Amidst the recent announcement of the closure of one of the UK’s largest steel plants, gasworld Business Intelligence takes a look at how similar closures over the past 12 months have affected industrial gas markets across the globe.

Sahaviriya Steel Industries (SSI) has announced that it is to mothball its operations in Redcar, in the North of England. The facility, with a production capacity of 3.6 million tonnes of steel per year, featured the second-largest blast furnace in Europe and was a major source of industrial gas demand in the UK.

In fact, in what was heralded as the largest industrial gas supply contract in the history of the UK, as recently as July, BOC entered into a 15-year deal to supply the SSI plant for all required gases. To support the contract, BOC invested approximately $25m in its Teesside site, upgrading the capacity of three of its ASUs.

As gasworld explores here, this is not the first example of steel plant closures of late. So what are the industrial gas implications?

South Africa

Early in September, Arcelor Mittal SA announced that a decision had been made to close two operations, and carry out a review of continuing production at their largest steel production facility in South Africa. These mills, all located in Vanderbijlpark, are supplied by the adjacent Air Products facility, which features no less than six ASUs.

Liquid capacity from these plants will of course continue to supply the regional merchant market, and relatively small volumes may be supplied to the mills for health and safety purposes. But, the majority of demand from for gaseous products generated by these plants will plummet. Continued financial stability for this Air Products site now arguably rests in the hands of its most recent ASU, known as the ‘G-Plant’. The 2,500 tonnes per day ‘G-Plant’ was commissioned in order to facilitate the increased demand from Sasol’s expansion programme in the neighbouring town of Sasolburg.

G-Plant, South Africa

Air Products South Africa ‘G-Plant’

Source: Air Products

US

The US steel industry has arguably suffered the most over the past 12 months, when compared to other global markets. A high number of high profile steel plants have been forced to cease production due to low priced imports from China, the crash in oil prices, and the resulting drop in demand.

Just a few days into 2015, US Steel announced that it would ‘idle’ is steel plant in Lorain, Ohio, supplied by a Praxair ASU. The neighbouring Republic Steelworks, supplied by an Air Products ASU, then faced a similar fate later in July.

Praxair also suffered when Arcelor Mittal announced the closure of its wire rod facility in Georgetown, South Carolina.

Other industrial gas companies in the US have also felt the impact of the suppressed steel industry. Air Products’ contract, with US Steel’s Granite City facility came under threat when it announced the temporary closure in March. This facility also produces a good amount of liquid product for the merchant market, so may fare better than the aforementioned Praxair plant in Georgetown, which was a sole onsite project (with no identified liquid capabilities).

Europe 

Following gasworld Business Intelligence’s recent analysis of the European industrial gas markets, it was uncovered that the Latvian market was heavily affected by the closure of Liepaja Metalurgs. The steel plant was a major contributor to the country’s GDP and was supplied by a production facility operated through a joint venture (JV) between Messer and the BLRT Group of Estonia. The JV - Elme Messer Metalurgs - has been fortunate as the production site also produces liquid product for Elme Messer’s merchant customers across the Baltic region.

The fate of Liepaja Metalurgs is yet undecided. Some operations at the mill did resume in the middle of 2015, but by the end of the summer doubts were again being raised concerning the viability of the steel plant.

gasworld’s 2014 analysis of the global market suggested that sales of gases to the metallurgical end-user sector generated revenues of around $10.4bn, equivalent to 13% share of the global market. This is down from just over 14% of the global market in 2013.

The overbearing cause of the majority of steel plant closures over the past 12 months has been the influx of cheap imports from china – and to a slightly lesser extent from other South East Asian nations. China now produces more steel than the rest of world combined and, as the country’s economy has slowed, domestic demand has plummeted – resulting in excess steel flooding the rest of the world’s markets.

The Solution?

A number of governments have initiated attempts to curb the negative effects of cheap steel. Indian authorities have imposed an import tax of 20% on certain steel products originating from China, South Korea and Japan. Pressure has been applied towards the UK government to grant more energy subsidies to the nation’s steel industry. Although, it can be argued that this would be a short-term solution, to a long-term problem.

What is clear, is that the global industrial gas industry must find ways of overcoming the current, and indeed future, decline in demand from what was one of its most important sources of revenues.

 

For more information on industrial gas markets across the globe, please contact intelligence@gasworld.com, or visit www.gasworld.com/intelligence