As Alcoa of the US is seen as bellwether for the world aluminium industry and Anglo-Australian BHP Billiton for minerals,ArcelorMittal working gives an idea of how other leading steelmakers, irrespective of their locations are faring, writes Kunal Bose in New Delhi. But ArcelorMittal, unlike Alcoa and BHP, is in a class of its own, on the basis of the sheer lead in production and turnover that it has over the world’s second- largest steelmaker Hebei Iron & Steel of China, which resulted from merger of three steel companies in Hebei province in 2008. In fact, Hebei Iron stands out as the most striking example of China’s success so far in steel capacity consolidation. ArcelorMittal had revenues of $94 billion and an output of 91.9mt (million tonnes) in 2011. But its 6% share of world steel production could hardly be of comfort when a wrenching combination of low steel prices, drop in product shipments and several one-off charges saw the company making a loss of $1bn in the final quarter of 2011. For the whole year, ArcelorMittal’s net profit took a knock of 22% to $2.3bn. The company’s performance is unarguably a testimony to the state of world steel industry.
In a guidance for the market and stakeholders,ArcelorMittal says that 2012 first half EBITDA (earnings before interest, taxes and depreciation) is likely to be less than the comparable period of 2011 even while steel shipments should remain unchanged. Europe is where the company makes nearly 40% of its steel and chairman Lakshmi Mittal says, “looking ahead to 2012, Europe remains a live concern.” The continued uncertainty in that market notwithstanding, Mittal is seeing some “improvement in
sentiment compared with the fourth quarter.” Apart from uncertainties in Europe, one single factor that will continue to have a major bearing on world steel prices is China. One could only crystal gaze as to how much thrust China will continue to give to steel production and how much of that it will sell abroad.
The curiosity about Chinese game plan is understandable for its dominant presence in the world steel industry. According to the World Steel Association, global production of crude steel in 2011 rose 6.8% to 1.527 billion tonnes. This is largely on account of China which once again springing a surprise lifted output by 8.9% to 695.5mt, giving itself a share of 45.5% of world production. As for Asia, which in recent years has witnessed remarkable progress in steel capacity building, the 2011 production was 988.2mt, an increase of 7.9% on the previous year. This gave Asia a share of 64.7% of world steel production. While Asia’s predominance is mainly on account of China, India with an output of 72.2mt and South Korea with 68.5mt, are busy commissioning new capacity. Director general of WSA Edwin Basson says on higher expected consumption in developing nations, the global steel demand in 2012 is to rise 5.4% to 1.5bn tonnes. Steel demand growth forecast for China at 6% to 682mt will be the lowest over the last three years. Basson, however, says, “this does not mean that China is becoming less important as a steel consumer. It only means that China is growing larger at a slower pace.”
But how much steel does the world expect China to make this year? We understand that the boom in real estate development and construction sustained Chinese daily steel output at over 1.9mt for much of last year. This, however, fell to nearly 1.7mt in the fourth quarter of 2011 and, as we go forward, we may see further production contraction in China in case margins for the industry there do not improve. Stung by low demand and cost escalation, Chinese steelmakers fared poorly in the second half of 2011. According to that country’s industry ministry, the “test for steel will be even more severe this year” with supply to stay ahead of demand in a high cost environment. In fact, Chinese steelmakers, having piled up debts of over $400bn, will not be finding it easy to liquidate these in the current environment. It is feared steel is likely to share space with property developers and local governments as principal concerns for Chinese banks. Defying all negative pronouncements, China watchers participating in ‘Global Steel’ conference in New Delhi thought that the country’s steel production would once again rise this year, albeit at a much slower rate than last time.
Steel guru Peter Marcus, who anticipates sharp falls in iron ore and coking coal prices as steel will still have to ride out difficult times says,“Chinese steel production may rise 3% in 2012.” What, according to him, will be clouding steel outlook is the “heading down of fixed asset investment outside China and the contagion effect of the Eurozone crisis.” At some point this year, Marcus sees iron ore at $100 a tonne and coking coal at $180 a tonne. John Johnson, CEO of consulting agency CRU China, says despite occasional blips, the country’s 2012 steel production will rise to 730mt. At the same time, China will be making further progress in weeding out ageing mills and capacity consolidation.
“China has already decommissioned about 40mt capacity. Another 50mt undesirable capacity remains to be scrapped. The country wants ten groups to own 70% capacity so that the steel industry reaps the benefits of consolidation. So far less than 50% capacity has come under the umbrella of ten groups,” says Johnson. China wants scrapping of all blast furnaces (BF) of up to 400m3 and foundry BFs of up to 200m3. Similarly all converters and electric arc furnaces with capacity of up to 30 tonnes are to be discarded. Will not shrinking steel margins create an opportunity to restructure the sector and eliminate all remaining outdated capacity at a fast pace?
Steel remains a virtual forbidden space for outsiders in China. Foreign groups seeking footprints there have so far not been able to own majority stakes in large Chinese steelmaking companies. Mittal, the original capacity consolidation evangelist, does not have anything more than two modest joint ventures to show in China where he makes about 7% of his total steel. Yes, there is room for foreign investment if that would help China in acquiring top-end rolling technologies. According to Johnson, China remains steadfast in pursuing the goal of owning iron ore assets abroad so that these eventually become the source of at least half the country’s ore imports. “Any policy move by China will necessarily have important fallout for world steel industry. We in India should stay watchful,” says CS Verma, chairman of Steel Authority of India Limited.
INDIA SCENEThe Indian steel industry is at an inflection point. It has been given a roadmap by the government to lift crude steel capacity to 150mt in 2017 and then to between 180mt to 200mt by 2020 from the present 80mt. Verma says to make this happen,“we steelmakers will have to embrace breakthrough ideas to be able to run our mills at new efficiency levels allowing us to make steel with higher strength to weight ratio. Capacity growth will be sustainable provided the industry makes use of leap forward technologies occurring periodically from raw materials uses to finishing of steel to utilization of mill waste.” Not only the proposed new steel ventures, but any industry that requires big space will be hitting a roadblock in acquiring land in India. Verma says that when land supply is becoming increasingly tight with many attendant challenges like proper resettlement and rehabilitation, integrated steel plants of the future will perforce have to be a lot more compact in their layout than is the case so far.
In fact in order to be able to make more metal from a given space, mills in India and several places abroad are pulling down small blast furnaces and installing very large ones using the same space. BFs of the size of 5,000m3 capable of producing as much as 3.8mt of hot metal a year are in operation in some countries, though not so far in India. So there is scope for replacing three BFs by one supersized one leading to considerable saving of land. Furthermore, employment of “endless casting-rolling technologies in flat products” will make a significant cut in the length of the facility under the conventional slab caster hot strip mill running over a kilometre. Mainly due to difficulties faced in land acquisition and finding access to iron ore mines, ArcelorMittal, which is nursing ambitions to build two steel mills of 12mt capacity each in India’s eastern states of Orissa and Jharkhand and a 6mt mill in Karnataka in the south, has hardly made any progress. There is also a question mark over the fate of Posco’s proposal to set up a 12mt mill in Orissa.
A compelling reason for SAIL to pursue a joint venture with Posco to build a 3mt steel mill based on Finex technology at Bokaro is the limited land requirement. Verma says Finex technology, as it dispenses with coke ovens and sintering units and allows direct use of ore fines and non-coking coal in ‘melter gasifier’ after being routed through a hot DRI compactor and coal briquetter, will claim only 250 acres per 1mt capacity. Land saving is also effected by a mini flat mill in the downstream facilitating direct and continuous casting and rolling of steel. In case Posco venture in Orissa gets going it will be based on Finex technology along with a mini flat mill. There are other non BF technologies which allow making of hot metal using ore fines and non-coking coal. Such processes make sintering and coking plants redundant. The list is led by Siemens Vai developed Corex, Kobe Steel invented ITMk3 and Rio Tinto’s HIsmelt. All such technologies allow restricted CO2 and waste water emissions and economy of land use.
No doubt if technology is rightly harnessed, it will prove to be the game changer in land use for new mills, reduce CO2 emissions from the current level of two tonnes per tonne of finished steel as is the case with the best mills to first to 1.4 tonnes and then ideally to one tonne. It will also allow steel to hold its ground against emerging competition from aluminium, magnesium and carbon composites. To fend off competition from substitutes, mills will have to focus on making better and better grades of ultra high strength steels through management of alloys and ideal thermo-mechanical rolling. Verma says the Holy Grail for the industry remains the integration of iron and steel making.
This could happen only when the industry starts using hydrogen for iron ore reduction leaving little carbon in hot metal. Hydrogen use will unquestionably usher in a new dawn in steel making. Hydrogen-based steelmaking has the potential to cut CO2 emissions to one tonne per tonne of finished metal. But the Holy Grail remains in the distant horizon since work on hydrogen related R&D is still at early stages.
Brazilian steel usage set to be strong to satisfy infrastructure requirements
The record steel imports of 2010 were not repeated last year, when more was exported as well following price cuts, writes Patrick Knight.
Numerous infrastructure projects and housing programmes should ensure more steel is used in Brazil again this year.
With elections to take place later this year, the Brazilian government is anxious for the economy to grow by close to 5% in 2012, almost double the 2.7% of last year.
If measures taken to facilitate this are successful, at least 1.5mt (million tonnes) more steel will be used in Brazil this year than the 21.4mt sold by local mills and the 3.8mt which was imported in 2011.
Up to 50% more steel is normally used than the rate at which the economy grows.
Restrictions on consumer credit have been eased and taxes lowered, while the government is giving priority to dozens of projects aimed at updating Brazil’s creaking infrastructure.
The government is also ensuring that sufficient finance is available for at least one million low cost houses to be built this year, and for sanitation works to be stepped up.
About 7% more steel was made in Brazil last year than the 33mt of 2010.
But much more important than that was that only 3.8mt of steel was imported in 2011, 56% less than the record 5.9mt which entered the country in 2010, and which caused great concern. A total of 10.1mt of steel was exported last year, which was 12% more than in 2010 as well.
To allow Brazilian-made steel to compete with cheap imports, mills had to cut prices by about 8%, which ate into profits and is limiting the industry’s ability to invest.
Whether steel companies should go ahead with plans to increase production by 20% in the next few years, at a time when most mills are using only 70% of their existing capacity, rather than the 90% needed to allow them to operate at a profit, is a matter of heated debate.
The nationalistic government led by the combative Dilma Rousseff, Brazil’s first woman president, wants more mills to be built so as to allow more steel to be used in Brazil. Each Brazilian now consumes only about 130kg of steel each year, while each Chinese uses 400kg plus. The ambitious plans for building extra housing, upgrading ports, building several thousand kilometres of new rail track, as well as new roads, bridges and airports, as well as to prepare for the World Cup matches in 2014 and the Olympic games to be held in Rio de Janeiro two years later, will give the economy and the construction industry a major boost.
The discovery of billions of barrels of oil under deep water off the coast in the south of the country will mean dozens of new drilling rigs and complex production platforms will be needed in the next few years. Four new refineries are to be built to process the extra crude, while dozens of ships and supply boats of all kinds, along with half a dozen new shipyards to build the vessels, rigs and platforms will be needed.
Hundreds of kilometres of pipes made of special steel alloys will be needed to bring the oil and gas ashore and carry it around the country, where hundreds of new storage tanks will be needed.
The government wants 65% of the components which will be needed for all this to be made in Brazil, which is a tough target and proving very difficult and expensive to achieve.
Delays in delivery mean that the plan to push up production to five million barrels of crude a day by 2020, compared with the present two million barrels, is unlikely to materialize.
The government wants the Vale mining company, already a partner in the Atlantico Sul steel mill along with ThyssenKrupp, which started up in late 2010 and which has exported about 3mt of slabs in the past 12 months, to form other partnerships and even to start making steel on its own. Vale’s new president Murilo Ferreira, is much more enthusiastic about Vale becoming a steel producer than his predecessor, Roger Agnelli. Agnelli was pushed out last year, largely for resisting pressure from the government to move faster into making steel.
Vale is expected to build a mill able to make about 500,000 tonnes of steel rails each year, to meet the needs of the new railways now being laid.
Feeling the pain after having to cut prices, officials at Brazil’s Steel Institute, to which Brazil’s five leading steel companies all belong, is opposed to Vale joining them.
They point out that 500mt more steel is now made around the world than there are markets for. They worry that adding extra production in Brazil could only make matters worse if, as seems likely, the Chinese economy slows down and more steel is exported from there at low prices.
Not only did the Brazilian steel mills cut prices last year, a fistful of anti-dumping measures were taken against imports from China and elsewhere in Asia, as well as from Portugal and Poland.
The first step in what is expected to be an ongoing programme of consolidation in Brazil’s steel industry occurred at the end of last year, when control of the 8mt-capacity Usiminas mill passed to the Italo–Argentine Techint company.
As well as having mills in Argentina, and controlling Brazil’s leading pipe maker, Confab,Techint owns mills in Mexico. The takeover was made possible after the Votorantim
aluminium, cement and pulp company and the Camargo Correa construction company decided to sell their shares in Usiminas to Techint.
The National Steel Company, CSN, Brazil’s third-largest company and also a leading maker of sheet steel, also bid for Usiminas. But such a sale would have attracted the attention of the Monopolies Commission, as well as being opposed by Nippon Steel, the other leading shareholder in Usiminas.
Anxious for Latin American steel companies to act together to gain strength,Techint had already announced plans to build a 500,000 tonnes capacity slab mill alongside the new Acu port, being built in the north of Rio de Janeiro to export ore.
Brazil’s motor and consumer durables industries are the leading users of sheet steel, which forms the majority of what is imported.
Imports are competitive both because there is a world surplus of sheet steel, and also because the rods and bars used mainly by the construction industry, the so called ‘long’ products are more bulky, so more costly to transport.
Brazil’s leading ‘long’ products producer is the Gerdau company, which over the past 15 years has been quietly buying up numerous small and medium sized mills in the United States and elsewhere in Latin America. These mills now contribute 25% of Gerdau’s profits.
Because the emphasis will be on construction this year, both of housing and large infrastructure projects, where concrete reinforced with steel is an important component, Gerdau expects to sell up to 10% more steel in Brazil in 2012 than last year.
Although a record 3.7 million motor vehicles of all types were sold in Brazil last year, 4% more than in 2010, less than 1% more were actually made in Brazil.
More than 800,000 vehicles were imported in 2011, 300,000 more than were exported. To curb this trade, which resulted in the motor industry spending much more on imported vehicles and components than exports earned, a 30% tax is to be imposed on imports in future. In addition, 65% of the components fitted to the cars made in Brazil will have to be made locally from now on.
Half a dozen motor manufacturers which do not already assemble vehicles in Brazil are either already building factories, or in the case of the Chinese JAC and Cherry companies, as well as BMW, Land Rover and perhaps Mercedes Benz, plan to as well. They, too, will have to use 65% of imported components or pay hefty import duties, so the companies making sheet steel hope to sell much more to the motor companies, their main market, this year.
What has happened with the motor industry, which used to export several times as many vehicles as were imported, is typical of many industries in Brazil.
De-industrialization, as this process is called, has caused the government and industry to worry that Brazil is producing less manufactured goods, and importing a steadily increasing proportion of its needs each year. Largely because so much was imported, local manufacturing companies produced only 0.3% more last year than in 2010.
The steel industry says that as well as importing more steel, goods containing up to 5mt of steel which were previously made in Brazil, are now imported.
Because fewer manufactured goods are exported, less steel is exported in such goods as well.
Manufactured goods were responsible for less than 16% of Brazil’s GDP last year, compared with 19% of it in 2004, while only 39% of what is exported are now manufactured goods, compared with 55% of exports in 2004.
Reversing this trend will not be easy, but the present government plans to try! This, if it goes well, will be very good news for the steel industry.
Steel products strong focus for Pasha Stevedoring & Terminals
Pasha Stevedoring & Terminals L.P., 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 steel, automobiles, 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. The penetration of 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 Angeles achieving the number one record for steel imports on the US West Coast. The company has perfected the art of stevedoring mixed steel products arriving from all parts of the globe, achieving optimum proficiency in discharging overweight coils and steel slabs by using swift gantry cranes.
PST also enlists its traveling 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, the largest soybean meal cooperative in the world. Grays Harbor is AGP’s West Coast export hub for dry bulk products destined for Pacific Rim Markets, and PST has been the stevedore of choice
since 2009. PST’s supervisors oversee the loading of the bulk agricultural products, and in 2010 alone, over 1mt (million metric tonnes) were put on board. On the heels of this record year, and with plans to triple exports of American-grown agricultural products over the next five years,AGP’s multi-million dollar expansion project at the port continues on schedule and on budget. PST will continue to provide the expertise to help them meet their export goal.
And driven by the global demand for cotton, Cosmo Specialty Fibers, Inc. is shipping baled pulp out of Grays Harbor.
Dissolvable pulp is a less-expensive replacement for cotton fibers in rayon manufactured in China, as well as for other products. PST anticipates annual exports of over 100,000 tonnes.
PST anticipates growing the Grays Harbor business at a rapid pace, potentially moving forward with steel products, lumber, and containers.
ADDING VALUE TO AUTOMOTIVE EXPORTS/IMPORTSAlso in Grays Harbor, new rail expansion is taking place. The recently completed first phase rail project increases the number of railcar spots from 32 to 100. Grays Harbor is served by the only active rail system to the coast in Oregon and Washington. A unique feature is the dual access to both Union Pacific and Burlington Northern Santa Fe class one railroads. This attracts new auto accounts that rely on land-bridge capability for import and export vehicles. 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
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 ourcustomers. Today’sclientisalsolookingforfreshideasfor 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.”