Base metals prices have continued to rise due to robust global consumption, disruptions in or lack of investment across parts of the supply chain, and the emergence of commodities as an attractive asset segment to speculators and investors alike.
Higher prices and demand have lead to increased activity in expanding existing capacity, upgrading of plants to produce better quality grades and even opening up of less economical mines for raw material sourcing.
2002-2007, high growth period
Steel consumption volumes are a barometer for measuring development and economic progress, because this versatile material is essential to construction and industrial goods. Over time, lighter metals and stronger alloys have been developed.
According to the International Iron & Steel Institute (IISI), crude steel production in the 67 countries reporting to the IISI totalled 105 million tonnes in November, a year-on-year rise of 4% but a slight decline on October. Total steel output in 2007 for the first 11 months has shown a 7.7% rise to reach 1.2 billion tonnes with analysts expecting a total output of just over 1.3 billion tonnes for the whole year – a rise of over 7.5% on 2006.
Most analysts confess that China is a major contributor to growth in the past year and that without China, the rest of the world (ROW) grew by only 3% over 2006.
Steady output in the EU
Steel production in the 27 member countries of the European Union (EU) has been averaging 17-17.5 million tons per month in 2007. Germany is the largest producer in Europe, followed by Italy, Spain, France and the UK. Total output is expected to rise by just over 1.5% to reach 210 million tonnes for 2007.
In the rest of Europe the largest producer is Turkey, where steel production increased by about 9.5% in the year to reach 25 million tonnes, making it the tenth largest steel producer in the world.
In the CIS countries, crude steel production in Russia, Ukraine and Kazakhstan are all up on 2006 – with Kazakhstan showing the largest growth in output. Output in the CIS is expected to rise further to a total of 120 million metric tonnes in 2007.
The Americas – strong output continues
Steel production in the US had been improving in the last quarter, although the year to date total was slightly down (-2%) at an estimated 90 million tonnes. Canadian and Mexican production increased strongly in 2007.
In South America, Brazilian crude steel production is estimated to have increased by over 9% in 2007, reaching 33 million tons. Argentinean production was also up but not quite at the growth level of Brazil.
The ROW – A mixed performance
The Middle Eastern steel output continued its general increase, lead by Iran and Saudi Arabia. However, Egypt’s steel industry showed a decline in output in 2007.
In the Asia/Far East region, Chinese steel production rose by around 18% to reach a total of 490 million tonnes in the year. The Indian steel production increased by around 7% to reach 52 million tonnes in 2007. Japanese production also showed a healthy increase of around 3.5% over 2006 to reach 120 million tonnes.
South Korean steel production was up by a healthy 6.5% compared with that in Taiwan which grew by only an estimated 2.5% in 2007.
Steel is made from ores still abundant around the world. Technological developments have brought the timescale for transformation from iron ore to steel to within a day. Even after decades of use, steel can be sent back to the furnaces as scrap, melted and recycled. Steel is the world’s recycled material: In developed countries, recycling accounts for almost half of the steel produced.
Iron, steel and stainless steel production continues to evolve from the basic oxygen furnace (BOF). Modern steel making relies on advanced technologies such as direct coal injection. Steel companies all over the world are investing in state-of-the-art steel making systems and practices to improve their operations and yield. Half of the steel grades we use today were not available 10 years ago. Steel rods or bars are the most commonly used today as reinforcement material within cement concrete. These bars have evolved from plain bars to ribbed bars, followed by cold twisted deformed bars. Today the bars are thermo mechanically treated and each development has yielded greater construction strength.
In May 2007, the world steel industry set out its new policy on climate change. The industry will promote the use of the most efficient technologies more widely, and search for new solutions to the level of CO2 emissions from steel production.
One technology advance is the FINEX iron making process, used by Korean company POSCO. The company invested US$362m into research and development for FINEX technology since 1992, and recently (end 2006) commissioned the new 1.5 million metric tpy plant at its Pohang steelworks. The Finex system reduces such emissions (see Text Box).
The Indian steel industry began expanding into Europe in the 21st century. In January 2007, India’s Tata Steel made a successful $11.3bn offer to buy European steel maker Corus Group PLC.
In 2006 Mittal Steel (based in London but with Indian management) acquired Arcelor after a protracted battle with Russian investors, for $38.3bn, to become the world’s biggest steel maker, accounting for approximately 118 million tonnes or 9.5% of world production in 2006. The new company became the largest producer in all major markets except Asia, where in China, its attempts to purchase a minority holding in Laiwu Steel were frustrated by the Chinese authorities. Laiwu is itself in the process of merging with Jinan Steel to form Shandong Steel (combined output in 2006 of 22 million tonnes). Rumours continue to link Arcelor-Mittal with further purchases, including Tenaris (Italian), the world’s biggest seamless tube producer which is profiting from the oil exploration boom.
Other Indian steel companies are looking to expand internationally, as witnessed in the April 2007 acquisition of Canadian Algoma Steel by Essar.
Demand drivers for steel
The recent boom in the oil and gas exploration and production industry has boosted demand for steel tubular products. However, industry analysts suggest that the rapid expansion of seamless pipe production, particularly in China is likely to also have a significant effect on the future global market-balance.
China is the largest producer and consumer of steel in the world, accounting for 40% of the global market. Much has changed for China’s steel industry in the last 5 years. In 2005, China went from being a net steel importer to a steel exporter. In 2006, China became the largest steel exporter in the world by volume, up from fifth largest in 2005. This enormous increase in production has come at a cost for US manufacturers; more than 1.8 million US jobs have been displaced since China joined the WTO, according to the US Economic Policy Institute.
A new report commissioned by the Alliance for American Manufacturing (AAM), alleges that the Chinese government has exponentially boosted its steel output over the last 3 years through massive, trade-distorting energy subsidies.
Total energy subsidies to Chinese steel from 2000 to mid-year 2007 reached $27.11bn. Despite China’s entry to the World Trade Organization (WTO) in 2002, energy subsidies grew, totalling $25.07bn through mid 2007. These energy subsidies include supports for thermal and coking coal, electricity, and natural gas.
“Chinese subsidies exist, they are enormous and they are shaping the global steel market,” said the report’s author, Dr Usha C. V. Haley.
“China has identified steel as a strategic industry, and both the central and provincial governments have decided to ramp up steel production with massive subsidies that have now been confirmed.”
“This shift from a net importer to the largest exporter in a span of only 2 or 3 years is staggering,” says Haley. “Our analysis shows that energy subsidies have a very strong correlation with Chinese steel exports.”
US President George Bush recently passed a bill mandating tougher fuel-economy standards.
Analysts suggest the new rules give makers of lighter materials such as aluminium, and carbon fibre a boost, whereas the steel industry’s slice of the auto-industry pie is likely to shrink. Vehicles will be more expensive for consumers, but cheaper to run as lighter vehicles use less fuel. A 10% drop in weight yields roughly a 6% improvement in fuel economy.
Today, steel accounts for about 60% of an average vehicle’s weight in the US, down from a generation ago when much more of the metal was used. This is balanced by a trend in the US towards larger vehicles. The percentage of aluminium in cars has been on the rise for decades since the last boost in fuel economy standards. The steel outlook for 2008 is positive, driven by higher prices, although a tight raw material markets may lead to a margins squeeze for steel producers less in control of their sources of iron ore, coke, pig iron and scrap.
The global steel sector is now entering a different but interesting phase. Growth in China over the past 5 years has stimulated demand for steel across the Asian and East European continents. The emerging and developing countries in the 2 regions have shown strong manufacturing activity over the same period. However, is it sustainable?
China is investing in more steel capacity and also is upgrading existing steel production complexes. What will happen in 2008. One thing for sure is that Chinese production will suffer because of the need to clean up the air around the Beijing area in preparation for the Olympics. We understand that large producers such as Capital Steel will be forced to close their facilities 6 months before the Olympics start to allow the air quality to improve. In fact, the Chinese Government has asked Capital Steel to move lock stock and barrel to another area away from the Greater Beijing area.
India has grand plans to invest heavily in steel production. Reports show that India has plans to add another 90 million tonnes of capacity by 2020.
According to international steel consultancy MEPS, finished steel demand is expected to increase by 28% to reach 1.5 million tonnes by 2011, representing an average annual growth rate of 4.6%. Down from the dizzy heights of the past 5 years but still ahead of the previous trends. Asia will lead the way - consuming two thirds of the extra world steel output in the 5 years from 2006. Significant gains are also anticipated in the other emerging nations. Consumption growth of almost 20% is expected in the former USSR. A massive 50% rise is forecast for Africa/Middle East. More than 40% is predicted for China. In Asia (excluding China and Japan) the figure is likely to be almost 30%.
What about Stainless steel?
The figures for 2007 are not yet in, but the International Stainless Steel Forum (ISSF) expects that global stainless crude steel production will reach 29.8 million tonnes in 2007. This represents a rise of 5.1 % on 2006 production. The growth rate of 5.1% takes into account the very high level of supply that occurred in many countries during 2006 and caused a significant build-up of stainless steel stock at service centres and fabricators.
Actual global stainless steel production in 2006 increased by 16.7 % to 28.4 million tonnes compared to 2005. This more than compensated for the downturn in production during 2005 (-1,1%).
Helen Carmichael is a freelance journalist for gasworld and sourced some of the material from MEPS (www.meps.co.uk), SteelontheInternet.com, and International Iron and Steel Institute (www.worldsteel.org).
The FINEX process:
The FINEX process is an innovative, next generation iron making technology.
Molten iron is produced directly using iron ore fines and non-coking coal rather than processing through sintering and coke making. Because the preliminary processing of raw materials is eliminated, the construction of the FINEX plant costs 8% less to build than a blast furnace facility of the same scale. Furthermore, a 17% reduction in production costs is expected since lower priced raw materials can be used in the FINEX process.
Emission of pollutants will also be drastically reduced. In addition to arsenic dust, levels of SOx and NOx will only be 8% and 4% respectively, of the emissions occurring with the blast furnace process.
FINEX has been recognized as an environmentally friendly process, which will increase POSCO’s future competitiveness as raw materials are decreasing and environmental regulations are tightening.
Environmental aspects of the Finex process
The environmentally friendly nature of the Finex process ensures that it will be even more attractive in the future. SOx, NOx and dust emissions are significantly lower in the Finex Process compared to the blast furnace route. This is due to the elimination of the coke oven and sinter plants – both major sources of emissions. The sulfur contained mostly in the coal reacts with limestone to form CaS, which is bound in the slag. Therefore, there is almost no opportunity for SOx to escape to the environment. NOx emissions hardly occur in the Finex Process because the metallurgical reactions take place in a reducing atmosphere, unlike the oxidising atmosphere inherent in the sinter plant, coking plant and hot-stoves of the blast-furnace route. Dust emissions are low as well, due to the integrated and closed nature of the Finex Process. It has also been verified that no dioxins are generated in Finex operations.
The process (continued)
Fine iron ore is charged into a series of fluidized-bed reactors together with fluxes such as limestone or dolomite. The iron-ore fines pass in a downward direction through 4 reactors where they are heated and reduced to direct-reduced iron (DRI) by means of a reduction gas – derived from the gasification of the coal – that flows in the counter-current direction to the ore.
After exiting the final reactor, the DRI fines are hot-compacted to HCI (hot-compacted iron), transferred to a charging bin positioned above the melter gasifier and then charged by gravity into the melter gasifier where smelting takes place.
Briquetted coal fines and/or lump coal are charged into the dome of the melter-gasifier, while pulverised coal is injected into the vessel together with oxygen. The coal is gasified and a reducing gas is generated which is comprised mainly of CO and H2. After exiting the top of the melter gasifier, this gas is ducted to the fluidized-bed reactor system to reduce the iron ore fines. A portion of the consumed reducing gas which exits from the top of the fluidized-bed reactor train is recycled back into the system after CO2 removal in order to achieve a higher gas-utilisation rate. The heat generated from the gasification of the coal with oxygen also serves as the energy source for the melting of the HCI to hot metal, as well as for the formation of liquid slag. Both hot metal and slag are tapped exactly as in standard blast furnace procedure.
The excess gas from the Finex Process is a valuable by-product which can be used for a variety of industrial applications such as for heating purposes within a steel works, power generation or for additional DRI/HBI production.