won. “This brings our total capacity to 900kt/yr, which we believe will be able to supply 60% of Mexican automotive manufacturers’ needs and supplant some of the need for imports.” Until recently POSCO has tended to import its raw materials from its mills in Korea or bring in steel from Japan or the USA. However, following an anti-dumping petition brought by Ternium, the Koreans are looking to work closer with their Mexican peers and plan on using an increasing amount of domestically produced raw material. The second major investment in speciality production is Tenigal, a joint venture between Ternium and Nippon Steel to produce cold-rolled galvanised September 2014

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COUNTRY REPORT: MEXICO 39

Harsco Industrial plant

coils. The $1.1 billion plant constitutes the single largest investment by a foreign entity in Nuevo Leon for the last 10 years. Geared specifically towards supplying the automotive sector, Tenigal has the capacity to deliver 2Mt/yr when production ramps up. These new plants will have a positive impact further down the value chain. Larger domestic capacity will allow transformers and manufacturers to cut down lead times and control production costs to a much greater degree. However, at present, carmakers seem to be investing much more rapidly than the mills, so imports will continue to play a key role for some time to come.

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Maquiladoras

Catering to those companies that rely on imports is a range of specialist importers and toll processors or maquiladoras, as they are called in Spanish. The maquiladora is a uniquely Mexican phenomenon that came to prominence in the mid-20th Century. The idea is that a company in Mexico can temporarily import goods or services that will then be transformed or manufactured, and eventually re-exported as finished or semi-finished products without incurring any duties or other taxes. The system was first introduced in an effort to attract high-level manufacturing operations to the country, a goal that has

been achieved. However, it has drawn criticism from certain quarters for allowing foreign-owned firms to profit from cheap Mexican labour without delivering any real value to the country. From an automotive perspective, the system is ideal. A range of companies has now sprung up that combine the role of maquiladora with that of a service centre. Acero Prime imports large volumes of auto-grade steel coils on behalf of its clients and also provides a full warehousing service, delivering the coils or processed sheets only when their clients require them. “The supply chain is getting very tight and customers do not want to keep a lot of inventory. We do shorter runs and deal more with customers shipping material in by truck because they want to keep less inventory,” said general manager Arturo Marroquín. It is important to emphasise that toll processors do not buy or sell steel like a traditional distributor. They are never the legal owners of the material; they simply manage the importation and storage aspects. Marroquín now plans to expand the business by incorporating further processing technologies such as blanking and laser cutting in order to supply products that integrate more easily into the assembly lines.

September 2014

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COUNTRY REPORT: MEXICO 41

Energy reform: Impetus for growth or more hot air? Tubacero plant

Opening up Mexico’s hydrocarbon resources to foreign investment is not going to happen overnight, but when it does take place it will be good news for the Mexican steel industry 2013 was a busy year for Mexico’s President Enrique Peña Nieto. The firstterm leader succeeded in breaking down a long-lasting deadlock between the two main political parties and pushing through an ambitious programme of reforms to the national Constitution. The so-called structural reforms are the first step in a radical overhaul of the largely inefficient systems that governed major parts of the state apparatus such as education, telecoms and taxation. Now, Congress is coming together to debate the finer points of perhaps the most far-reaching of all the reforms: energy. The underlying philosophy of the movement is to open up Mexico’s hydrocarbon resources to foreign investment for the first time since nationalisation in 1938. Under the previous legal framework, the state producer – Pemex – was the sole body entitled to explore and extract Mexican petroleum. Over time this has caused severe setbacks in the development of the country’s oil and gas production. More than half of Mexico’s oil reserves lie buried deep underwater and, thanks to several decades of underinvestment, Pemex has never built up the technical capabilities to exploit them. Teodoro Gonzalez, director general and CEO of Tubacero, one of Mexico’s most important producers of carbon steel tubing for oil and gas pipelines, sees the reforms as crucial to unlocking this potential: “When oil prices first began to rise in the 2000s, the government began to invest in delineating new reserves, but as prices receded, so too did exploration funding,” said Gonzalez. “Now Pemex’s reserves are severely depleted and it is necessary to invest heavily in making new discoveries. We are very optimistic that the new reforms will help to bring about this much-needed investment.” However, this process will not happen overnight. Although the necessary change to the Constitution has already passed through both the Senate and the House of Representatives, this is entirely useless without a raft of enabling legislation to regulate the new sector. Laws pertaining to key issues such as the bidding process for new exploration blocks, Pemex’s interaction with foreign private companies www.steeltimesint.com

and local content clauses must now be decided upon. The final draft of the reforms was initially supposed to be passed by 30 April, when Congress recesses for the summer, but this deadline proved overly optimistic. The debates were then postponed, with the idea being to hold special legislative sessions throughout May and June. This in itself caused controversy as key debates were scheduled to coincide with important World Cup fixtures. Privatising the sector remains a hugely sensitive issue and feelings run high among the Mexican population. Many believe that the country’s oil and gas reserves form part of the national patrimony and should not be extracted for the benefit of foreign companies. As such, detractors from the opposition Party of the Democratic Revolution (PRD) accused Peña Nieto’s Institutional Revolutionary Party (PRI) of deliberately using football to distract public attention in an effort to have the laws pass through more rapidly. At the time of writing, the legislative sessions planned for June have spilled into July and still we are yet to see any concrete developments. Nonetheless, if the reforms do pass then the benefits to the steel industry could be immense. Mexico has long suffered from extremely high electricity prices, which have forced mills to make savings in other areas and develop very robust cost structures. Roberto Benavides, audit partner at Deloitte Mexico, sees an immediate positive impact on local producers: “If the new energy reforms bring down gas and electricity bills as they Dieter Femfert, commercial director of Cryoninfra

are supposed to, Mexican manufacturers will be very well positioned to compete on an international level, especially with the USA where they are accustomed to very low gas prices.” The new framework will also offer potential to private companies to generate their own energy, which could be a huge boost to heavy industrial users. Some steelmakers, including DeAcero, are already eyeing up opportunities presented by this shift. Alfonso Camargo explained the company’s plans to take advantage of the new laws: “Energy remains the largest cost for steel producers. As such, we have taken the decision to build a gas powered thermo-electric power station in Ramos Arizpe that will supply all the electricity we need at our plant. The facility will also generate excess energy that we will be able to sell to the grid, thus turning a cost into a profitable enterprise.” At the same time, the upturn in oil and gas activity will spur demand for speciality steels and should provide growth opportunities for companies involved throughout the value chain. “There is great potential in certain areas, such as production of steel tubes. All across Mexico we are seeing significant investments in pipelines to carry natural gas between the main production sites and the large urban centres. With the arrival of the energy reforms we expect that this sector will continue to expand rapidly,” said Dieter Femfert, director of Cryo Infra, one of Mexico’s key industrial gas suppliers. Increased steel production is good news for gas providers too, as it presents many opportunities to create on-site generation capacity and higher-volume supply solutions. In addition to tube-makers, fabrication shops will be among the immediate beneficiaries of this petroleum boom. San Luis Potosi-based special equipment fabricator, Aceros Hercules, has traditionally focused its efforts on the international market due to the complications associated with doing business with Pemex. Julio Güemes, Aceros Hercules’ director, believes that the predominance of the state-owned giant has hindered the growth of more local operations: “Pemex is the only company that can move the oil and gas industry in September 2014

42 Mexico. The development of workshops has been determined by Pemex because it either has its own workshops or selected workshops that it works with. New workshops will enter into the industry because these new players will look for competitive price, service and quality.” However, not everybody is so optimistic. Victor Palencio Huezo is sales director of Grupo Mim, a key supplier of tubing and valves to Pemex that has seen double-digit growth in recent years. After many years in the industry, he is sceptical about the much-vaunted impact of the reforms: “While we believe that the opening up of Mexico’s hydrocarbons to private investment is a great step forward for the country, we do not foresee a boom on the scale that is being hailed by politicians.” The recent mining tax hike to 7.5% has had a negative impact on mineral investment and there is a fear that some investors may view Mexico’s entire resource sector with suspicion. However, the main frustration, at least for most Mexicans, is the excruciating pace at which the bills are being processed. The government has been continuously promising that an economic boom is just around the corner but, as of yet, the opposite has been true. Progress has not been as rapid as originally promised and while Peña Nieto’s achievements in pushing through his progressive agenda are impressive, he has yet to implement any of them. This has led some to give him the nickname “the great legislator,” as many feel that he is yet to prove himself as an administrator. “Business leaders are complaining that the reforms are taking too long to implement and that we need concrete changes now,” said Roberto Marquez Hiriart, director general of Villacero’s industrial unit. “This is not possible. You cannot overhaul an entire state infrastructure overnight. These reforms constitute a turning point for the country and it is vitally important that we do it right. If this takes time, so be it.” At this point, opinions are divided as to exactly how the reforms will affect the wider economy. It is generally accepted that opening up the oil and gas industry is a very positive move, but much scepticism exists as to how well Mexico will bring these new laws into force. If Congress passes them swiftly then we could see new FDI streams opening up as early as 2015. However, if the debates get bogged down in political point scoring and obstructionism, which is eminently possible, then the subsequent loss of momentum could put off investors for several years to come. Looking to the long term, analysts worry that if the legislation is rushed through and is not carefully drafted then future governments could easily overturn it, thus rendering the entire undertaking an exercise in futility. September 2014

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COUNTRY REPORT: MEXICO 43

Construction: Big numbers, but where’s the money? A lack of Government projects is the main reason behind the Mexican construction industry’s lacklustre performance. The industry contracted by 4.5% last year but a moderate recovery is on the cards as the state coffers re-open and the cash begins to flow ALTHOUGH Mexico’s construction industry currently ranks just below Brazil as the second largest in Latin America, with a total value of $75.7 billion, in recent years its performance has been less than stellar. After a forlorn 2012, the industry contracted by 4.5% in 2013. As construction applications account for more than 49% of metal structures and products, and 29.5% of forged and stamped metal products in Mexico, this downturn has had serious repercussions for the mills. It is generally accepted that the main reason behind this drop in demand is a lack of government projects coming

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online. State investment accounts for more than half of all Mexico’s construction projects, and since 2012, the government has been preoccupied with pushing through its extensive reform agenda, rather than focusing on project implementation. That said, there is some cause for optimism. The first quarter of 2014 saw the beginnings of a moderate recovery and government infrastructure spending was up 14% on 2013 levels. “Now, we are starting to see a shift towards more active implementation of infrastructure projects,” commented Alfonso Camargo, commercial director for profiles at DeAcero. “As the

state coffers are re-opened and cash begins to flow more freely we should see a sharp rise in construction, and a subsequent boost in the demand for steel products.” Aside from the slowdown in government spending, analysts also point to the housebuilding sector as a weight holding back construction growth. The market crashed in 2013 and many domestic residential property developers went into bankruptcy. The cessation of their operations has not been compensated by the arrival of international investors, who tend to view the sector as still too risky. This is an area that the government will have to address as a priority, as the country still suffers

September 2014

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from an urgent need for affordable housing. It is estimated that it will be necessary to deliver approximately 500,000 new houses per year to satisfy demand, but current averages hover around 100,000 to 150,000. There is, however, one notable exception to this trend: Puebla. The city of nearly six million people is the fifth largest in Mexico and has been growing rapidly for the past few decades, primarily thanks to the arrival of Volkswagen (VW) some 50 years ago. VW’s plant is now the largest automotive facility in the Americas and has transformed Puebla into a beacon for young engineers. “More than 150 universities have been established, bringing high volumes of students and young people, which has stimulated demand for housing: right now 500 new houses and 4,000 apartments are under construction,” said Jorge Zarick, director of local steel distributor, Tycsacero. Looking to the medium-term, economists are forecasting a rebound in Mexican construction and some are predicting growth of 5% by 2015. Whether this is accomplished or not is highly contingent on the government’s success in rolling out its ambitious National Infrastructure Plan. Announced in April, the investment programme encompasses some 743 projects across six areas: communications and transport; energy; water; health; housing; and tourism. Total investment is projected to reach $619.1 billion, of which 53% is earmarked for Pemex. This high figure has been the subject of much debate, but Humberto Ibarrola of the Chamber of the Mexican Construction Industry (CMIC), is confident that we should believe the figures. “Our researchers at CMIC have extensively analysed the plans laid out within the National Infrastructure Program and we believe the figure of $619.1 billion to be accurate.” To meet this lofty target, the government is counting on a much higher proportion of private participation than previously seen in the country; up to 37% of funding is expected to come from the private sector. This will be enabled in part by a new framework to encourage more public/private partnerships (PPPs) and also by the arrival of private investment into the oil and gas sector. While many of the projects outlined in the plan are linked primarily to road construction and will have a relatively low impact on steel demand, there are several large expansions planned for the country’s major ports, as well as the construction of a Transpeninsular Train in the Yucatán, all of which will be steel-intensive developments. Sceptics point out, however, that the last National Infrastructure Programme, overseen by former President, Felipe www.steeltimesint.com

COUNTRY REPORT: MEXICO

Forging ahead Mexican foundries are looking to diversify away from the automotive sector to avoid catastrophe should future demand for cars take a nosedive. While the Mexican industry is ranked in 7th place by the World Foundry Organisation – and contributed $4.2 billion to the national economy – problems still need to be ironed out

Edgar A. Moncayo, director general of Forja de Monterrey

MEXICO’S foundry industry has seen strong growth over the past five years. In 2011, the World Foundry Organisation ranking of casting industries put Mexico in 11th place. By 2013 the country had overtaken Korea, France and Italy to become the seventh largest global player, contributing approximately $4.2 billion to the national economy. Unlike the steel industry, which is facing overcapacity both in terms of production volumes and service centre facilities, Mexican foundries are struggling to keep up with the surge in demand. 75% of castings produced in the country are destined for the automotive sector, which is continuing to grow rapidly. In the long run, this overreliance on auto production could prove to be a point of weakness as demand for cars is cyclical: a sudden drop in sales volumes could send shockwaves through the industry. To combat this, many foundries are looking to diversify their client base, carving out niches producing specialised pieces for the oil and gas industry or components for electrical motors. For now, however, these remain minority markets: oil and gas accounts for just 4% of total demand. “By opening up the oil and gas industry to foreign investment we believe that the energy sector’s participation could increase up to approximately 6%. In parallel, we will see a slight decrease in the dominance of the automotive sector,” claims Bruno Jaramillo, executive director of the Mexican Foundry Society. Traditionally seen as a sector dominated by small operations, heavy investment from foreign casting houses has shaken up

market dynamics. Large enterprises have flourished, while smaller jobbing foundries have lost out. According to statistics from the Society, 5% of SMEs involved in the sector have closed their doors since 2011. Germán Sánchez Madrigal is sales manager of Qualy, a medium-sized foundry located on the outskirts of Monterrey that caters to a range of highlevel clients in the USA. He believes that many of these new foundries are heading south due to difficulties meeting the high environmental standards required in the USA. “Environmental regulations are more relaxed in Mexico. Qualy fulfills government requirements, but we believe there is more that can be done in this regard. Our facility has equipment to measure and prevent pollution, such as filters and measuring stations on the roof. We are very concerned about the foundry’s relationship with the government and the community around us.” While environmental compliance may not be an issue for Mexican casting, the industry is not without its challenges. Patricio Gil is director of Blackhawk, one of Mexico’s largest ductile iron foundries. He sees the lack of human capital as an issue that will become more acute in the future. “The enrolment in foundry or metal-related degrees in developed countries is continuing to decrease year after year. We have been creating positions for graduates in order to attract more young engineers out of school. We are trying to get young people more excited about the industry,” he stated. A shift towards higher levels of

automation in the industry will help to mitigate this problem, but there will always be a need for qualified operators and, in the absence of new personnel coming through the local universities, Mexican foundries will have to look elsewhere for their new members. Another setback for domestic forges and foundries, particularly those looking to focus on pieces for the automotive sector, is the relative lack of speciality steel production in the country. Forja de Monterrey is a good example of a local operation that has been able to integrate itself into the automotive supply chain by adopting international standards and investing in strict quality control mechanisms. Director Edgar Moncayo is optimistic about the impact that increased speciality capacity will have on the company: “It is going to affect our business by shortening our purchasing cycle. Currently our purchasing cycle takes four months, so we must predict the market in advance. A specialised steel mill in Mexico would reduce the cycle to two months, shortening our lead times and reducing our credit lines to buy the steel.” Nevertheless, he does not believe that a more reliable supply will be enough to attract new domestic investments in the forging industry. The upfront capital costs associated with opening a brand new forge are extremely high. Furthermore, the process itself is also self-destructive, leading to very high operational costs. The level of expertise needed to run such an enterprise is very specific and not very well developed in Mexico.

Calderón, pledged MXN 152 billion to 76

Cardenas port has long been a key factor in the public spending agenda and, for many years, it has been showcased as one of Mexico’s truly world-class logistics hubs. Developers now want to boost capacity and leverage its close proximity to the United States in order to attract freight away from the heavily congested Port of Los Angeles. At the end of the day, Peña Nieto, unlike his predecessor, has a proven track record of infrastructure spending and has repeatedly shown his strong commitment to encouraging private investment in the sector. In this light, the issue is not so

much whether or not these projects will come to fruition, but when. Government figures claim to be gearing up to get the ball rolling, but the state bureaucracy is a lumbering giant and it will take some time to build up sufficient momentum. The views of Calixto Perez of Ferre Barniedo are representative of the whole sector in this regard: “We are optimistic about the future and we believe that there will be a number of opportunities created by the energy reforms and this public spending commitment, but the official timelines are very optimistic and it will take a few years for the benefits to be felt.”

projects, but only 25 of these were ever completed. As we approach the last quarter of 2014, we are yet to see ground broken on any of these new major public works. More cynical commentators fear that the current spending commitments may evaporate in much the same way as the previous wave. “The federal government has committed 40 billion pesos to infrastructure investment in the state of Michoacán but, as of yet, this has not materialised,” complains Victor Cairo, CEO of ArcelorMittal Mexico. The expansion of Michoacan’s Lazaro

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September 2014

46 COUNTRY REPORT: MEXICO

The great railroad revival Mexico’s steelmakers are heavy users of the country’s rail network

Truck-based transport reigns supreme in Mexico. Approximately 78% of freight in Mexico is moved on the highways, compared to 58% in the USA, and close to 40% in Canada. Railroads are clawing back market share from the truckers, particularly when it comes to cross-border movements between Mexico, the USA and Canada. Between 1994 and 1998, Mexican rail underwent a privatisation process, which left two domestic carriers – Ferromex and Kansas City Southern de Mexico (KCSM) – in charge of the nation’s railroads. Since that time, the proportion of freight moved by rail within Mexico has jumped from 8% to 22%, and heavy investments in new tracks and better technology have created a seamless integration within NAFTA’s rail networks. This is extremely important to the country’s steelmakers, which are heavy users of trains, both for importing raw materials from the North and exporting finished products back to the States. The automotive sector, in particular, is a key client for the rail companies. Over 80% of the cars produced in Mexico in 2013 were exported to the USA by train. Lately, there has been renewed interest in implementing a new reform of the railroads. There have been calls for new tracks to be built and for the sector to be opened up more to outsiders, but Ayala says there is no real need for new lines as most of Mexico’s major cities offer good rail access to ports and the USA. The World Economic Forum’s infrastructure index places Mexico in 64th position for overall infrastructure quality. An analysis of the cost of rail transport, trucking, and the inefficiencies of border crossings reveals that there is much room for improvement. Yet, these statistics do not present an entirely clear picture of the reality. Ricardo Haneine is a partner at AT Kearney in Mexico City. He believes there is a regional divide within the country and argues that the quality of the main corridors between major cities and access to the USA are both very good. This reflects the more general divide between the booming industry of the north and central regions, and the stagnation and informality characterising the south. National Infrastructure Plan investments should help to level the playing field across the country, but the trickle down effects will only become apparent over the next 20 to 30 years. It is assumed that infrastructure investment goes hand-in-hand with rapid economic development, but not always. There is a need to co-ordinate infrastructure spending between the various involved bodies to ensure maximum return. Along the Pacific coast, Mexico has many ports, and the respective state governments and local authorities have always sought to improve the quality of their own facilities. However, there is not enough demand to keep the minor ports busy. There are two dominant terminals – Mazatlan and Michoacán – and the rest are unused, in spite of their relatively high quality and the modern technology. September 2014

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COUNTRY REPORT: MEXICO

Security – a problem of perception The mass media is known for exaggeration and in the case of Mexico it has been working overtime on portraying the country as a lawless, anarchic society. The reality is something else. Mexico is a safer place to be than it was five years ago – but that doesn’t stop businesses investing heavily in security SECURITY, or rather perceived insecurity, is probably the single greatest concern for outside investors looking to move into Mexico. Fears for safety are heightened by a propensity within foreign media to focus excessively on stories relating to drugs, guns, and murder, often at the expense of any positive developments. In spite of this constant portrait of a country living on the edge of anarchy, it seems that Mexico is generally a safer place to be than it was five years ago. In 2013, overall crime levels decreased slightly from 2012, while the number of homicides committed nationwide plunged by 16%. This was, however, tempered by a general increase in kidnapping and extortion. According to the results of The American Chamber of Commerce’s annual security survey, Nuevo Leon is the state with the worst security risks and Monterrey ranks as the most dangerous city. However, this is not an opinion shared by many of the state’s inhabitants. “There was a particularly bad period when crime got out of hand, but thanks to co-ordinated efforts from the state and federal governments, the situation has improved considerably,” said Alfonso Camargo, sales director of DeAcero and long-term Monterrey resident. A decade ago, Monterrey was considered to be one of the safest cities in Mexico and enjoyed lower crime rates than nearby Texas. However, in 2010, cartel activity that

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had previously been confined to informal communities on the outskirts began to spill over into the elite residential neighborhoods scattered among the hills that surround the city. Carjackings became commonplace and dead bodies were left hanging from bridges as a warning to those who might choose to cross the drug lords. Realising that existing police efforts were not effective, and that many police officers were in the pay of criminal gangs, the government began to collaborate with the private sector to build up a new police force from scratch. Known as the Fuerza Civil, its members are recruited from outside law enforcement circles to ensure that they are free from the influence of corruption. Before being admitted to the force, they are subjected to a barrage of psychometric tests, which find their origin in the HR departments of Monterrey’s largest corporations. After passing through military training they are equipped with heavy firepower and dispatched to patrol the city’s streets and highways. Their formidable presence has served as a powerful deterrent and anecdotal data suggests that they enjoy a far greater degree of trust from the general public than any other law enforcement body. While initiatives like this may have had a dramatic effect on reducing violent crime, opportunistic theft is harder to police.

“Companies within the steel distribution sector are directly affected by criminality through cargo theft and there is a thriving black market for stolen metal,” complained José Antonio Ruiz, general director of Tubos Monterrey. According to the American Chamber of Commerce, robbery is by far the most common crime that member companies suffer from. Worryingly, 20% of the companies that experienced robberies in 2013 saw more than five separate incidents over the course of the year. While there are no statistics available as to the financial impact of these crimes on business, it is clearly high enough to justify the heavy costs associated with installing top-level security systems and employing 24-hour guards. Most companies that took part in the survey invest up to 4% of their yearly operating budget on security. While crime is not going anywhere soon, it seems that the overall impact on the business environment is fairly minimal. “Of course security is an issue in Mexico, but it is not a deterrent to industrial investments. It relates more to the quality of life for people living in certain parts of the country,” said Grupo Mim’s CEO, José Alberto Garcia Lastra. His diagnosis is backed up by the fact that only 2% of the companies surveyed by the American Chamber were considering relocating their operations outside of Mexico because of security problems.

September 2014

48 COUNTRY REPORT: MEXICO Decentralisation of environmental enforcement has led to more local action being taken against industrial offenders in Mexico. The nation’s steel mills are starting to invest more heavily in green technology and there’s even a resurgence in civil activism and community empowerment MEXICO used to be seen as a jurisdiction whose lax enforcement allowed industrialists free reign to cut corners on safety and environmental issues. While legal obligations for steelmakers may not yet have reached the high levels of compliance demanded by EU overseers, Mexico’s reputation as a centre for cowboy outfits to operate however they please is beginning to fade. New rules and regulations relating to climate change and environmental stewardship have been introduced and the government has indicated that it is now prepared to go after those who transgress these requirements. Andrés Delfino is general manager of Vesuvius Mexico, a company dedicated to the manufacture of flow control units and refractories for steel mills and foundries. He believes that while regulations themselves may be tight, enforcement is still lacking: “At Vesuvius we have a corporate policy to abide to the letter of the law in every country where we work, but not all companies are so diligent. Most of the major steel producers are investing heavily to improve their environmental footprint, but it will take time for their changes to have real effects.” It seems, though, that regulators are starting to catch up with industrial offenders. The past 20 years have seen a decentralisation of governmental handling of environmental issues. Previously, the Secretariat of Environment and Natural Resources (SEMARNAT) dealt with all environmental complaints through its head office in Mexico City, regardless of the nature of the offence or where it took place. Now, responsibility has been devolved to branches working at a local level. “While some of the smaller local authorities are not particularly sophisticated in terms of the resources at their disposal, they are more inclined to act than a distant centralised body,” explained Manuel Ortiz Monasterio Q., director general of ERM Mexico. According to data gathered by PwC, 25% of the total $11.5 billion invested by steel mills between 2010 and 2014 was dedicated to environmental improvements. September 2014

Green traction This is partly a consequence of tougher laws, but also relates to the imperative of reducing energy consumption in the face of high electricity rates. Mills are increasingly looking to new technologies to help them reduce the amount of energy used in processes; a reduced environmental footprint is merely a happy by-product of the need to cut costs. Gracida is Mexico’s only manufacturer of industrial electromagnets. Over 40 years designing specialist equipment for steel mills, Gracida’s president, Fidel Agustin Gracida Canseco, has seen steelmakers become increasingly demanding of their products: “In order to save energy, modern mills try and maintain high temperatures throughout their production chain, rather than cooling the steel down to transport it. This means that where we used to receive demands for magnets that could transport metal at 200oC, now our clients are looking to move steel at 400oC,” he notes. In parallel to this increased focus on environmental performance, Mexico has witnessed a resurgence of civil society activism and community empowerment, which has led to far stricter operating conditions for Mexican industry as a whole. If a community has a complaint relating to the way a large plant is operating, they now have ways and means of making their voice heard. “Although this is usually more of an issue with extractive industries, there has been at least one case where a steel mill in a peri-urban area was motivated to investigate their environmental performance solely because a local community was unhappy with their operations,” said Roberto Frau, ERM’s social and sustainability team leader. The idea of a social license to operate is one that has gained much traction in Mexico over the past decade. In tune with this trend toward greater interaction with local communities, Mexican steel producers are increasing their expenditure on CSR and community projects across the board. In the words of José Luis Varga, general manager of Harsco: “Now more than ever, Mexico needs a reliable and honest business community, concerned about environmental impacts and its social

Fidel Agustin Gracida Canseco, president of Gracida

responsibilities.” For the past three years, ArcelorMittal has been awarded socially responsible enterprise status from the Mexican government for its contribution to improving living standards in the communities where it operates. According to CEO, Victor Cairo: “This is thanks to more than 30 different programmes that we manage within the communities where we are present. These include diverse initiatives covering a variety of causes, from helping female entrepreneurs develop their businesses and providing funding for child education projects to developing sustainable habitats for turtles.” To date, the company’s social programmes have helped over 6,000 young people by ensuring that they have access to clean water and food, as well as the chance to receive a proper education. In addition to social inclusion programmes within the communities where they have operations, Deacero has also collaborated with various branches of the federal government to design solutions for affordable housing. “Many poor people, particularly in rural areas, build their houses from adobe with no structural reinforcement,” said Alfonso Camargo. “This can be very dangerous, so Deacero has engineered a wire reinforcement system to improve those properties’ structural resistance and that can be sold at very economic prices to low-income communities.” www.steeltimesint.com

COUNTRY REPORT: MEXICO

Revolution through reform Are Mexico’s reforms a case of ‘too little, too late’ and if so what are the alternatives? Will Peña Nieto’s government achieve its objectives and could he eliminate informality and furnish Mexico with ‘developed nation status’? OVER the past decade, Mexico’s steel industry has undergone a profound transformation. The majority of productive assets have passed from domestic ownership into the hands of transnational corporations, while the growth of high level manufacturing has led to the adoption of international quality standards throughout the value chain. The relatively modest increase in total production volumes masks a considerable investment in improving operational efficiency and boosting environmental performance. On a broader level, Mexico finds itself at a turning point. Peña Nieto’s structural reforms could well prove to be the most significant driver of the Mexican economy since the 1992 signing of NAFTA. If all goes well, we should see tangible effects by the end of this decade. By encouraging even higher levels of foreign investment in growth industries, the country is assured of

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The Durango-Mazatlan Highway is one of Mexico's greatest engineering feats

prolonged economic growth. The changes to financial and labour regulations, while a cause for complaint in the short term, will help bring about a new level of equality and a closing of the gap between the two divergent streams of the economy. Some claim that time is running out for Mexico. The demographic boost that has helped sustain the country over the past 20 years is coming to an end and detractors claim that the reforms are too little too late. However, in the current situation, it seems that such detractors have no better alternatives to offer. In the meantime, the country will have to sit tight and wait for the legislators to do their job. If Peña Nieto’s government achieves its stated aim to eliminate informality and catapult Mexico into developed nation status then this effort will surely go down as one of the great political overhauls of the 21st Century.

September 2014

SPECIAL & STAINLESS STEELS 51

Taking quarto plate to the next level Swedish stainless steel manufacturer Outokumpu recently completed a 100 million euro equipment upgrade programme at its stainless steel plate mill in Degerfors, Sweden. The investment will deliver both cost savings and a wide range of benefits for stainless steel plate customers, claims Bernd Beckers* and further strengthen the company’s plate offering globally.

Stacked plates Degerfors

STAINLESS steel consumption — including plate — is growing faster than that of any other metal in the world as witnessed by the growth in demand for quarto plates, which are tailor-made thick and wide, individually rolled stainless steel plates. Quarto plates offer a combination of high strength, corrosion resistance and cost savings in demanding applications and highly advanced equipment in which they are used. Quarto plate predominately goes into heavy industrial applications. There has been a clear increase in demand from the oil and gas industry, for cargo holds for chemical tankers, and for the fabrication of tanks and vessels for the chemical industry where customers can benefit the most from bigger plate size, which means fewer plates. When it comes to welding, final assembly is faster and cheaper. In several countries, Quarto plate is increasingly being used in bridge construction. Investment

Outokumpu has made a series of investments to expand and strengthen its quarto plate offering over recent years in its plate mills in Degerfors, Sweden, and in New Castle, USA, as well as in the wide network of plate service centres across Europe (Finland, Sweden, United Kingdom, The Netherlands, Germany, France, Italy) and China. The most recent investment includes a 100 million euro equipment upgrade programme in Degerfors, Sweden. The investment and associated improvements contribute to cost efficiencies across the production process and include the installation of a new walking hearth reheat furnace, cold leveller, two batch furnaces, quenching line, a cooling and

transfer bed, and many finishing line improvements. Through these new investments Degerfors will become the largest stainless quarto plate mill in the world. But most importantly, the benefits to customers are significant: a broader portfolio of specialised grades of stainless steel from which to choose, better quality products, and shorter lead times when placing orders. Increased capacity, superior quality

A significant portion of the investment has gone to the purchase and installation of a new walking hearth furnace and two new batch furnaces that will increase the capacity of the mill by 30% to 155kt and lower environmentally-regulated emissions. The new furnaces allow for more precise temperature controls, which mean better plate uniformity and finish on the steel plates – something important for customers seeking speciality grades of austenitic stainless such as 254 SMO® (EN 1.4547 / UNS S31254) and Outokumpu’s LDX 2101® (EN 1.4162 / UNS S32101) and LDX 2404® (EN 1.4662/UNS S82441) lean duplexes. The new equipment improves lead times, increases production flexibility, and saves energy. For example, to maintain optimal production flexibility, the mill’s existing furnace was also upgraded with a new automatic charging system. This is clearly needed as more than 60 grades are heated at Degerfors and with variations to the alloy compositions requested by customers, there are more than 300 different grades. Factor in dimensional variations and variations in slab thicknesses, and there is clearly a need for production flexibility.

The new batch furnace provides for immediate heat treatment of the plate after final rolling in hot rolled condition, which saves energy. Additionally one important feature of the new batch furnace is a baffle door located inside the furnace. The baffle door can be used to divide the furnace into two sides, each operating independently if necessary adding flexibility to production since two different steel grades can be heated simultaneously. This is unique to Outokumpu. Improved flatness – easier to weld

Plate flatness significantly impacts the edging and welding processes that most plates go through. Complementing the capabilities of the new furnaces, the Degerfors mill also procured a new nine-roll cold leveller to achieve better plate flatness. The cold leveller, the last step in the heat treat process, is necessary to ensure the flatness of the plate after heat treatment. The new cold leveller fulfills Class S flatness specifications. Each roll can be individually adjusted for all grades and each plate, regardless of dimension, which is important, for example, in the tank industry where stable cutting is required. A flat plate is easier to machine and weld when the edges fit together better for welding. Faster processing

Quarto plates are also supplied ‘edgeprepared’ and cut-to-size directly from the Degerfors mill, which is unique for Outokumpu. The finishing lines’ improvements have resulted in a better, more streamlined process for enhanced product flow and this will further shorten lead times at customers’ fabrication lines.

* Head of speciality stainless marketing www.steeltimesint.com

September 2014

52 SPECIAL & STAINLESS STEELS

Hot coil

Yield strength Rp02 [MPa]

600

Charging machine Degerfors

500 400 300 200 150 Corrosion resistance, CPT typical

A host of value-added services are performed at service centres throughout Europe and Asia. The plate service centres work hand-in-hand with the mill and customers to offer a variety of process solutions, such as cutting, welding and machining, to ease subsequent processing activities. The combination of the Degerfors mill capabilities and the plate service centre network allows European and Asian customers to choose between mill deliveries or deliveries of tailored components through plate service centres. Together, the mill and service centre offer the widest product range, the best technical support, very high plate quality and reliable delivery on a global scale. Choosing the right grade

Choosing the right stainless steel grade can offer substantial rewards. Stainless steel is sometimes seen as an expensive solution. This is not true. Corrosion also costs. Given the right grade and taking into account the total life cycle costs of the investment, stainless steel can be a very costcompetitive solution. Duplex stainless steel grades, for example, utilise a more cost-effective alloy composition – lower nickel and higher nitrogen content – which provides better price stability than austenitic grades. Moreover in addition to great corrosion resistance, duplex grades also offer higher mechanical strength, more than twice as high as standard austenitic stainless steels

Lower creep strength Higher creep strength

Positioning of Duplex grades – excellent combination of strength and corrosion resistance. (CPT: Critical Pitting Corrosion Temperature)

253 MA®

1.4959 (800HT) 2.4851 601HT)

321H 304H

309S 4828

310S 314

Lower relative cost

Higher relative cost

Positioning of MA grades in comparison to other high temperature stainless steels

or ordinary carbon steels. The main advantage is weight saving in the steel structure by reducing the thickness of the material. This is used successfully in applications such as pressure piping in the oil and gas and offshore industries as well as in large pressure vessels and in large stationary storage tanks in the pulp and paper industry. The potential weight saving together with high corrosion resistance, less maintenance and no requirement for protective coatings or corrosion allowances provides a foundation for more costeffective solutions compared to carbon steel, particularly when the total life cycle cost is considered. Similar benefits are applicable in the area of high temperature stainless steels: the

Roller table Degerfors

September 2014

micro-alloyed steel 253 MA® (EN 1.4835/UNS S30815) has been specifically designed for excellent creep and oxidation properties at temperatures up to 1100°C. This has been achieved by the addition of a number of important alloying elements in the steels – ensuring superior performance across a wide spectrum of high-temperature applications. Direct savings can be achieved as less material is necessary when using 253 MA® compared to, for example, 310S (EN 1.4845), thanks to the superior strength of 253 MA®. Indirect savings are also realised through the improved service life of components. Price stability is also achieved as 253 MA® is lean in nickel compared to 310S. Ultimately the grade chosen for any particular application will depend on a number of factors: design standards must be considered, requirements for corrosion resistance and strength need to be evaluated and factors in the environment affect grade selection. Outokumpu is widely acknowledged as a forerunner in technical support and development, and the company’s technical team assists users and fabricators in the selection, installation, operation, and maintenance of its stainless steel applications. Improving environmental metrics

Equipment upgrades at Degerfors also strengthen Outokumpu’s credentials in sustainability and environmental responsibility. In addition to increasing capacity and capabilities, improving environmental and safety metrics were key objectives for the investment. Being able to hot recharge plates at 800°C in the new batch furnace on the heat treatment line delivers a saving in energy consumption of up to 50% compared with conventional production flow where the plate was required to cool down to room temperature before reheating. Together with other energy and furnace optimisations, energy consumption, CO2 and nitrogen oxide emissions are reduced. www.steeltimesint.com

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SPECIAL & STAINLESS STEELS

Water recycling efficiency is also improved. The new water treatment plant at the Degerfors mill runs at a recycling rate of 97% of the cooling water compared to an average of some 10-15% waste water proportion before the installation of the new equipment. In addition, sludge from the water treatment plant is today reused in the melt shop, as is oxide scale from the shot blasting process. High recycled content

These measures enable Outokumpu to continuously reduce its carbon footprint and the amount of waste sent to landfill, improve energy efficiency and increase the recycled content of its stainless steel products. Today the recycled content of the company’s products is 85%, which is higher than the industry average of 65% and one of the reasons why Outokumpu has received several prestigious sustainability awards over recent years.

Recent global successes for special plate

Natural gas field project in Oman

In March 2014 Outokumpu signed an agreement to supply 22kt of duplex 2205® stainless steel for a natural gas field project in Oman. This is the single biggest duplex stainless steel order for Outokumpu to date. Deliveries started during H1 2014 and continue until 2016. Duplex 2205® is ideally suited for this type of project because of its excellent corrosion and mechanical properties, which perfectly match the untreated sour natural gas found in this area. Stainless steel plate and coil material produced in Outokumpu’s Swedish mills in Degerfors and Avesta will be welded into tubes to be used for gas exploration in LNG plants and terminals.

Plate inside the new heat treatment furnace, Degerfors

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Outokumpu has supplied 12,250 tonnes of quarto plates in duplex grade 2205® to Stolt Tankers for the production of five chemical tankers. The contract includes an option for three additional vessels. Once completed, these tankers will be used to transport various liquid chemicals throughout the world. Stolt Tankers operate one of the world’s largest and most sophisticated fleets of chemical tankers. The quarto plates are tailor-made to customer specification and the delivery includes further added value services such as edge preparation, forming and welding to larger assembly sections. The use of duplex grade in cargo tanks enables reduced weight, excellent corrosion resistance and high strength, all necessary in transporting chemicals in a safe and efficient way. www.steeltimesint.com

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September 2014

VISITING OUTOKUMPU’S TERNI STEEL PLANT

Stainless steel producers of the world unite The International Stainless Steel Forum’s 18th annual conference was held in Rome recently and there was plenty to discuss ranging from the ISSF’s own activities through to sustainability issues, raw materials sourcing and, of course, the Chinese. Hans Mueller* took a transatlantic flight to find out more. THE first days of the International Stainless Steel Forum (ISSF) 18th annual conference were for members only, the nearly 100 executives of stainless steel producing and distributing companies who had come to Rome from 23 countries. On the last day, May 15, invited outsiders, including press reporters, were admitted to the meeting. Chairman Philippe Darmayan welcomed all participants, provided news about membership and personnel changes, highlighted ISSF efforts to reach out to new stainless steel users, discussed a programme to track employee health and safety conditions, and named the winners of a competition among company teams for best innovative projects. At a later point he introduced the four invited speakers. ISSF activities

Secretary-General John Rowe explained the Forum's continuing activities, like its participation in the work of regional associations to broaden the markets for stainless steel products, the promotion of Team Stainless – a working group established with nickel, chrome, and molybdenum suppliers – and the sponsorship of a “fellowship” programme for talented young employees wishing to learn more about the industry and its leadership. Mr. Rowe conceded that China, which accounts for more than half of the world's stainless steel output, was as yet under-represented in the Forum. He noted that the compilation of data resources was still incomplete, but that progress was being made in the areas of health, safety

and the environment. As is almost obligatory nowadays, homage had to be paid to the concept of ‘sustainability,’ an overused and often fuzzily defined term that is fashionable in some industry and government circles. ISSF applied the term to competitive efforts by member companies searching for methods to improve workers’ health, reduce the environmental impact, and raise the efficiency of operations. A company's investment to capture EAF-generated CO2 may improve the sustainability of the planet but jeopardise the firm if the investment cuts deeply into its earnings. Brief mention was made of the Forum’s recent publications. Among them is the third edition of Stainless Steel in Figures, which shows that the advance of the 200 series at the expense of the austenitic mainstay may have run its course. Another is a comprehensive, technically advanced but very readable Education Project,

Outokumpu’s Terni Steel plant has a long history as a producer of large gun barrels and armour plate for the Italian navy. In the 1970s it ceased production of carbon and electrical steels, specialising henceforth on two lines, flat and long stainless steels as well as forged rolls for steel mills. The plant operates two 130t AC-powered electric arc furnaces (EAFs). For the production of thin stainless sheet, stronger motors had to be installed in the rolling train. When in 2012 ThyssenKrupp sold its stainless Inoxum division to Outokumpu, the European Commission, in a rather inept decision that disregarded fierce international competition, mandated that Terni be sold to another company. When no buyer was found, the plant reverted to ThyssenKrupp.

authored by the ISSF Long Products Task Force to provide “teaching material for lecturers in architecture and civil engineering”. Raw materials and the environment

Dr. Philippe Chalmin, of Paris Dauphine University, commented on the divergent paths of energy prices in different regions. Thus, compared to the United States, natural gas prices are now four times higher in Europe and six times higher in Japan. With coal still being the cheapest way to generate electric power in much of Europe, no affordable options exist for CO2 reductions on a large scale. He added that on the supply side of commodities, prices are often subject to forces originating outside the confines of the market, including geopolitics, speculative action, currency shifts, and major changes in the growth rates of large economies like China. In much of Europe, nickel accounts

* Global correspondent September 2014

www.steeltimesint.com

STAINLESS STEEL

for half the cost of austenitic stainless steel. Because the main source of nickel ores was Indonesia, it is not surprising – as Jim Lennon of Red Door Research explained – that Indonesia’s ban on nickel ore exports is creating sizeable problems in global stainless markets. Indonesia was earning very little on its ore exports and the ban was expected to add value to its exports. Building refinery capacity will take time in a country like Indonesia, which is not known for speedy action. Existing stockpiles of nickel and ores in various parts of the world won’t bridge the gap. China’s stainless steel output will decelerate

China’s 80% share of global chromium ore imports is for the most part met by South Africa, the largest global supplier. The conversion of ore into ferrochrome is geographically more dispersed. But in the view of Dr. Gerhard Pariser, of the H H Pariser market research firm, rising electric power rates will threaten its viability in some countries, including China. His forecast is for China’s stainless output to decelerate from a past annual rate of more than 20% to 9% in the next several years, with chromium demand moving at a similar pace. According to Dr. Kevin Bradley of Hume Brophy, harmful emissions from the production process are not the only environmental concern for stainless steel companies. European legislators are proposing to impose harsh restrictions on toxic microelements that come into contact with people. Dr. Bradley wants the stainless steel industry to explain that the alloying process tightly locks these elements into the metal. It is, therefore, not the amount of toxic elements in the steel that is relevant but the rate at which they are released from the alloy. That rate is far below the range considered by the new proposal.

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September 2014

www.lechler.de

58 ROLLING

Digital control of shear motors at Durgapur merchant mill Improved closed loop speed control of DC motors, featuring adjustable field current and armature voltage, has been introduced to better control the speed of shearing on a bar/rod mill. The control system reads analogue inputs of speed feedback from incremental encoders, feedback from absolute encoders of the position of the shear blade, and several digital inputs including interlock information to generate references for drives, rotary shear and crop/cobble shear ‘cut’ command and the speed of the pinch roll. Following implementation of the system, mill downtime has been reduced by 50% due to better fault diagnostics and improved speed control of the shear motors. Mill yield has improved 0.1%. By B N Ghosh*, I Banerjee*, TK Dutta*, PA Aneesh*, S Singh*, RR Choudhary*, BK Prasad*, KK Thakur**, N Gupta**, Y Ramesh**, SK Bhagat** and AK Aich** end cut by the crop shear, no cut/slow cut/ erratic cut by the rotary shear and power breaker tripping without any alarm indication. All of these factors were severely detrimental to the productivity of the mill. The unavailability of diagnostic tools led to increased downtime and there were virtually no spares available. The cutting system was not properly designed and optimised. To improve on this situation, a joint decision was taken by DSP and Sail’s Research and Development Centre for Iron and Steel (RDCIS) to investigate whether incorporating digital drives in the crop/cobble shear, rotary shear and pinch roll would enhance the performance and productivity of the mill. To eliminate the use of thumb wheel switches used to set roll diameter, lead speed and torque limit – which in turn would improve the accuracy of cutting – it was proposed to launch process logic control (PLC). Cross pusher

Motor room

Fig 1b Layout of merchant mill downstream of final stand

9 8

Skeway table #1

7 6 5 4 32 1

Crop-cum cobble shear

CP12A ABB C BED #1 CP10

ABB-2

Bar shear Inspection room

CP#2

Snap shear Skeway table #4

Thermax carriages

C BED #2

Rotary shear

Ram charger FC Cabin

Pinch roll Skeway table #2

11 Skeway table #3

CP#1

Guide shop

Fig 1a Layout of merchant mill stands at Durgapur steel plant

B.S.Y

capacity since 2000-01 and regularly achieves a yield of 96.2%. The mill consists of seven roughing stands with the crop/cobble shear located after the seventh stand. The output of the roughing mill passes though intermediate stands, numbers 8 to 11 with repeaters to turn the bar through 180º between stands 9 and 10, 10 and 11, 11 and 12 and 12 and 14 (there is no stand 13). The finishing stands are 12 and 14. The rolled bars/rods then pass through a pinch roll and are then cut to length by a rotary shear (Fig 1b). Problems arose mainly in the crop/cobble shear, rotary shear and pinch roll drives due to malfunctioning regulating cards in the controller, malfunctioning field devices, relay logic, operator interface and so on. The resultant effects were: irregular frontend cuts by the crop shear, hook formation during front-end cutting by the crop shear, hook formation and varying lengths cut during cobble cutting by the crop shear; slow cutting by the crop shear, no front-

REHEATING FURNACE

STEEL Authority of India Ltd’s (SAIL) merchant mill at the Durgapur Steel Plant (DSP) was established in 1962 with a production capacity of 2.4kt/yr. In 1992, a modernisation programme was undertaken in the merchant mill which included the installation of a thermal mechanical treatment (TMT) facility, a combined crop and cobble shear (CCC), slit rolling into two for the production of 16mm TMT bars and an automatic bundling and binding machine. The production capacity was enhanced to 2.8kt/yr. The merchant mill is a continuous bar and rod mill employing four repeaters to turn rolled product through 180º after the in-line roughing section in order to enter subsequent intermediate and final stands which are alongside one another rather than in-line (Fig 1a). The products are plain carbon steel rods (IS 2062) and TMT bars (TMT 415 /TMT 500//TMT 550) ranging from 16mm to 28mm diameter. The production capacity of the mill has exceeded the rated

Pinch roll

CP-4

*Authors are with RDCIS (Research and Development Centre for Iron and Steel ), Steel Authority of India Ltd, Ranchi, India. **Authors are with Durgapur Steel Plant, Durgapur, India September 2014

www.steeltimesint.com

ROLLING 59

Fig 3 PLC and drive network configuration

Fig 4 HMI display of armature voltage (blue) and speed feedback (red) during shear cut

DC motors

Generally speaking, DC motors are used where three to four times the rated torque can be delivered. Dynamic – or regenerative – braking is available with DC motors where rapid stopping is required, thus reducing the size of the mechanical brake. Where field control of a DC motor is required over a large speed range, the base speed is generally proportionately lower and the motor size larger. Armature voltage control is used to provide the speed range when it is above 3:1. To minimise the speed change with load beyond the base speed, feedback from a tachometer or incremental encoder to the motor field circuit is used. In a DC drive with an electronic control unit, speed is accurately regulated for the set speed irrespective of the change in load on the motor or fluctuations in supply voltage. This limits the current during acceleration and deceleration. To improve speed control at the Durgapur Steel Plant’s merchant mill, the work consisted of: • Designing and developing closed loop speed control using state-of-the-art digital drives, encoders, programmable controller and controlling devices; • Installation of encoders for sensing shear and stand motor speeds; • Interfacing of signals to the PLC and transferring the logic of the old PLC to the new one. • In-house programming and commissioning of digital regulators; • Development of an HMI screen for better fault diagnosis and ease of troubleshooting; • Integrated trial run of the control system including all the drives; • Fine tuning of the total control system including appropriate change in PLC and drive logic; • Evaluation of speed control response and cutting accuracy. The closed loop speed control system comprises digital drives of the start/stop variety, installed in a self-standing panel. These are used to: • Control the armature and field voltage of the crop/cobble shear using a www.steeltimesint.com

microcontroller-based, three-phase, 6pulse, four-quadrant (4Q), reversible, regenerative, thyristorised, digital DC converter. The converter is suitably rated for 380kW, 460V DC, 1500rpm and has built-in communication. There is one incremental encoder feedback card and provision for an analogue tacho feedback card. A microcontroller-based single quadrant (1Q), thyristorised digital converter supplies 14A DC to the motor field current at 220V DC. • Control the armature and field voltage of the rotary shear motor using a microcontroller-based, three-phase, 6pulse, four-quadrant (4Q), reversible, regenerative, thyristorised, digital DC converter rated for 300kW, 460V DC. It also has an armature current of 725A to drive the motor at 300rpm with built-in communication, incremental encoder feedback card and provision for an analogue tacho feedback card. A microcontroller-based, single-quadrant (1Q), thyristorised digital DC converter rated for a motor field current of 22.5A at a voltage of 220VDC was also included. To control the armature voltage and field current of the pinch roll the following equipment was installed: • Microcontroller-based, three-phase, 6pulse, four-quadrant (4Q), reversible regenerative, thyristorised digital DC converter for a DC motor of 25kW, 65A, 460V DC with built-in communication and incremental encoder and a feedback card. • Microcontroller-based, single-quadrant (1Q), thyristorised, digital DC converter for motor field current of 5.21A, at 220V DC. • Six incremental encoders adapted for measuring the speed at each stand motor and at the shear motors. • Two absolute encoders, one for sensing the position of the crop shear blade and the other for sensing the position of the rotary shear blade. • Three digital drive regulation systems, one each for the crop shear, rotary shear and pinch roll motors, each adapted to ascertain better speed regulation of the shear motors. • A programmable controller

incorporating a central processing unit, counter module for processing the encoder signal, and analogue output module for generating 0-10V DC to correspond with the motor speed. Installation

Using the weekly mill maintenance shutdown days the main tasks required were as follows: Crop/cobble shear

The crop/cobble shear drive was fitted with: • DC motor KLDC 280 SPL frame, 250kW, 460V DC, 604A, 1000rpm. For future upgrade there is provision for a 380kW, 460V DC, 1500rpm motor with separately excited? field with a field current of 14A at 220V DC; • The motor is suitable to provide 270% full load torque; • Accuracy is 0.1% steady state regulation at top speed (or better); • Achievement of selected speed in 100m/sec (from stand still to rated speed and vice versa); • The drive is capable of accepting speed feedback from an incremental encoder mounted on the non-drive end shaft of the motor; • The speed reference comes from the PLC; • Sensing the speed of the 5th and 7th stands using an incremental encoder; • Existing transformer (11kV/460V) was used to supply power to the DC converter; • Incremental encoders (three in number) mounted on crop/cobble motor and connected to the crop/cobble drive. The 5th and 7th stand encoders are connected to the PLC; • One absolute encoder for position sensing of the crop/cobble shear blade; • A new incomer circuit breaker (CB), and new direct current circuit breaker (DCCB); • The rating of the drive for the crop/cobble shear motor meets the IEC 146 standard (see box above) and additional requirement for shear drive application. September 2014

60 ROLLING

IEC-146 STANDARD a) 100% continuous. b) 125% for 2 hours. c) 150% for 60 seconds. d) 200% for 10 seconds. Additional requirement e) 300% for 5 seconds repetitive f) 300% for 10 seconds non-repetitive

Rotary shear

The rotary shear was fitted with: • DC motor 300kW, 460V DC, 725A, 300rpm Kirloskor motor with separately excited field with a current of 22.5A at 220V DC. • The motor is suitable to provide 270% full load torque; • Accuracy: 0.1% steady state regulation at top speed (or better); • Achieve selected speed in 100m/sec (from stand still to rated speed and vice versa); • The drive is capable of accepting speed feedback from an incremental encoder mounted on the non-drive end shaft at the rear of the motor; • An incremental encoder senses the speed of stand 14. • Existing transformers supply power to the DC converter. • Two incremental encoders; • One absolute encoder for position feedback; • Duty rating of drive rated to IEC 146 as above (see box) and additional requirement for shear application. Pinch roll motor

The pinch roll has the following drive components: • DC motor 25kW, 460V DC, 65A, with separately excited field with a field current of 5.21A at 220V DC; • An accuracy of 0.1% steady state regulation (or better) at top speed; • Achieve selected speed within 100m/sec; • The drive is capable of accepting speed feedback from an incremental encoder mounted on the non-drive end shaft of the motor; • Speed reference from the PLC; • One incremental encoder; • Existing transformers used for power supply to DC converter; • The duty rating of the proposed drive for the pinch roll to meet IEC 146 class IV standard. The drive and thyristor DC converter controller is digital regulator-based. The bridge converter includes a 3-phase, full September 2014

wave, four-quadrant bridge suitably rated for armature voltage control. It also includes a microcontroller-based single quadrant (1Q), thyristorised, digital DC converter for field current control. This has a microprocessor-based digital DC drive regulator complete with associated interface cards and digital/analogue I/Os. PC programmability is incorporated to excite and regulate armature voltage and field current. A schematic diagram of the electrical system implemented for the crop/cobble shear is shown in Fig 2. The thyristor converter for the DC drives comprises of following main units: • Digitally controlled thyristorised converters for armature and field; • AC power circuit devices; • Meters on the AC and DC side; • Regulation and control equipment; • Protection, indication and annunciation units; • Over voltage protection system to protect the converter and reduce the energy in the field circuit if the input voltage fails; • Inherent scheme for field failure protection. The thyristor converters for all the drives have an overload repeatability to IEC 146. Complete regulation of the digital thyristor converters, including device gate firing, is handled by a microprocessorbased digital system. All digital thyristor converters work in closed loop mode with the speed referenced from the PLC and speed feedback provided by highly accurate incremental encoders on the motor’s nondrive-end shafts. The combination of a digital thyristor DC converter and incremental encoder can achieve a very high degree of speed and torque control accuracy, which may be demanded from the control system. The DC converters have provision for on-line troubleshooting using a PC/programmer. The DC converter has provision for feedback with CEMF (counter emf) or speed (configurable). The feedback is through galvanic signal isolators. The DC converters also have provision for trending and data logging at the HMI.

connected to the programming station/HMI station through Ethernet communication. Drives are connected to the respective PLCs via Profibus communication. The input power to the PLC and interrogation supply is 24V DC. The two PLC systems have local I/Os as well as a remote I/O station at CP#4 and CP#10. CP#4 controls the crop/cobble shear and CP10 controls the rotary shear and pinch roll. The PLC and drive network configuration is shown in Fig 3. Innovative features

A number of innovative features have been introduced in the new design: • An improved method for controlling speed by adjusting the field current and armature voltage to eliminate front-end hook cut/bends and thereby improve mill availability; • Improved operator safety features and equipment (motor and gear box) safety through the introduction of logic for sensing shear blade jams; • Improved accuracy of cutting due to elimination of thumb wheel controls for setting roll diameter, lead speed, torque limit and so on; • Introduction of an HMI for better fault diagnosis and easy troubleshooting; • Minimum setting by operator. The new system was commissioned in June 2012. The speeds of the shears and stand motors are now being controlled efficiently. The armature voltage and speed feedback are shown in Fig 4. The benefits achieved upon implementation are: • A reduction in the annual delay of the mill due to crop/cobble, rotary shear and pinch roll by 50% (from 87.15 hours to 44 hours); • Increased yield by 0.10% (from 96.26% to 96.36%). Acknowledgement

The continuous encouragement and support from the management of Durgapur Steel Plant and the Research and Development Centre for Iron and Steel in implementing the scheme is thankfully acknowledged.

Bibliography

PLC system

There are two PLCs each housed in separate panels. Each consists of a CPU, power supply, communication processor, I/O racks, power supply for I/O racks, I/O modules and high-speed counter modules. The counter module is capable of up/down counting of at least 105 pulses per second. The first PLC is used to control the crop/cobble shear and associated equipment activities and the second controls the rotary shear, pinch roll and associated activities. The PLCs are

[1] A K Paul, I Banerjee, B K Santra and N Neogi, ‘Adjustable speed drives for rolling mill applications’, Steel India, March 2008, Vol 30, No 2, pp 46-50 [2] AK Paul, S C Khan, G J Mahajan, S Mishra, N Neogi, G S Sangar and S Sinha ‘On-line control of looping in a wire rod mill’, ASIA Steel, 1996, pp 213 – 215 [3] D N Sollander, ‘Upgrading rod and bar mills with open control’ Steel Times, February 2000, pp 49-50 [4] Harry Boubli, ‘A highly flexible section mill for Saudi Arabia’ ASIA Steel, 1999, pp 193-198. www.steeltimesint.com

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ROLLING 65

The modern symmetrical coil compactor by Russula

New technology increases production capacity The technological improvements in bar and rod rolling mills have been significant over the past several decades in terms of quality, material composition, tolerance, yield and overall production rate. To keep in line with bar and rod mill developments all downstream equipment in the mill had to evolve to meet the new requirements. By Jens P. Nylander* THE equipment at the end of the process, such as coil collecting, coil handling, coil compacting and associated equipment, has evolved from relatively basic designs to their current level of technological sophistication. The coil compactor, in particular, has undergone a transformation from a semimanual machine to a fully automatic coil packaging system. Early automatic coil compactors pressed the coil to a set-pressure and applied two, three or four wire or strap bindings. The compacting sequence was relatively crude and slow and the machines were large and heavy and often required a big and sometimes deep foundation, which made the installation both complicated and very expensive. The machines were often unreliable, expensive to operate and maintain and it was not uncommon to find rolling mills with two or three compactors to keep up with mill production, plus one or two ‘back-up’ machines when any of the other machines had to be repaired. In contrast, our most modern compactor operates using a very sophisticated and fast process. The footprint is very small and the machine weight is only a fraction of what the older machines used to weigh. The new machine is designed for a very

shallow and simple foundation. As a result it can be installed in just a few days. It uses integrated encoders and sensors, controlled by advanced programming, which result in reliable operation, easy trouble-shooting and maintenance. While these are significant improvements in terms of overall performance, throughput and capacity, the

path from the first symmetrical compactor to the most recent design has not been straightforward. Over the years, many technical solutions resulted in improved performance and these have been refined and implemented into our modern machine design. In this design, (see main picture), we take full advantage of many decades of technological evolution in

Fig 1 The Horizontal Coil Compactor The key parts of the horizontal coil compactor system are #1 – Compactor Base

#2 – Coil lift table

#3 – Press-carriage #1

#4 – Twin press-cylinders, 1:st set

#5 – Wire tying units/MFU

#6 – Wire Feeding Units

#7 – Wire guide segments

#8 – Press-carriage #2

#9 – Twin press-cylinders, 2:nd set

#10 – Movable Guide Carriage

#11 – Stretch Rollers

#12 – C-hook (for reference)

*Finishing end product manager, Russula. Email: Nylanderj@russula.com www.steeltimesint.com

September 2014

66 ROLLING

Fig 2 common horizontal coil compactor system

Compactor operational sequence

The basic steps in the symmetrical coil compactor sequence are:-

Fig 3 Parallel knot (left) versus end-knot (right)

combination with the use of modern design-tools. The result is a contemporary machine, based on proven technology, in a new compact and cost-efficient arrangement, suitable for current and future coiled rod and bar rolling mills. Increased capacity

The capacity of modern coil compactors has increased in line with rod and bar rolling mill technology. Target capacity figures regarding coil weight, coil size, press force capacity, compactor cycle-time, equipment availability and reliability are all quantifiable data that can be measured, recorded and validated. However, the modern rolling mill expects features that are not as easily measured, such as operator friendliness, easy to troubleshoot, easy maintenance and stringent safety standards. In addition, the compactor must be inexpensive to operate, purchase and install. In early rod and bar mills, the relatively small coils were placed “eye to the sky” on a simple conveyor and packaged by workers applying steel wire or steel strap. Later, semi-automatic – followed by fully automatic – binding machines were introduced to remove the manual labour from this often hot and hazardous operation. As the production capacity of rolling mills increased – resulting in taller and heavier coils – the coil collecting and conveyor system had to become more sophisticated. The introduction of the multi-strand rolling mill, the rotating twoarm mandrel and similar technologies, followed by various types of coil conveyor September 2014

system, led to the development of several different types of coil compacting systems and solutions. When the automatic coil compactor was introduced, it was often custom-designed for each mill and often had very unique design solutions to be able to operate together with an equally unique and custom-designed coil handling system. As time went on, different conveyor systems and coil compactors began to look very similar, and the most successful technical solutions and features replicated by different suppliers. This led to a gradual and inevitable standardisation of coil handling and coil compacting technology, driven in part by technological influences between suppliers. However, a series of acquisitions and consolidations led many established suppliers to disappear from the market, leaving only a few companies active in the business. Two decades ago, there were more than 20 different companies pursuing the coil compactor business worldwide. Today only a handful are left.

1 - Initial pressing sequence (initiated by start-conditions being met)

− Press-carriage #1 and Press-carriage #2 advance from their outermost position towards the vertical centre line of the compactor. − Movable guide carriage advances from its retracted position on press-carriage #2 towards press-carriage #1. − Coil lift table moves up from its resting position unit and makes contact with the coil. 2 - Transitional pressing sequence

− Coil lift table moves up from its coil contact position to its fully raised position. − Press-carriage #1 and Press-carriage #2 continue as above until an increase in pressure is detected. − Movable guide carriage continues as above until a sensor detects contact with press-carriage #1. 3 - Final pressing sequence

− Press-carriage #1 and press-carriage #2 continue as above until they reach the desired pressure/force. 4 - Wire feeding sequence

− Press-carriage #1 and press-carriage #2 maintain the desired pressure/force. − The wire feeding units initiate the feeding sequence through the closed-loop guide system until wire enters the wire binding heads. 5 - Wire stretching sequence

The modern horizontal coil compactor

While there are different types of machine on the market, most coil compactors are considered the “symmetrical type”. The actual system and its key components can be seen in Fig 1. The “symmetrical type” design consists of a base with two press-carriages that move towards the coil at equal speed. Because of this equal movement around the vertical centre line, this type of compactor is also known as a symmetrical compactor.

− Press-carriage #1 and press-carriage #2 maintain the desired pressure/force. − The wire feeding units initiate stretching of the wire, pulling it out of the closed loop guide system. − Wire binding units move from feeding position towards the binding position at the coil. 6 - Stretch roller sequence

− Press-carriage #1 and press-carriage #2 maintain the desired pressure/force. − Stretch-roller open. www.steeltimesint.com

ROLLING 67

Fig 4a side by side knot

Fig 4b over-under knot

Fig 5 coil lift table

7 - Binding sequence

− Press-carriage #1 and press-carriage #2 maintain the desired pressure/force. − Twist-unit swings into binding position − Twist-tool rotates until end of rotation sensor detection. − Twist-tool rotates in opposite direction until it stalls. − Cutting cylinder extend. − Twist-unit swings into feeding position. − Clamp cylinder retract. 8 - Release sequence

− Wire binding units retract back to feeding position. − Movable guide carriage retracts back to start position. − Press-carriage #1 and press-carriage #2 retract back to start position. − Coil lift table lowers back to start position.

The product determines if there is a need to use specific construction and wear material or a certain compactor sequence. Product related input data are:

− Plain rod and/or rebar. − Rod/rebar diameter. − Steel grade/grades. − Temperature @ compactor. In addition to the normal input data above, certain customers may have a preference for using steel strap rather than steel wire to bind the coil, a specific dimension for the compacted coil height, or a requirement to join two coils into one master coil. Horizontal coil compactor capacity

− Signal released to C-hook carrier system. – “Safe to move C-hook”.

Once the input data has been collected and reviewed, a suitable coil compactor system can be selected and customised to meet any specific requirements. The coil compactor capacity sheet (Fig 2) is the most commonly used type of coil compactor.

Design criteria

C-hook

When selecting a suitable machine for a specific mill, it must meet certain criteria such as physical size, productivity and product. The physical coil size defines the actual physical size of the coil compactor.

− Maximum allowed C-hook length: 4500 mm. − Maximum allowed C-hook width: 200 mm. − C-hook elevation above nominal floor: 1400 - 1500 mm. − Nominal C-hook speed: 300 - 400 mm/sec. − Distance between C-hook park position and compactor CL: 2000-3000 mm. − C-hook centring time: 2 - 5 sec.

9 - Coil compacting sequence complete

Coil size related input data are:

− Coil OD. − Coil ID. − Coil height (pre-compacting). − Coil weight. − Maximum C-hook length. − Maximum C-hook width. − C-hook elevation above nominal floor level. The productivity defines the available cycle-time for the compactor system. In case the production rate is high it may be required to have more than one compactor to service the mill.

Coil restrictions

− Minimum/maximum Coil Height (pre compacting): 600/3600 mm. − Minimum/maximum Coil OD (pre compacting): 1200/1400 mm. − Minimum/maximum Coil ID (pre compacting): 800/1100 mm. − Minimum/maximum Coil Height (post compacting): 600/2500 mm. Capacity

Productivity related input data are:

− Tons per hour. − Time required for C-hook centring. − C-hook conveyor speed. www.steeltimesint.com

− Compactor only (cycle time): 27 sec. − Coil-to-coil (CtC cycle time): 40 sec. − Minimum/maximum compacting force: 0 kN / 500 kN

Technical solutions

The first symmetrical coil compactors entered the market in the late 1960s/early 1970s. When this new type of compactor was introduced, there was still a large variation in detailed solutions even though the concepts were similar. With reference to the most recent coil compactor design, the majority of the technical features are well established. There are, however, a few key areas worth mentioning as they are extremely important in order to meet the requirements of a modern rolling mill. Wire tie

The earliest machines ‘borrowed’ tying/feeding technology from existing bundle-tying machines at the time. On these machines, the knot was applied at the end of the coil and while this was acceptable on straight bundles and small coils, it soon became inadequate as coil sizes grew and the residual spring-force within the coil increased due to increased press-force. The end-tie was, therefore, deemed inadequate for this type of application because coil packages would break the bindings and the coil would come apart. There were even instances when railroad companies refused transporting coils with this type of end-tie. Another type of knot, sometimes referred to as the ‘Champagne knot’, was introduced as an alternative to the end-tie. It had already been used for baling applications in the paper and pulp industry and today is referred to as the parallel knot. It has proven to be the most durable and reliable wire knot for this type of application. Fig 3 illustrates the principle difference between the parallel knot and the end-knot. Once the former was established the latter soon disappeared. Two parallel knots

There are two different philosophies to applying the parallel knot to the coil. Although the end-result is similar in terms of strength and structure, there is a significant difference in the technology to produce the knot. The first design, referred to as ‘side-byside’ knot, is produced by twisting the wire-ends while they are parallel to the coil September 2014

68 ROLLING

Fig 6 Straight centre guide, curved return guide, pivoting feed guide and movable guide carriage

surface tangent, see Fig 4a. The second design is referred to as the “over-under” knot and is produced by twisting the wireends while they are perpendicular to the coil surface tangent (Fig 4b). While there were pros and cons with both principles, the prevailing concept is the ‘side-by-side’ knot. Although the actual binding unit for the “over-under” principle is both compact and inexpensive, it suffers from inconsistent performance, which reduces the overall availability. The associated guiding of the wire is prone to errors and requires a significant amount of maintenance. The ‘side-by-side’ principle is designed with one extra motion within the actual binding unit, but in return, the wire guiding system is solid, reliable and easy to maintain.

Post 2010 compactor design coils/hr 2000 to 2010 compactor design Pre 2000 compactor design

relative coils/hr

Fig 7 Relative difference between different generations of compactor designs

500

1000

1500

2000

encoder system to record its vertical position. These devices allow the table to adjust its position to protect both the coil and the lift table from the residual forces generated by the pressing sequence. The ‘coil detect’ sensors also record the individual coil weight, which eliminates the need for a separate coil weighing station.

Other technologies

Apart from the different types of wire twisting, welding technology was tried on a couple of installations, but it could not compare with the various twisting technologies in terms of reliability and availability and was soon abandoned. Coil lift table

While all coil compactors have a lift-table to elevate the coil off the C-hook, there are some differences between past and currently available solutions. The lift-table has several functions. Some C-hook systems are not the rigid type and when the C-hook reaches the coil compactor centre line, the hook is stopped quite abruptly causing the C-hook to swing back and forth. To stop this, the lift-table is extended until it touches the coil, which then stops the swinging motion. The main function of the lift-table is, however, to lift the coil off the C-hook and to support the coil while it is being pressed and tied. This is necessary, in part, to protect the C-hook system from being damaged by the residual forces created from pressing the coil. The top of the lift-table has non-abrasive wear-liners to protect the inside of the coil from being scratched by sliding along the C-hook during the pressing sequence. The lift-table also has a set of sensors that detect the coil presence and a position September 2014

Wire guide segments

The guide design has evolved over several decades. The challenge has always been to build a design that provides rigid support without adding increased resistance to the wire during feeding. The same system must allow for controlled wire release to eliminate damage to the wire and the wire guide during stretching. In addition, since the guides are the most exposed parts, they have to resist wear, be easy to adjust, clean and maintain. To meet all these criteria our modern guides, (see Fig 6), are designed using a special roller bearing to reduce friction between the wire and the guide assembly. The static guide sidewalls and the guides that open and release the wire during stretching are made of unique wear resisting steel. The doors are designed in a sandwich configuration with a fixed wear-plate closest to the wire of the same wear resisting material. The doors are held closed during wire feeding by a set of coiled spring assemblies, which are adjustable to allow for customised release force for each individual guide. End-user benefit

Two decades ago, it was not uncommon for a mill to have multiple coil compactors to keep up with the mill in addition to a spare machine or manual back-up. The cycle-time to make a complete compacting

2500

Coil weight

sequence ranged between 60 and 90 seconds, depending on coil and C-hook size. Fig 7 illustrates the increased coil/hour through a single machine at different coil weights depending on the design-generation. Note that this graph does not take into account the C-hook sequence cycle time, which would have further increased the difference. Because the data is from a variety of different suppliers over a significant time-period, not all suppliers are represented; the graph should be considered indicative and not conclusive. With an approximate coil weight of 2t, the modern compactor enables the mill to process 70% more coils per hour compared with first generation symmetrical compactors – pre-2000 designs (see Fig 7). With the current third generation symmetrical coil compactor on the market (the post-2010 designs), the capacity has increased at a significant rate while the investment cost has gradually declined. The typical investment cost for a coil compactor today, compared with a similar machine 20 years ago, is significantly less. Adjusted for inflation the initial investment cost is reduced by approximately 56% (based on US.CPI data between May 1994 and April 2014). The global consolidation of suppliers and the general standardisation of this technology have certainly benefitted endusers. With a 70% capacity increase paired with a 56% relative price reduction, this technology has become more affordable than ever before. The trend is continuing and we are likely to see further increases in capacity and similar or even further reductions in price. www.steeltimesint.com

STEEL SUCCESS STRATEGIES XXIX

The annual Steel Success Strategies conference – the 29th edition – held from June 16 to 18 in New York, touched on a hotly debated issue in US steel circles – aluminium as an alternative to steel in automobile production. By Manik Mehta*

WHILE welcoming guests at the conference’s opening, Richard McGrath, president of American Metal Market, the conference organiser, pointed out that the steel industry faced a challenge from aluminium, particularly in automobile manufacturing. “Aluminium is, at least, a threat worth acknowledging, even though it may be a long way off,” said McGrath, while calling for an “open and honest” discussion. Peter F Marcus and Karlis M Kirsis, managing partners at World Steel Dynamics, jointly presented their keynote presentation Winners emerging – bounty after break up, and observed that “steel in crisis also presents an opportunity”. Predicting that 2014 and 2015 will be trying years for many steel companies, the duo said that the most serious near-term problem confronting the industry was of a macroeconomic nature, calling the phenomenon contagion or the “passing of a sense of financial malaise from one country to another”. “In fact, contagion is spreading around the world like a deadly virus … but the key point is that contagion delays, cancels and/or reduces fixed asset investment. This is a huge problem for the steel industry since fixed asset investment accounts for about 80% of global steel,” the duo maintained. One of the main concerns of the US steel industry is Chinese over-capacity, which, Kirsis said, was “here to stay … overcapacity is going to be a problem”. However, from 2017, Chinese steel demand will decline compared with 2014 levels, leading to closure of many “marginal facilities” in China, as Marcus put it. Kirsis said that he was bullish about nonChinese steel companies, depending on four conditions: the Chinese government dampens export of steel because of widespread pollution in the country and the rising cost of raw materials; an “avalanche” of trade law suits forcing the Chinese to drastically reduce production and exports, with even the South Koreans and Japanese possibly slapping China with huge law suits; declining global steelmaking capacity; and, finally, better prices

Steel – ‘the fabric of life’ for steel mills in their domestic markets than in export markets. “Steel is the fabric of life …”

After staying away from the 2013 event, Lakshmi N. Mittal, the CEO of ArcelorMittal, the world’s largest steel producer, was back at this year’s conference to deliver his keynote speech that usually provides his assessment of the global steel situation. Mittal, just returned from China after inaugurating a steel plant called Valin ArcelorMittal Automotive Steel Co Ltd (VAMA) in Loudi in Hunan Province, said that he was “very excited” about ArcelorMittal’s first ever production plant in China where, he added, the “automotive market is set to boom”. Indeed, Mittal said that his customers will be global brands, including names such as Volkswagen, Ford, PSA, DaimlerBenz, Toyota, Honda, Renault, Fiat and Nissan, besides the domestic Chinese manufacturers. “These customers have encouraged us to enter this market. They are excited about our new presence because it addresses two main concerns of the automotive segment today. The first is the geographic shift to the developing economies. The global automotive market is expected to grow by 33 million cars between 2007 and 2020. Some 32 million of these cars are coming from developing economies, with the biggest growth in China. The second is being able to meet new fuel efficiency legislation. Carmakers need to reduce the weight of their vehicles in order to meet future regulations,” he said, describing VAMA as the “perfect example of ArcelorMittal’s ability to do both”.

Plunging into the aluminium versus steel debate, Mittal said that the comparison was “not proper”. “The aluminium versus steel comparison is not proper because the comparison is made with a certain quality of steel,” he added. Arguing against the supporters of aluminium who praise the metal’s light weight, Mittal said that “steel’s weight can be reduced in a costeffective manner”. Mittal pointed out that the steel industry is constantly in a state of technological revolution. “Our steels for the automotive sector are a perfect example … but, essentially, steel’s strength has multiplied by 10 times over the past 20 years from 170 to 1700 megapascals. These are phenomenal changes,” he maintained; most importantly, steel can provide all the weight reduction that auto producers require to satisfy new fuel efficiency standards. Mittal also tried to correct the misperception that other materials are about 30% to 40% lighter than steel, “but that’s only accurate if you are using the steel of 2005 as a comparison. Today we are working with completely different steels, which are the results of hundreds of millions of dollars of investment. This includes our S-in-motion range of products. The S-in-motion is a collection of over 60 different advanced and ultra-high strength steels that can collectively take the weight out”, he said, citing the example of the award-winning laser-welded, hotstamped door ring co-engineered with Honda for its new Acura MDX; this resulted in a four kilogram weight reduction, besides achieving the highest available collision safety rating from the Insurance Institute for Highway Safety.

* USA Correspondent www.steeltimesint.com

September 2014

70 STEEL SUCCESS STRATEGIES XXIX

Mittal said that the “most powerful evidence” came in the form of the assessment by the head of materials research and manufacturing at Volkswagen who said: “We are using high strength steels in increasing amounts. It is a very cost effective way of reducing weight. Using new innovations in steel engineering.... it is possible to reduce weight without the use of more costly materials”. Mittal tendered yet another advantage of steel – sustainability. “Today, people are not incentivised to look at the carbon footprint of a product over its entire life cycle,” he said. Not only does steel produce less CO2 than other alternative materials, but it is also the only material that is 100% recyclable with no diminution in properties. Mittal said that his company had adapted its business and learned from the difficulties of the past year. He ended his presentation with his favourite line that “steel will be not only the fabric of life … but also the fabric of the future”. “The smaller the world, the bigger the thinking”

China, Japan and Turkey figured in a panel discussion held under the slogan “The smaller the world, the bigger the thinking”. Moderated by Edwin Basson, director-general of worldsteel, the panelists included John Lichtenstein, managing director (global metals industry practice) of Accenture, Kazuo Fujisawa, general manager of JFE Steel of Japan, Alexey Kulichenko, CFO of the Russian steel company Severstal, Ali Azali Pandir, chairman/managing director of Turkey’s Erdemir, and Louis Schorsch, CEO Americas, ArcelorMittal. China’s slower growth and increasing supplies are pressurising prices. Some panelists predicted closures of plants in China’s inland while its coastal plants will continue to operate. Lichtenstein advised steel companies, in general, to rethink and innovate their existing models to remain competitive. Fujisawa spoke of the prospect of lower corporate tax and of the “steady economic recovery path” in Japan, though he also saw challenges in the form of supply and demand imbalances, including excess steel capacity, which is expected to continue, raw material sourcing, the need for capital investment, improving energy efficiency and using waste plastic as feed for plastic furnaces, and a shortage of skilled workers. Pandir spoke of a “new era” of greater steel consumption and, with it, rising demand for cars, white appliances, and so on. “Turkey’s infrastructure is being developed with growing construction of earthquake-proof buildings in Istanbul, along with the biggest airport being built. September 2014

Lakshmi N Mittal CEO ArcelorMittal. Harsh Kumar, managing director of Mahindra Intertrade, Mumbai. George N. Matta, marketing director, EZZSteel, Cairo. Jayant Acharya, Mumbai-based director of India’s JSW Steel Limited.

Turkey is the world’s 18th biggest steel producer and will produce approximately 20Mt by 2018; it is also the biggest buyer of scrap,” Pandir said. Edward Meng of Zhengzhou-based China Gerui, a niche and high-valued metal processing company utilising advanced technology to produce speciality, cold-rolled steel products, saw the Chinese steel sector facing major challenges in 2012/13 amid continued weak steel demand, over-capacity, a fragmented industry, eroding profit margins and tightened credit availability. Urbanisation and expansion of infrastructure, increasing consolidation and other factors would drive China’s long-term demand. “China’s construction industry was booming until last year but is now stagnating. However, third and fourth tier cities are not affected, though the big first and second tier cities were affected,” Meng said. In an interview with Steel Times International, John Lichtenstein, Accenture’s managing director, said that because of an abrupt slowdown in construction in China, its steel sector was growing at a modest rate. “I don’t think China wants to export even 10% of its production. China is tightening its over-capacity through environmental regulations and other means,” he said, adding that China will continue to be a net exporter. “I hope and expect it will stabilise (exports) at a lower level,” he said. Even as steel demand falls, there will still be demand for seaborne iron-ore relative to the domestic market because of the rise of coastal plants. “The next couple of years will see iron ore prices remaining soft and by 2020 will start firming up,” he said. Lichtenstein also spoke of the US as an “open, generally accessible” market, with access to abundant raw materials and energy. The so-called “shale gas revolution” has, obviously, worked in favour of the steel sector, particularly for steel pipes and tubes, though the impact on the steel industry is “somewhat exaggerated”.

The USA is the place to be

Like Lichtenstein, executives of US steel companies also sounded bullish about the US market echoing the “US-is-indeed-theplace-to-be” sentiment. AK Steel Corporation’s chairman, president and CEO, James L Wainscott, highlighted this attribute about the US while making a strong case for steel against aluminium, declaring that it “cannot replace steel in the automobile sector”. He projected that North American automobile production will surge from 16.8 million light vehicles in 2014 to 17.8 million in 2017. In keeping with this sentiment, John Ferriola, chairman/CEO of Nucor Corp, said that steel consumption will be driven by a number of mega projects such as the Tappan Zee Bridge, George Washington Bridge, the World Trade Centre (it will be the tallest building in the US) and other infrastructure icons, which were either being modernised or set up from scratch. Ferriola cited the advantages of the USA as a steel-producing venue: it was the largest capital market, offered self-sufficiency in raw materials, inexpensive energy and proximity to a large domestic customer market. However, Ferriola cautioned against unrestricted imports into the US, which made things difficult, and called for “free but fair trade” against the backdrop of a sharp rise of nearly 125% in rebar imports between 2010 and 2013 from Turkey and Mexico. But a US steel manufacturing revival faces some challenges in the form of greenhouse gas regulations and new ozone standards. India: the rising steel power?

While China figured prominently in discussions for a variety of reasons, many speakers highlighted developments taking place in India. Lakshmi Mittal expressed the view that India’s growth rate is expected to increase in the future and praised the new government’s pre-election “less government, more governance” promise. The number of Indian steel executives at the conference has risen over the years. www.steeltimesint.com

STEEL SUCCESS STRATEGIES XXIX

Jayant Acharya, Mumbai-based director of India’s JSW Steel Limited, highlighted some of the positive aspects of India’s steel story. “The share of the emerging economies in global steel consumption has been growing. The Indian economy is expected to grow to $5 trillion in 2026,” he said, adding that this will also propel steel demand. Steel experts see good demand in India’s huge 1.2 billion population, of which some 840 million live in rural India. With an annual 81Mt capacity, India is the world’s fourth largest producer of steel and the third largest consumer. “Indeed, India has the potential to consume 200Mt by 2020,” he noted. India’s current per capita consumption of 60kg is expected to rise to 147kg in 2025/26. According to Acharya, the huge rise in steel consumption will be driven by infrastructure modernisation; some of India’s big-ticket projects include Agri Rail Network, a railway freight corridor, national highways, Diamond Quadrilateral, airports and ports. Harsh Kumar, managing director of Mahindra Intertrade, Mumbai, which operates India’s largest steel service centres across automotive, power and home appliances, told Steel Times International that despite its initial positive reaction to the new Indian government, the Indian steel industry felt it was “too early to say anything about the government”. The steel industry faced challenges including environmental issues arising from mining and steel production. “Land acquisition is another challenge that is also a sensitive political and social issue …”. Asked to comment on the South Korean Posco’s greenfield steel project in India, which has languished for several years because of red tape and other reasons, Kumar said that Posco will not move out of India because of its problems. The new government, he added, seemed to be “more serious and aggressive” in resolving issues of interest to business. But, Kumar added, Indian and foreign companies willing to invest in India will closely watch Posco’s fate. “This will be crucial for future investment decisions,” he said, adding that he was “quite upbeat” about India’s steel sector. Turkey and Egypt

Ersun Ozdemirel, export manager at Borcelik Celik Sanayli Ticaret AS of Bursa, a re-rolling company that converts hot-rolled coils into cold rolls and hot-dip galvanised, said that his company exports 20% of its production, with the remaining 80% consumed domestically. “Turkey’s steel market is the world’s eighth largest and consumes some 36Mt. It is the second largest in the European Union behind Germany; Turkey is a net www.steeltimesint.com

exporter of long products but it imports flat steels,” Ozdemirel said in an interview. On Turkey’s political unrest, Ozdemirel said that the mid-December protests had not affected steel demand which had grown. “Turkey’s GDP is projected to grow 3.5%. The flat-steel industry’s production is around 9Mt while demand is around 14Mt; the difference is met through imports. We also import from the EU. Turkey is the biggest scrap importer, accounting for some 20Mt of imported scrap. Turkey also produces a small quantity of iron ore,” he said. But Turkey’s neighbours – Iraq and Syria – are causing concern to many in Turkey. Added to this is the Ukraine crisis that is adding to the uncertainties in the region. But Ozdemirel said that the US is currently “a very attractive market” because of growing demand. “Raw material prices – of iron ore, coke and coal – will remain weak. Shale gas in the US has kept prices down,” he said.

Another country that has passed through major political upheavals is Egypt where the steel industry faced uncertainties. Ezzsteel, based in Cairo, is the “largest independent steel producer in the Middle East and North Africa” producing 5.8Mt of steel, as George N. Matta, the company’s marketing director, put it in an interview with Steel Times International. “We produce wire-rod, rebar and hotrolled products. Some 80% of our production is absorbed in the domestic market while 20% is exported. The construction sector, mainly residential, is driving demand,” Matta said. Since 2011, the bulk of steel demand in Egypt has been generated by the construction sector. Infrastructure projects, expected to generate demand, include the development of the Suez Canal, the power station in Alexandria, construction of eight population centres – or new cities – coupled with expansion of the urban region into the desert and of the population areas. Egypt’s population,

currently at some 88 million, is projected to grow at an annual rate of 2%. These factors would increase steel demand. Matta said that Egypt’s steel industry was not affected by political developments in the country. “This is the first time in the world that people have overthrown two successive regimes in less than three years. People want democracy and civil liberties, and stability will eventually return to Egypt. The new president’s initiatives have been well received in the Gulf Co-operation Council,” he said. Ezzsteel imports raw materials, such as iron ore, from Brazil. “We buy scrap from Ukraine and Europe. Demand has, however, declined by 15% or 1Mt. Egypt’s steel demand is down from 7Mt to roughly 6Mt. But we expect demand to rise to 6.5Mt in 2014. However, we expect a quantum surge in the years 2015 to 2017 as a result of mega projects like the Suez Canal development and creating service centres along its banks to serve ships and meeting all their needs such as storage, fuel, logistics, etc.” Matta explained. Egypt has plans to build one million housing units in the next five years from 2014, which will cost some $40 billion. Other steel-consuming projects planned include the Dabba nuclear power station near West Alexandria, the urbanisation of the desert for creating new population centres, increasing the number of such cities from 29 to 36 city/states to accommodate population growth and alleviate crowded areas near the Nile banks, besides creating farming opportunities on the land. There are 20 steel-manufacturing companies in Egypt; there are three semiintegrators. Ezzsteel accounts for some 45% of national capacity. The other players are Beshai Group, Suez Steel in Sadat City and at the Suez respectively. The last two companies have just built DRI capacities, which are expected to be commissioned soon. The Middle East relies on steel imports despite having so many players. Saudi Arabia has earmarked huge outlays for its development and infrastructure projects, including the construction of eight new socalled economic cities with the character of industry parks and the supporting infrastructure; such projects will generate huge demand for steel. “This is a region with $1 trillion worth of infrastructure projects. Two major events that will drive demand for steel will be the 2022 World Cup in Doha and the World Expo in Dubai in 2020, which means construction of many hotels, soccer fields and exhibition facilities,” Matta said. In North Africa there are dense populations and plenty of demand for housing and decent infrastructure, particularly in Egypt, Libya and Algeria. September 2014

72 PERSPECTIVES: PLATTCO

Making progress on emissions Kevin Guay, senior sales engineer/research and development with USA-based Plattco is very optimistic about the progress being made by the steel industry to address the challenge of complying with new and more stringent environmental regulations. 1. How are things going at Plattco? Is the steel industry keeping you busy?

Steel has traditionally represented a strong business for Plattco and in the past year we’ve seen dramatic growth in the number of orders from steel producers. We attribute this increase to the growing strength of the industry and to the relationships we’ve built up over the years with steel producers who have turned to Plattco for help solving some of their long-term production and environmental problems.

outside of the US in Central America, Eastern Europe, and Russia. We also are particularly strong in iron pelletising in India.

There is a place for both steel and aluminium in the auto industry and I think the competition has been good for the steel industry.

5. Can you discuss any major steel contracts you are currently working on?

7. “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. What is your view on the subject?

We are currently working closely with one major US steel producer to develop a solution to fix a significant problem they are having with other dust handling valves on their blast furnace dust catcher. This is

US steel producers have been severely tested in the past and I have no reason to doubt that they will be less resilient in the face of these new challenges.

2. What is your view on the current state of the global steel industry?

The majority of our steel industry business is with US producers, including their domestic and foreign operations. From what I see, the US steel industry has been making a good recovery from the last recession. Based on our current work with every major US-based steel producer, it appears the overall industry is getting stronger. Given that our products are used mainly in environmental control, the strength of our business is an indicator that US steel producers have a significant focus on upgrading their environmental control processes. 3. In which sector of the steel industry does Plattco mostly conduct its business?

The vast majority of our work in the steel industry is in environmental controls, but our valves are also used in sintering, iron pelletising, and other areas. Plattco specialises in the design and manufacture of engineered valves. We have and are currently working on designing valves for applications that have been long standing problems in the steel industry. This allows us to work with every area of the steel mill. 4. Where in the world are you busiest at present?

Plattco valves are used by every major US steel producer. We have a significant presence in their US plants as well as many of their plants in other countries. In recent years, we’ve had strong growth at facilities September 2014

8. It is always claimed that aluminium is the ‘greener’ metal when compared to steel. What’s your view?

a long standing problem that has plagued steel-making operations for many years. The new design will eliminate operational issues and significant safety hazards. 6. “Aluminium will always outperform steel on a weight basis; and on the stiffness issue alone it will carry the day,” said Alcoa’s chief technology officer Ray Kilmer speaking about aluminium usage within the global automotive industry. Where do you stand on the aluminium versus steel argument?

I think the competition with aluminium in the auto industry is driving innovation in the steel industry. For example, to compete with the weight-saving advantages of aluminium, steel makers are creating innovative new alloys to make steel lighter.

Given that Plattco valves are used in environmental control by every major US steel producer, we can say with confidence that the steel industry is making great strides in ensuring their manufacturing processes are environmentally responsible. While I can’t speak for the aluminium industry, I can say that steel producers both understand the need to be environmentally responsible and are taking the right actions. To stay in business, our steel industry customers have to meet stringent environmental standards without sacrificing their ability to make a profit. Plattco valves play an important role in this balancing act. We provide steel producers with the valve technology they need to avoid dust spills and emission violations that can harm the environment and their profitability. We also help steel producers maintain operational ‘up time’ and control energy expenses. 9. “…any hint of doubt when it comes to predictions of climate doom is evidence of greed, stupidity, moral turpitude or psychological derangement.” This is a quote from Bret Stephens writing in The Wall www.steeltimesint.com

PERSPECTIVES: PLATTCO 73 Street Journal. Do you sympathise with his view?

This is clearly a quote that’s intended to provoke. I’m not sure I agree that we’re doomed. The climate has been changing for millions of years and there’s no doubt some of the recent change is due to human activity. It’s obvious that we need to take steps in business and society to alleviate the human role in climate change. But it’s also obvious to us that we need to make these changes in a way that also takes the economic implications into consideration. It’s perhaps the most complex challenge of our time and dealing with it requires a balanced approach. 10. In fact, talking of ‘green issues’ and emissions control, how is the steel industry performing in this respect?

13. Where does Plattco lead the field in terms of steel production technology?

We are the leading technology for dry material handling airlock valves used in steel production, as well as several other industries like cement, energy from waste, paper, and minerals processing. For each of these industries, we offer the same advantages over rotary valves: less leakage of air and materials, higher efficiency, less maintenance, and longer life. The special double flap airlock valve design of Plattco valves makes it possible to move materials that other valves can’t handle. For example in the steel industry, Plattco valves are used in the coke manufacturing process handling coke breeze, a very abrasive material that has proved to quickly wear out a rotary valve.

most innovation in the downstream steel processes where companies are finding new ways to roll and descale steel to save production time. These and other process efficiencies are critical. We know of one major steel producer that can create raw steel and get it ready to ship in 90 minutes; we know of another company where this same process takes 10 days. It’s not hard to grasp the competitive advantage the first company has. 17. How optimistic are you for the global steel industry going forward and what challenges face global producers in the short-to-medium term?

We are very optimistic about the future of the steel industry. As a whole, the industry is finding new ways to compete with other

We think the steel industry is making good progress addressing the need to better control emissions and have a lighter environmental footprint. Since we work with steel producers primarily in their environment control, we are seeing firsthand the commitment that plant operators have towards implementing more advanced technology in baghouse operations and dust control – like Plattco double dump valves – to make their operations more efficient and more environmentally sustainable. 11. In your dealings with steel producers, are you finding that they are looking to companies like Plattco to offer them solutions in terms of energy efficiency and sustainability? If so, what can you offer them?

When it comes to energy consumption and sustainable operations, Plattco’s double dump valve technology offers steel producers significant advantages over rotary valves. Rotary valves typically leak three to 10 times more than double dump valves; this wastes a lot of energy and one can directly attribute this air leakage to the cost of production and the company’s bottom line. Beyond efficiency alone, the air leakage with rotary valves also poses a greater risk of environmental problems for steel producers. 12. 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?

I think steel producers are driven mostly by bottom-line business considerations. From our experiences, every steel producer understands the tangible business benefit in operating in a more environmentally friendly way.

14. How do you view Plattco’s development over the short-tomedium term in relation to the global steel industry?

From a business and technology development standpoint, we are working closely with one major US steel producer to design a solution that corrects a problem they are having in their baghouse dust collection. 15. The Chinese still rely heavily upon Western steel production technology. What is Plattco’s experience of the Chinese steel industry?

To date, Plattco hasn’t done any business in the Chinese steel industry. 16. Where do you see most innovation in terms of production technologies – primary, secondary or more downstream?

From Plattco’s perspective, we are seeing www.steeltimesint.com

metals like aluminium. We’re also optimistic about the progress the steel industry is making to address one of the other major challenges – efficiently complying with new, more stringent environmental regulations. 18. Plattco is based in the USA, but what’s happening steel-wise in the country?

In the US steel industry, we are seeing a significant boom in pipe manufacturing, much of which is related to new shale gas projects. This is driving steel production in some areas. 19. Apart from strong coffee, what keeps you awake at night?

In our business we are often challenged with communicating the value proposition of double dump valves compared to rotary valves. But we find that once people understand the differences between the two, the sales process usually gets pretty easy. September 2014

74 TECHNOLOGY

Acroni orders heat treatment line from SMS Siemag

Front row, from left to right: Alberto Bregante (SMS Innse), Blaž Jasni (Acroni), Fritz Brühl (SMS Siemag). Back row, from left to right: Christian Sprung (SMS Siemag), Alberto Vaccani (SMS Innse), Burkhard Dahmen (SMS group), Andrey Zubitskiy (KOKS Group), Anton Chernykh (Slovenian Steel Group), Jens Barth (SMS group), Roman Robi (Acroni), Vasilij Prešern (Slovenian Steel Group).

Slovenian steelmaker Acroni has contracted SMS Siemag to supply a heat treatment line and revamp a stainless steel annealing and pickling line. Commissioning is planned for 2016 at the company’s Jesenica plant. Where heat treatment is concerned, SMS Siemag will install its newly developed MultiFlex Quench system, which is claimed to offer ‘an outstandingly high degree of flexibility’ and high cooling efficiencies during the heat treatment of heavy plate. Acroni is a highly specialised niche supplier of stainless steel plate and strip, tool steels, abrasionresistant steels and HSLA grades. The new heat treatment line will enable the company to expand

its product portfolio. The new line is designed for plates with thicknesses ranging from three to 100mm and the range of materials includes high-strength carbon steels, stainless and tool steels and a range of special steels. SMS Siemag will supply a roller-hearth furnace for hardening and normalising, a MultiFlex quench system and a roller-hearth furnace for tempering, as well as all auxiliary facilities, including plate conveying equipment and all the required systems for water supply and treatment and automation systems. The hardening furnace will be equipped with two chambers and the plates will be annealed in a nitrogen-based inert gas atmosphere. Heating up to 1,100 deg C will be carried out indirectly using radiant heating tubes. The MultiFlex quench system is claimed to offer a high degree of flexibility as it offers a wide range of cooling rates. Squeezer rolls ensure plate flatness, even at high cooling rates, says SMSSiemag. After quenching, plates can be tempered in an open-heated roller-hearth furnace at temperatures between 400 C and 800 C. The modernisation of the annealing and pickling line is to reduce the burden on the environment during the manufacture of strips made of nongrain oriented silicon grades (NGO up to 2.4% Si content). “To achieve this, the chemical pickling line will be replaced by a purely mechanical descaling system in combination with a brushing action,” SMS-Siemag explained. “Dispensing with chemical descaling, and the associated acid regeneration by the spray roaster process, will make the Acroni works much more environment-friendly.” For further information, log on to: www.sms-group.com

Ceramic protection for copper tuyeres from Morrison Morrison Engineering has developed a ceramic protection system for copper tuyeres, which it claims is at the forefront of tuyere protection. The system can be applied to both cupola and blast furnace tuyeres and protects them from corrosion abrasion and liquid metal damage. The principal raw material of the tuyere’s ceramic area is silicon carbide; it has exceptionally high strength combined with a greater resistance to thermal shock than conventional refractories. Additionally, it offers high thermal conductivity with extreme resistance to abrasion, claims Morrison Engineering. Because the ceramic is so tough and hard, only diamond tip grinding can machine it, claims the company. The physical characteristics of any tuyere with the applied ceramic would be very similar to the tuyere’s original design as the internal cooling properties and water consumption remain unaltered. A typical ceramic application is 15mm thick, covering the front of the tuyere nose and 250mm of the tuyere body. Variations and prototypes can be manufactured to suit individual furnace and September 2014

melting shop requirements. The ceramic is attached to the tuyere using a unique dual bonding system developed by Morrison Engineering. Beneath the ceramic, the tuyere has a normal copper nose and body. When the ceramic has reached the end of its normal service life – or is prematurely damaged – the tuyere continues to operate identically to a normal tuyere. For further information, log on to: www.morrisoneng.co.uk

Portable emissions analyser US-based E Instruments has introduced the E8500 portable industrial combustion gas and emissions analyser. The device is claimed to be ideal for regulatory and maintenance use in boiler, burner, engine, turbine, furnace and other combustion applications. Among many features, the E8500 offers a remote wireless printer and real-time PC software with Bluetooth. For further information, log on to: www.E-Inst.com

Voith sells high-performance drive to Voestalpine Voestalpine Grobblech GmbH has purchased a high-performance drive from Voith. The company’s Gearlink consists of two highperformance universal joint shafts and two curved-tooth coupling shafts and was put into operation in what Voith claims is the world’s most efficient and powerful rolling mill main drive at the end of 2013. Gearlink, claims Voith, works with very small roller diameters, allowing operators to expand their product portfolio with further deformation processes, enabling them to increase productivity while improving quality. According to Voith, the modernisation of the rolling mill has made it possible to roll significantly tougher – and higher quality – grades of steel with a width of up to 4.2 m. The two main drive shafts each transmit torques of 7500 kNm without fatigue, based on a minimum roller diameter of 980 mm – something that has not previously been achieved in rolling mill construction. In contrast to conventional slipper spindles, modern universal joint crosses minimise play in the drive. Power loss as a result of friction and the environmental impact of lubricants are also kept to a minimum, claims Voith. The development of the Gearlink concept was a result of close co-operation between Voith, Voestalpine Grobblech and BUMA Engineering. Voith said that the Voestalpine Grobblech mill uses universal joints with a rotational diameter of 1300mm. The fully forged CHF 1300.8 universal joint shafts are all of varying length, which results in the shafts being offset on the roller side. This means that shafts of equal size can also be used on the roller side regardless of the 980mm roller diameter. The GearLink element (a curved-tooth coupling shaft) guarantees a connection between the offset shafts and the coupling sleeves. “This reduces the load of bending moments on the roll journals to the greatest extent possible and allows the axial continuous variable crown displacement of the rollers,” said Voith, adding that the coupling shaft also provides an axial emergency outlet in case of oblique fractures of the rollers. For further information, log on to: www.voith.com www.steeltimesint.com

September 2014 – Vol.38 No.6 – www.steeltimesint.com

STAINLESS STEEL ROLLING STEEL SUCCESS STRATEGIES XXIX

English Issue Published eight times per year in addition to the annual Buyers’ Guide & Directory. Mailed to our international readership and distributed at major global conferences and events including: AISTech, METEC and CRU events GLOBAL BUSINESS REPORT: MEXICO

Chinese Issue Published twice a year and distributed by MC-CCPIT by mailing and at events Май 2014 – Выпуск на русском языке №32 – www.steeltimesint.com

Russian Issue Published twice a year, mailed to our readership throughout Russia and distributed at major events including Metallurgy Litmash and Metal Expo Octubre 2013 – www.steeltimesint.com

Spanish Issue Published annually, distributed at major events throughout Latin America and mailed to our Spanish language readership

Noticias Internacionales del Sector del Acero

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76 HISTORY

Early blast furnace industry of Ireland Ireland no longer produces iron or steel, the final works located on Haulbowline island in Cork harbour closed in 2002, ending a history of liquid ironmaking dating back over 450 years. By Tim Smith* IRELAND has iron ore deposits across the country. A survey,1 compiled in 1917 looking at alternative sources of iron ore in the British Isles for the war effort, lists 17 locations of workable deposits ranging from rich hematite, limonite and psilomelane ores to leaner siderite carbonate. Some of this ore was undoubtedly exploited prior to the blast furnace era in bloomery furnaces as there are records of ‘cinder’ being exported to England, where it formed part of the charge to blast furnaces in the Forest of Dean, a practice stopped once Ireland began to expand its own blast furnace industry. The evolution of these charcoal blast furnaces and forges is not well documented in Ireland, records having been destroyed during civil unrest. Hence, location of the sites relies largely on fieldwork, sometimes finding extant remains, often in remote locations, and at other times evidence in the form of blast furnace or finery slag. A detailed search has been conducted by Paul Rondelez of University College Cork who kindly supplied the maps presented in this article. The first furnaces appeared in the second half of the 16th century (15501600) in the south-east of the country in County Cork and Waterford (Fig 1a).

a) 1550-1600

In the next 50 years the number proliferated mainly in the SE and NE of the country with 21 blast furnace sites and four separate finery forges (Fig 1b). From 1650 to 1700 ironmaking began to spread further west and the number of blast furnaces grew to 29, 11 with finery forges. There were also five separate finery forges but in new locations. Likewise, several older furnaces had ceased operation to be replaced by new ones elsewhere (Fig 1c). Site visit

Earlier this year the UK’s Historical Metallurgy Society (HMS) visited East County Clare and South-East County Galway for a field trip organised by Paul Rondelez to examine the remains of blast furnaces from the 1700s and 1800s. Nine ironmaking sites are located west of Lough Derg, to the NE of Limerick, stretching from Bodyke in the south to Woodford in the north2. Three of these sites with extant remains were visited. Furthest south was the Ballyvannan blast furnace, probably built around 1610 for Henry Tokefield by Foote and Beeckx who later emigrated to the USA and set up the first ironworks there, in 1646 at Saugus, near Boston, Massachusetts. The mystery of Ballyvannan, set in a remote location in woodland, and now overgrown by trees,

b) 1600-1650

was how water was supplied to drive the bellows and how ore and charcoal were brought to the site as no obvious water course or tracks remain. The second visit was to Whitegate furnace south of the eponymous village. It dates from the early 18th century and appears to have been reinforced with a thicker rear wall at a later date. Furnace three lies north of the Coos River. Named, Derryoober, it was a much smaller early 18th century furnace which appears never to have been used – and is misidentified on early maps as a lime kiln. Moving away from Co. Clare to the south of Cork, the site of a furnace and forge built around 1612 by the East India Company at Inishannon was visited. No structural remains survive but blast furnace and forge slag in the river Bandon and an extensive earth mound to form a pond, fed by an offtake from the river, helped interpret the site. The reason for locating a furnace here was to supply iron for shipbuilding further downstream. Shipbuilding was abandoned after two ships were completed as the Company realised it could build cheaper ships in India – by that time all the oak had been felled around Inishannon for timber, the brash being used for charcoal production for the furnace. Such was the opposition of the locals to the pillaging of timber that a garrison had to be retained in the nearby fort to protect the operation. For additional information contact Paul Rondelez e-mail prondelez@yahoo.com

c) 1650-1700

CORRECTION Preserved Bessemer convertors In the May/June issue, page 44, ‘A compilation of known Bessemer Converters’, I incorrectly said that the Bessemer convertor at the Pretoria works in South Africa had been destroyed when hot metal making at the works ceased. I had been told this by a former Furnace and finery Undefined ironworks Planned ironworks

Furnace Finery Furnace and finery Undefined ironworks

manager of the site but have been contacted by a local resident, Chris Pistorius, who has kindly corrected me on this matter. The converter survives today and can be viewed on Google Street View at www.google.com/maps/@-25.768627,28.131782,3a,75y,299.

Fig 1 Evolution of ironmaking and fining in Ireland.

98h,87.22t/data=!3m4!1e1!3m2!1sTYBzl_lrvSNWBMcyiRnCOQ!2 e0!6m1!1e1

Report on the resources and production of iron ores and the other principal metalliferous ores used in the iron and steel industry of the United Kingdom.

I have also been informed by Jorge Madias that the shell of a

Compiled by CGC Lloyd (re-published in Iron & Steel Trades Journal & Iron & Steel Circular from July 14 1917 (in instalments over three issues).

Thomas converter has been preserved at Aceros Zapla, Palpala,

Jujuy, Argentina, so the total count now has reached 24.

Google map www.google.com/maps/place/Ireland/@52.8654217,-8.3955771,10z/data=!4m2!3m1!1s0x485e619e5d73698f:0xca9b39444d6ac68d

* Consulting Editor Steel Times International September 2014

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