The world steel industry has left bad times behind, writes Kunal Bose in New Delhi. In step with the global recovery from a recession found to be similar in its impact to the Great Depression of the 1930s, crude steel production in 2010, according to World Steel Association (WSA), jumped 15% to a record 1.414bn tonnes. What is particularly remarkable was steel production in the US growing by as much as 38.5% to 80.6mt (million tonnes) last year followed closely by Germany where growth was 34.1% at 43.8mt. Japan, yet another country taking a big recessionary hit, lifted production by 25.2% to 109.6mt.
Unlike the developed steel-producing countries or emerging nations like South Korea, Russia and Brazil, China — as part of a policy to phase out polluting and old technology-based units — grew steel production by a relatively modest 9.3% to 626.7mt, bringing down in the process its share of world output to 44.3% from 46.7% in 2009. With a 6.4% rise in production to 66.8mt, Indian growth was modest. But from here, India richly endowed with iron ore and thermal coal and where steel demand should grow at double digit rates will have to build steel capacity and production at a pace much faster than in the past. At 897.9mt of crude steel, the Asian share of world steel production was 63.5% in 2010.
The lower base of 2009 no doubt was a reason for last year’s spectacular production performance. As expected, world steel production grew at a modest 5.3% to 119mt year-on-year in January 2011. No doubt as idle capacity, particularly in the developed world, is recommissioned with improvement in demand and prices of steel, new capacity through both brownfield and greenfield routes is created in BRIC (Brazil, Russia, India and China). The WSA says the world apparent steel demand grew 13.1% to 1.272bn tonnes last year after contracting 6.6% in 2009.
Aditya Mittal, chief financial officer of the world’s largest steel producer ArcelorMittal, says he is “seeing a strong recovery in the US, moderate growth in China and restocking in Europe” where, however, end-user demand requires lots of catching up. In some European economies, the recovery so far is export led. ArcelorMittal, which alone makes up to 7% of world steel, has forecast a faster than expected recovery in steel demand and prices in the first quarter of 2011.
Many of the calculations of steelmakers, particularly the ones without good mines linkages, about market expansion and operation profitability have been upset by the recent behaviour of prices of metallurgical and thermal coal and iron ore. As if the raging floods in Australia’s Queensland submerging coal mines and twisting and washing away rail lines were not enough of a disaster, a cyclone bearing down on north western parts of the country brought iron ore shipments to a near halt. Incidentally, Dampier and Headland ports handle nearly all of Australia’s around 400mt of annual iron ore exports. So the steel industry has now to live with extraordinary prices of iron ore and metallurgical coal. A good portion of world steel is made outside the blast furnace-basic oxygen furnace route. Electric arc furnaces make steel with sponge iron and scrap. Feedstock for sponge iron is iron ore and thermal coal. Prices of thermal coal are also rising fast because of supply disruptions. Scrap prices too are rising.
International steel prices have been rising since last year-end on the back of restocking and raw materials cost increases. “We are seeing recovery in the US, Europe and Japan. That made it possible to raise steel prices in instalment. But steelmakers are now in a Catch-22 situation. While they are not to find it easy to go on raising their prices to neutralize incremental raw materials costs, supply of coal and iron ore are not to improve in the near term,” says Dilip Satapathy, metals analyst with Business Standard. The confirmation of raw materials supply side problem comes from BHP Billiton CEO Marius Kloppers who thinks that the company’s profit margins will stay robust despite escalating costs, specially because iron ore prices will remain strong for as long as two years. This cannot be otherwise for two reasons: first, the Indian authorities are not allowing exports of the mineral to the country’s potential even while the world demand is growing. Second, because of the global financial crisis resource companies in general held back investment in mines expansion and opening of new mines.
Indian steel secretary P.K. Misra told DCI that rising prices of raw materials could hit the profitability of steelmakers as the world would be seeing steel based products from automobiles to white goods becoming more expensive. He is particularly concerned about the likelihood of the competitiveness of the steel industry being compromised as a result of rising production costs. One can only speculate about the price tipping point for steel when search for alternative materials will begin.
What is, however, certain the concern about supply and prices of iron ore, coal and now also gas will lead steelmakers to seek optimization of operational efficiency through mergers. Steel guru Peter Marcus says,“mills have learned that if you are bigger you have more clout [with suppliers of raw materials and buyers of steel] and that you can be more flexible when you have to lower production.” In fact, the perceived benefits of reacting to market development in the right way as was demonstrated by ArcelorMittal and JFE of Japan, groups created by mergers, when the world slipped into a recession in 2008 have once again ignited interest in capacity consolidation.
At least for once Lakshmi Mittal who last year said that “outside China, the steel industry is well consolidated. I really do not see major consolidation transactions in the steel industry, albeit there could be smaller opportunities available,” has been proved wrong. For Nippon Steel and Sumitomo Metal, which between them have steelmaking capacity of 47.8mt in mutually exclusive product profiles are now seeking gaining heft through mergers. The deal likely to be completed next year will give the merged entity second place next to ArcelorMittal in the world comity of steelmakers.
The Nippon and Sumitomo merger is driven by considerations going beyond cutting costs and fending off competition from rivals in China and South Korea. According to Nippon Steel president Shoji Muneoka, the merger will arm the new company with extra financial and management clout it
needs to build or buy new capacity overseas. “If you want to know whether we’re going to invest a lot of money in domestic capacity and then export, the chances are low. We have to go out into the world,” Muneoka says. Japan’s steel industry is highly export-oriented. But because of a strong yen and rising raw material bills, Japanese steel companies will now be seeking production base abroad. Will the company to emerge from Nippon and Sumitomo merger be able to repeat the performance of JFE, resulting from coming together of Kawasaki Steel and NKK in 2002, in more than doubling profit margins in two years of the union?
The world is looking intently as to how China takes forward capacity consolidation programme and also weeding out technology deficient steel mills. Mittal expects some Chinese groups to emerge through mergers with capacity ranging from 50mt to 70mt in the next few years. Chinese capacity consolidation, though frustratingly slow so far, is thankfully now gaining in pace. Last year, China’s ten leading mills had a share of 48% of the country’s steel production against 45% in 2009. China has an authoritarian regime. Even then the Beijing edict that polluting steel units should be snuffed out could not be carried through in many provinces because of the prevalence of graft. China is desperate that the steel industry brings down its carbon footprint in a major way. The country’s concern about resources availability at reasonable costs is leading it to acquire mineral deposits in various parts of the world, especially in Africa and Australia.
China will continue to build new capacity as it will continue to rid itself of ageing capacity. “I have no doubt that as for steel, the current decade will belong to India like the past decade was all China’s. Indian steel demand will be growing at a rate higher than its GDP growth rate, which is close to 10%,” says Sushil Roongta who headed Steel Authority of India Limited till recently. If the Indian Planning Commission proposed investment of $1 trillion in infrastructure development during 2012–17 and thrust on house building will create massive demand for long steel products, rapid growth of automobile and white goods industries will call for stepped up supply of flat products.
In response to the potential of the Indian market, investors have signed as many as 222 agreements with different Indian states but mostly with the ones with rich reserves of iron ore to create new capacity of 275mt. South Korean Posco is pursuing a 12mt steel complex along with a captive port in Orissa that is to bring a record single project foreign direct investment of $12bn. ArcelorMittal wants to build at least three mega mills in India. In the meantime, all the major Indian steel groups, including SAIL, Tata Steel, JSW, JSPL and Essar are pursuing major capacity building programmes through brownfield and greenfield routes. India has targeted a steel capacity of 200mt by 2020. This will, however, be realizable provided land acquisition does not remain frustratingly slow, promised mines linkages are given to projects and environment and forest clearances do not prove to be a major hurdle.
Brazil’s steel industry has record year — though imports more than doubledMany records were broken by Brazil’s steel industry last year, amongst them the fact that imports doubled to more than 6mt (million tonnes) last year, writes Patrick Knight.
The year 2010 was a record one for the Brazilian steel industry and, with the economy growing at close to 8%, the mills made 33mt of steel, 24% more then in 2009.
A total of 21mt of the steel made in Brazil was sold on the domestic market last year, 29% more than in 2009. It was bought by the booming motor and consumer durables industries, for civil construction, for numerous infrastructure projects — notably new railways and at ports — and by the oil industry, now preparing to develop the mammoth reserves of crude oil and gas found under a thick layer of salt 3,000 metres beneath sea level, 300km from the Brazilian coast.
But there was one record the industry would rather forget, which was that almost 6mt of steel, the majority high-priced sheet and other flat products, was imported last year.
This was almost exactly twice as much steel as had arrived in 2009, when imports formed about 10% of all the steel used in Brazil.
Last year, more than 20% of what was used came in, although not all of the imported steel has been sold. Large stocks remain, hurting some of the speculators who anticipated the bonanza would continue much longer than it did.
Despite the record imports, which cost about $5.5 billion dollars, Brazilian mills still managed to export virtually 9mt of steel in 2010, 300,000 tonnes more then in 2009.
However, because most of this steel was lower-value slabs and other heavy basic products, to be processed into high-value products in mills in the developed world, steel exports only earned about $6 billion last year, the same as in 2009.
Steel made in Brazil is usually sold for a premium of about 20% above the price of what is imported. The cost of transport, taxes and other charges add to the cost of the imported variety.
However, mainly because the Brazilian currency is so strong — it has gained about 40% against the US$ in the past two years — numerous countries with surplus steel competed to export to Brazil. The suppliers were led by China, which sold four times as much steel to Brazil last year as in 2009, Russia sold five times as much, Japan sold three times as much and Taiwan sold twice as much. These countries were able to overcome the barriers and their steel was still competitive.
To compete with low-cost imports, the Brazilian mills were forced to cut prices, which has eaten badly into industry profits for 2010.
A couple of years ago, the Brazilian Steel Institute announced that mills planned to spend about $20 billion in the next six years to add 21mt to capacity, which now stands at about 45mt.
The largest Brazilian-owned company, Usiminas, which now makes about 9mt of steel a year, had planned to spend $6 billions on a 5mt monster mill in Minas Gerais state, close to the iron ore mines it owns and which allow it to keep prices down. Arcelor Mittal had been planning a new sheet plant at its mill near the port of Sao Francisco do Sul, in Santa Ceterina state. Other brand new mills were planned for Rio de Janeiro, Ceara and Para states. All these plans have been put on hold for the time being.
Usiminas says that rather than adding capacity, it will seek to reduce costs at its two existing mills, partly by integrating vertically, notably by becoming completely self-sufficient in iron ore, one of the trump cards of Brazil’s steel industry. All the mills are now trying to wean themselves off depending on the ever-more-expensive ore mined by the Vale company. This could be bad news for Vale, as when ore prices start to fall, as they inevitably will, there will be far fewer Brazilian customers to fall back on.
Usiminas says it will endeavour to get closer to customers and seek to improve efficiency, preferring to add capacity at its existing mills than adding new capacity.
In fact, the industry reckons the pressure from imported steel will be much less this year than it was last. The economies of several of the countries which exported so much to Brazil last year are recovering, as are those of several other countries which normally import steel.
Several Brazilian companies, including Usiminas and CSN, have instigated anti-dumping procedures against some exporters. The companies claim that the steel coming to Brazil was sold more cheaply than that sold in their domestic markets.
Some of Brazil’s states where steel is not made cut taxes on imported steel last year, to give a helping hand to steel users in those states. This is to be stopped.
Measures seeking to prevent under-invoicing, claimed to be common last year, have also been taken.
Wilson Brummer, chief executive of the Usiminas company, said that circumstances were special last year and he feels the pressure will decline from now on.
Even so, Brummer remains cautious about investing though. He says that 35% of the steel-making capacity around the world is idle at the moment and so remains a threat. He says he does not anticipate the Brazilian currency remaining as strong as it is for ever, however, so he plans to wait.
If plans for new mills have been put on hold, last year saw the start up of the first phase of the 5mt capacity ‘Atlantico’ mill, in which Thyssen-Krupp has a 76% share,Vale the remaining 23%.
The Atlantico mill is located close to the town of Santa Cruz in Rio de Janeiro state, is linked by railway to ore mines in Minas Gerais state and has its own port in Sepetiba bay, from where the first shipment of slabs left for Germany in September last year.
Once a new steel mill, also being built by Thyssen-Krupp, starts up in Alabama, 60% of the slabs from Atlantico mill will be sent to the United States, the remainder will go to mills in Germany.
The new mill expects to make 3mt of slabs in the 12 months starting last September and if all goes according to plan and the second blast furnace starts up on time, output will rise to 5mt a year in 2012.
Thyssen-Krupp mill in Alabama expects to supply sheet steel to the motor industry.
The Gerdau company, in contrast to all the other steel makers in Brazil, continues to invest heavily in the United States, and about half of the 22.6mt capacity of the company is located there.
A few weeks ago, Gerdau, which in the past 12 years has bought 19 mainly relatively small ‘mini’ mills, which use mostly scrap as raw material in the United States, acquired its first mill on the west coast, the 500,000-tonne-capacity Tamco mill.
This mill was an associate of the large Ameristeel company, all of whose capital is now owned by Gerdau following the purchase of the remaining stock, which Gerdau began to buy in 1999.
Gerdau anticipates benefiting from the major investments in the renewal of infrastructure in the United States where 150,000 bridges, a quarter of the total, will soon need renewal, while up to $900 billion will have to be spent on re-building highways. Gerdau also notes that 100,000 towers will be needed for a massive programme of wind power mills.
Like the other mills in Brazil, Gerdau is moving steadily towards self-sufficiency in iron ore, and plans to raise its output of ore from the present 1.7mt to 7mt by 2012. Some of the ore will be taken by conveyor belt 7km from its mines to the
Acominas mill, which makes special steels and where investments are under way.
The overall prospects for Brazil’s steel industry remain good, despite the fact that mills still have to import virtually all the increasingly costly coal they use, although charcoal is used to make pig iron and in some furnaces.
Although this year will not see a repeat of the record growth of 2010, Brazil’s economy is still expected to grow at about 5%, which should mean about 8% more steel will be needed this year as in 2010.
Attracted by the strong growth in sales of all types of vehicles in Brazil, several new car companies are building new factories, or plan to and it is expected that vehicle sales will have doubled to five million units a year in five years’ time.
If Brazil exports are to remain competitive, major spending on infrastructure works are essential. Although government spending is to be cut to prevent inflation from getting out of control, dozens of infrastructure projects remain intact and they will require several millions of tonnes of steel. Brazil is to host the World Cup in 2014, and the Olympic Games two years later, so tens of thousands of tonnes of steel will be needed for new stadiums, modernizing airports, build dozens of new hotels, upgrade roads, and extend railway systems.The Olympics are to be held near Rio de Janeiro, where housing will have to be built for athletes and officials.
Usiminas has recently installed equipment which will allow it to make thousands of tonnes of specially resistant steel which will be needed by the Petrobras oil company.
Petrobras is now ordering dozens of drilling rigs and production platforms, as well as several hundred ships of all types and sizes, in addition to large amounts of new pipelines and other equipment which will be needed in the next few years.
The government wants 65% of all the equipment needed by the oil and gas industry to be made in Brazil, obviously very good news for the country’s steel industry.
Unitizing bulk in steel transports: eliminating cargo damage
Serving the steel industry, Langh Ship has developed a number of innovative cargo securing methods to ensure the safest delivery possible.
This shipping activity got the wind in its sails in 1983, when the family-owned company bought its first fully owned second-hand vessel. Since then, it has bought in total nine newbuildings and is at the moment running a fleet of five modern multipurpose ships.
“We have been watching how the steel products get more and more refined during the years we’ve been in the business”, says the managing director Hans Langh. “We just felt that this valuable, highly processed and also vulnerable steel deserves to be carried safely and gently, and should also be loaded fast and efficiently.”
One of the first innovative solutions that Langh Ship patented was the cradle tween-deck solution that offers a number of advantages over conventional methods of steel coil transportation.
Large steel coils can be transported on both the tank top using cradle cassettes and on the cradle tween-decks. The hold can be fully in use without a need to stow the coils in layers on top of each other.
Traditionally, coils are transported on the tank top of the ship, this low centre of gravity resulting in up to 30° of heeling and roll times as short as five seconds. Langh Ship’s cradle tween-decks, however, allow part of the coils to be loaded just below the weather deck, therefore raising the centre of gravity. As a result, heeling is reduced to as low as 10° and rolling time increased to a more comfortable 12 seconds.
At the moment, this system is present on three of the company’s ships and on a couple of vessels owned by other shipping companies and has had a 100% success rate, with no instances of damage to cargo.
LEASING TRANSPORTATION UNITS FOR STEEL PRODUCTSThe company also offers a number of other steel transportation solutions that use a wide range of units.
The units can be divided into two; those planned for the transportation of large steel coils having cradle bottoms and containers with flat bottom.
The flat bottom containers are mainly equipped with special securing systems that ensure the safe transportation of heavy products. To this group belong the 20ft and 40ft hard open top containers, whose roofs are made very quick to manoeuvre and make the container stuffing most flexible.
To this class belongs also the 20ft side open container that brings different kind of flexibility to the stuffing.
In the cradle units there are both cassettes that are first lifted
onboard and then loaded with coils and containers that can be lifted onboard fully loaded.
When placing the steel coils into containers it brings a huge amount of flexibility into use when planning the shipments; one has in use all the normal container lines — now the small shipments also become economical.
The company has also developed many of its units to suit rail carriage. This is the case also with the 20ft hard open top cradle container:
“The cradle frame bottom has been used for some years now, but we have designed new load bars that are used for securing steel coils inside the container when the container is carried on rail”, explains Laura Langh-Lagerlo¨f, the commercial manager of the company. Loading one very large coil weighing over 30 tonnes into a hard open top cradle container makes it possible to send such mother coils even by rail due to the classified securing system.
The emphasis on developed transportation solutions is on the steel, but the company has not forgotten that steel is often carried only in one direction. When returning the units to the steel port it is important that they would not have to be brought back empty.
The versatility of the containers has all the time been kept in mind. And now many of the units can be used for return cargoes such as raw materials or even for liquids transports by using flexitanks inside the containers.
EFFICIENCY BRINGS SAVINGS“Our units bring big savings in cargo handling because the units are faster to stuff and unstuff than standard units,” says Markku Yli-Kahri, the product manager for Langh Ship Cargo Solutions. “And of course in many cases it is not even possible to secure the heavy steel products safely into standard containers. The way I see it, it is often either the conventional bulk transportation or our solutions.”
The handling times of the cargo are in some cases calculated to be cut to 20% of the original when the Langh Ship Cargo Solutions systems have been used. Further savings arise from the fact that the units do not need disposable securing material. — naturally, this is also good for the environment.
Foreign steel behind PST’s entry into steel handling marketPasha Stevedoring & Terminals L.P. (PST), headquartered in the Port of Los Angeles, has roots reaching back to 1972 when the company began its automobile stevedoring operations. Today, PST, a wholly-owned subsidiary of The Pasha Group, has a strong focus on general breakbulk transportation, with specialties in automobiles, steel, containers and grain products. PST offers a new level of international maritime service through the operation of the only Omni breakbulk and container terminal in the PortofLosAngeles. Thepenetrationof foreign steel into US markets has played a major part in Pasha’s foray into the steel-handling business, leading to PST and the Port of Los Angles achieving the number one record for steel imports on the US West Coast. PST also enlists its travelling supercargoes to aid in the loading of slab steel in several international ports to ensure safe stowage, which creates maximum productivity at the port of discharge, enables the recipient to receive a reduction in rate and damage, and guarantees on-time delivery.
DRY BULK EXPERTISE HELPS SET RECORD YEARBut steel isn’t the only ocean cargo that PST excels in handling. In partnership with the Port of Grays Harbor, in Aberdeen WA, PST has brought its expertise to AG Processing. AGP, a farmer- owned co-operative, is the largest soyabean meal co-operative in the world. For the past seven years, Grays Harbor has been AGP’s West Coast export hub for dry bulk products destined for Pacific Rim Markets, and PST has been the stevedore of choice with the 2009 award of the grain contract. The year 2010 was a record one for PST, Grays Harbor and AGP. The facility at Grays includes enclosed conveyers that transport product from the receiving building into the waiting vessels. PST’s supervisors oversee the loading of the bulk agricultural products. In 2010 alone, over one million metric tons were put on board. On the heels of this record year at the Port
of Grays Harbor ship loading facility AGP is increasing the storage capacity by 33%, and is in the process of constructing a total of eight silos.
ADDING VALUE TO AUTOMOTIVE EXPORTS/IMPORTSAlso in Grays Harbor, new rail expansion is taking place with a Phase 1 project allowing the port to attract new auto accounts that rely on land-bridge capability for new import and export vehicles. This will increase the number of railcar spots from 32 to 100. PST’s long heritage of automotive stevedoring plays an equally important role at this deep water port. In concert with Pasha Automotive Services, whose well-trained processing personnel are in place at Grays, the vehicle stevedoring offered by PST provides a seamless operation for new vehicle manufacturers. Phase 2 will involve the creation of long-term dedicated automotive and bulk cargo rail spurs to be completed by the end of
2011. PST, with its dedicated work force is definitely ready to take on new business.
VARIETY OF SERVICESIn addition to its Los Angeles operations, PST also provides stevedore and terminal services in the Port of San Diego, and manages vessel loading and discharging for Pasha Hawaii, a roll-on/roll-off liner service between San Diego and the Hawaiian Islands. Pasha Hawaii’s Jean Anne has ten decks of enclosed cargo space for vehicles, yachts, and a variety of over high and wide cargo, from construction equipment to Black Hawk helicopters. Additionally, as a stevedoring group, PST is available to provide vessel services at other facilities in addition to the terminals they already operate. Such arrangements enable PST to provide additional resources for the global maritime transportation industry, and expand their expertise to non-traditional commodities, such as bulk scrap. PST also offers ancillary services such as reefer and chassis maintenance and repair, sensitive cargo warehousing, and logistics management. Jeff Burgin, PST senior vice president, notes, “Moving forward, we continue to explore different avenues to further enhance our operations, increase the level of productivity and add value to our customers. Today’s client is also looking for fresh ideas for handling their project cargo. PST has assisted in the design of a variety of lifting applications to reduce damage and reduce costs.”
Burgin adds,“We are seeing the benefits of our training, cross-training, and investment in people, particularly in the steady labour force. Our goal has always been to identify areas of common ground with our business partners, take what we believe to be good, and create a new paradigm to shift the business to even greater levels. The customer’s need is for one- stop shipping and transportation solutions, and we’re there to see that it happens.”