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27. November 2007

Steel’s Global Success Story Continues

At its 41st annual meeting in Berlin, the International Iron and Steel Institute updated its 2008 production outlook, with a cautious eye on China, raw material supplies, and energy costs.

More than four decades ago, the International Iron and Steel Institute inaugurated a form of conference tourism for high-level steel executives. Every year, executives visited a different capital of a steelmaking country, caught a glimpse of its culture, toured major steel-producing sites, and listened to the ideas of colleagues and outside experts.

Initially at least, presentations given at these meetings avoided contemporary problems. Major steel industries were frequently engaged in vicious trade battles and the IISI leadership attempted to stay out of politics by limiting its discussions to noncontroversial topics.

In recent years, that’s all changed. IISI has worked hard to make its annual meetings more relevant to realworld issues and its leadership has become less reticent to speak out about current problems and concerns about the future.

China, R&D, Costs, and CO2

At IISI-41 in Berlin, of course, the current problem was imports from China, which hit the EU harder than the U.S. Major worries voiced about the future were the cost of raw materials and energy, as well as the likelihood of a penalty on CO2 emissions (already in effect in the EU).

Just as their U.S. counterparts have done, EU executives blame the flood of imported steel from China on government subsidies, and in Berlin they made clear their resolve to counter this threat with trade-law action. The German industry led the charge, spearheaded by German Steel Federation president Dr. Dieter Ameling. But if, as they contend, their mills will be working at full capacity until 2010 and their steel is of much higher quality, it is difficult to see how imports from China can cause them much harm over the medium term.

Very likely, their real concern is EU steel prices, which are now considerably above the world average. Or, perhaps it is the feeling expressed by ThyssenKrupp chairman Eckhard Schulz that “the Chinese are quick learners.” China certainly deserves some respect for having trained a sufficient number of engineers, metallurgists, and technicians to (1) staff new steelmaking capacity, added since 2000, equivalent to three times the size of the U.S. industry; (2) staff a rapidly expanding industry supplying steel plant and equipment; and (3) have expert manpower to spare for hire by U.S. steel companies who cannot find enough home-grown talent.

An invited speaker, Volkswagen AG chief Martin Winterkorn, who in the 1980s pioneered the use of aluminum for automotive body panels, announced that his firm will build a low-polluting small car containing large doses of plastic and magnesium. He called on steel producers not only to accelerate the development of lighter steels but also to help lower the pollution coefficient of automobiles by engaging in cooperative R&D programs with suppliers of other materials, such as magnesium.

Outgoing IISI chairman and U.S. Steel chairman John Surma presented a list of principles adopted by the IISI leadership: employee safety, pollution abatement, continuing product development and, hinting at China, matching supply to real demand as well as avoiding the use of state aid and other unfair competitive advantages. He expressed concern about the attrition of technical expertise “in some disciplines,” stressing that the steel industry “cannot afford to lose the battle for talent.” The new IISI chairman will be Ku-Taek Lee, chairman and CEO of Posco.

Later, moderator John Lichtenstein of the Accenture consulting firm appeared intent on stimulating a discussion of the subject of qualified personnel among a panel of five CEOs — Dan DiMicco of Nucor, Karl-Ulrich Köhler of ThyssenKrupp, Akio Mimura of Nippon Steel, B. Muthuraman of Tata Steel, and Michel Wurth of ArcelorMittal. Oddly, after a lengthy introduction about the skills challenges confronting the steel industry — an aging workforce, a shrinking global talent pool, and competition for this talent by many industries — he formulated discussion topics that were largely unrelated to this important issue.

The first of these, on “markets, trade, and development,” was too broad to impose any discipline on the panel. Consequently, the executives spent most of their time reciting their favorite themes. For instance, DiMicco immediately took aim at government control and excess capacity of China’s industry, which, as Köhler elaborated, targeted job creation rather than balancing supply with demand.

Köhler also supported Wurth’s dictum that too much was made of tonnage output and not enough of developing technological solutions for customers, like VW. When Muthuraman observed that construction rather than vehicles consumed the largest tonnage, DiMicco agreed, adding that besides infrastructure the housing market also held opportunities for steel applications. Köhler countered that in the construction sector, too, value wins out over tonnage and products must be developed in collaboration with customers.

Köhler also disagreed with the Tata exec’s view that optimal plant location is determined by favorable raw material costs. He contended that advanced technology and know-how could offset the drawback of higher material costs. Mimura suggested that the IISI promote a closer relationship with the world’s construction sector.

On the question of regional supply/ demand imbalances Wurth asserted, without elaboration, that such problems could be overcome by “intercontinental consolidation.” Perhaps he was referring to his company’s experience with the customary solution to regional imbalances, the trade-law remedy. Recently, in a sunset ruling on hot-rolled coils, the U.S. International Trade Commission voted to discontinue antidumping and countervailing duty orders on coils from all subject countries where ArcelorMittal holds controlling interests, namely, Kazakhstan, Romania, and South Africa. The ITC probably reasoned that, given its powerful overseas reach, the juggernaut steelmaker had the ability to prevent captive offshore mills from interfering with market stabilization measures in the U.S.

Forecast for 2007, 2008

As noted, steel consumption in most regions of the world has been on an upswing during the past four to five years. According to the latest IISI forecast, this trend will continue over the medium term, with only minor disruptions anticipated from the collapse in the American sub-prime lending market. In fact, the Institute revised its earlier (March 2007) global forecast upward by 0.9% for 2007 and 0.7% for 2008. Now, the IISI predicts a growth rate of 6.8% for both years.

However, for the NAFTA region the numbers have been revised downward for 2007, due to the slump in residential and other construction. A partial recovery of the NAFTA market is foreseen in 2008. As U.S. Steel and outgoing IISI chairman John Surma assessed the situation, ”although global

economic risks have increased, the IISI forecast assumes that the recent credit market volatility will not move the U.S. economy into recession.”

In a following presentation, the IISI offered a demand forecast for the so-called BRIC economies (Brazil, Russia, India, China), which comprise rather disparate outlooks as regards steel consumption. According to the IISI, the BRICs will jointly contribute roughly three quarters of global consumption growth in both 2007 and 2008. In Brazil, steel use is expected to expand 15.7% in 2007 and 5.1% in 2008. For Russia, the figures are an astounding 25% in 2007 and 9.5% in 2008. For India the conjectures for the two years are respectively 13.7% and 11.8%, and for China 11.4% and 11.5%.

For readers interested in such data, the IISI forecast goes on to describe in some depth the differential growth rates within various regions, as well as supply and demand details for each of the BRIC nations. A separate presentation provides data concerning interregional and intraregional trade flows.

Steel’s CO2 “footprint”

Confusion and disagreement have so far prevented any real reduction in the global steel industry’s CO2 emissions. For country-wide schemes, it has been difficult to set and enforce uniform standards. Governments are loathe to take measures that reduce their industries’ competitive chances.

European steel executives claim that the EU’s emissions trading scheme had the effect of raising electric power bills by 30%. Moreover, the EU system may eventually cause steel companies to relocate to regions with less rigorous environmental standards, which in the end would cause more pollution at the global level. IISI members, therefore, lean toward a worldwide solution, whereby each industrial sector (aluminum, cement, steel, etc.) devises incentives for adopting best-available technology, and penalizes laggards. Governments could help by facilitating international negotiations, but they should avoid getting in the way with their own hodge-podge of schemes and rules.

New challenges … more innovation

Problem: Aging coal-fired power plants in Europe and elsewhere may face displacement by less steel-intensive technologies, should steel producers fail to develop the high-temperature steels that plants of the latest design require to raise generating efficiency and reduce pollution rates. Over the short term, power producers need materials, steel in particular, that can sustainably operate at more than 1,000º F, explained Dr. Johannes Lambertz of RWE Power AG. By 2020, demands would be raised further to allow steam parameters of 350 bar at 1,250º F.

Years ago, the use of aluminum in car bodies motivated steelmakers to develop high-tensile and ultra-high-tensile steels. But, Dr. Lambertz noted, there are still few research programs to develop the high-temperature alloys (plus suitable welding techniques) that are needed for refurbishing electric power plants to become more efficient and cleaner.

Two speakers representing German steelmakers corroborated the industry’s R&D concerns with automotive sheet. Salzgitter’s Hans Fischer discussed a novel belt-strip technology capable of turning out steel sheet of great strength and outstanding ductility. Thyssen Krupp’s Karl-Ulrich Köhler provided a synopsis of steel’s contribution to lightweight auto construction.

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