3 The West European Steel Industry

Transcription

1 3 The West European Steel Industry 3.1 Introduction The definition of the typical production routes in the previous chapter is a considerable abstraction of reality. Chapters 4 through 7 proceed with these abstractions, and add their own, in the form of scenarios and assumed parameter values. While the choices regarding these matters intend to give as good as possible a reflection of reality, they cannot cover the wide variations found in practice. This chapter aims to provide a link between abstraction and reality, by providing background information on the European steel industry. Following an introductory overview of the post-second world war European steel industry, some aspects of the European steel industry receive a more thorough description. Items included are production and consumption data, an inventory of the production capacity, the age distribution of installations, and European policies affecting the steel industry. After an overview of expectations with regard to the future European steel industry, the chapter concludes with the implications of the European situation for the subsequent analyses. This provides a framework which allows the positioning of the calculations of the following chapters. In order to avoid discrepancies, most tables and pictures show the developments for the original six ECSC countries 5. In many cases, only for these six countries sufficient data is available from the 195s to In a smaller number of cases, there is also sufficient data available for other European countries. Unless stated otherwise, the data are from various statistical sources of Eurostat [11, 14, 16, 17, 15, 52, 12, 13] 3.2 Overview of the industry after 1945 The recent history of the European steel industry starts with the end of world war two. The national governments considered the development of the heavy industries comprising the coal and steel industries to be quintessential for their economic development. As private capital was generally insufficient to found large-scale steel plants, state governments often participated in the development of their steel industries. In most countries, this resulted in the existence of both a public and a private steel sector, the latter generally of smaller-scale. In 1951 the governments of Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands founded the European Coal and Steel Community (ECSC), the first predecessor of the current European Union. The ECSC was to promote the development of the coal and steel industries by providing low interest loans and by other facilitating activities. Despite the European cooperation, the European steel industries essentially remained national affairs, with some rare exceptions. Growth: The economic growth between 195 and 1973 resulted in a huge rise of the steel industries output. Combined with scale effects and technical progress, this resulted in ever larger and more efficient installations. In addition to the traditional inland production sites located near extraction sites of coal and, often low grade, iron ore, new coastal steel production sites developed with access to the world markets of (coking) coal and high grade iron ore. 5 Belgium, Federal Republic of Germany, France, Italy, Luxembourg, Netherlands 51

2 Due to the large-scale nature of steel production, both around inland and coastal production sites, areas developed that heavily depended on the local steel industry, both for employment and economic development. The unattractiveness of these areas for activities other than those linked with steel production increased this tendency to imbalanced development. Unlike many other industries, the steel industry hardly ever went beyond the national scale, due to its strategic importance and its supposed key role in national economies. Steel production remained essentially a regional or national affair. In the integrated steel production, the huge size of individual production sites may also have played a role in this, despite the existence of multi-site companies. The latter were often the result of governmental interference, such as by nationalisation of steel companies. An example is the British Steel Corporation, the result of the 1967 nationalisation of fourteen private steel producers. Until 1974, the strongly rising steel demand masked any weaknesses of the European steel sector such as over-capacity, bad management, high wages and high energy costs. Incidental cyclic drops in steel demand did not have serious effects. Steel producers, often encouraged to do so by state governments and the ECSC, based their decisions on the expectation of continuing growth in demand. However, the global steel market gradually changed. The maturing of the western economies brought about a gradual decoupling of steel demand and GNP growth. The increasing concentration of the economic growth in services and high-tech industries resulted in less than proportional growth in steel demand. But steel demand in developing economies still rose strongly, and western steel producers diverted an increasing share of their production to the international market. This contributed to the increasingly global nature of steel trade. The first signs of fundamental changes emerged in the late 6s. The United States steel industry had moved itself in an uncompetitive position, because of high wages and overcapacity. This resulted in increasing steel imports, and complains by the native steel industry. The US government responded by protectionist measures. However, these did not immediately have serious global consequences, as rapidly developing economies such as South Korea and China absorbed an increasing part of global steel production. In , expected global steel shortage even resulted in a demand peak, as consumers bought excess steel to prepare themselves for future steel shortages. The steel crisis The 1973 oil crisis finally pulled the trigger. It resulted in a considerable slow-down of economic growth, and as a consequence, after 1974, the demand for steel dropped dramatically. From 1975 on, European steel production was stationary or declining further, for a much longer period than expected initially. The policies of the steel companies, which expected the crisis to be very short, lagged behind. This resulted in an increase of the already existing excess steel capacity. The economic crisis had resulted in a materialisation of the latent weaknesses of the developed economies steel industries. The European steel industry crisis lasted until about During the period, the sector underwent a slow but inevitable transformation. The traditional importance of the steel industry in the state policies resulted in extensive and increasingly detailed interference of the governments with their steel industries. Of course there were differences between the ECSC members states, but in all countries governmental influence increased dramatically, often resulting in actual or even formal nationalisation, and huge 52

3 expenditures of public money. There were attempts to implement rationalisation programmes to cut back excess capacity, and the ECSC implemented protectionist measures. However, implementation of accurate policies towards the steel industry proved very difficult. The consequences for the areas affected by plant closures were generally very serious, and both governments and other parties involved were reluctant to face these consequences. The steel crisis revealed many opposing interests, between management and labour unions, between different countries and regions, among and within companies and political parties and between the public and private steel sectors. As a consequence, many measures were inadequate and half-hearted. Cooperative down-sizing proved much more difficult than growing together. Both the individual states and the supranational ECSC proved incapable of effectively handling this crisis with its international origin. The many parties involved, with their opposing interests, gave rise to decisions that only occasionally reflected the best interests of the steel companies or the steel sector. Capacity cut-backs, especially in the form of plant closures, while highly necessary, proceeded very slowly, if at all. Continuation and further development of the coastal sites, at the expense of the more expensive inland sites, met with strong opposition. In the meantime developing countries, with their lower production costs, continued to expand their exports. In addition to measures directed at the steel industry, there were programmes to support the areas hit by the steel crisis. Especially the traditional inland steel production areas, with their high production costs and strong dependence on their once thriving steel industries, were hit very hard. Re-industrialisation of these areas often met with serious problems, as the post-industrial landscape left was often highly unattractive to the new high-tech industries. In addition, the former steel workforce did not have the proper education and skills. 25 British Steel Steel production and labour force 3 5 British steel profits Mt steel output UK employees million pounds LS output UK employees Figure 3.1 Steel output (LS) and labour force of the British Steel Corporation Figure 3.2 Profit development of the British Steel Corporation The period after 1984 Despite all opposition, capacity cut-backs and plant closures were inevitable, and after 53

4 1984, the worst of the crisis was over. Afterwards, the European steel industry never regained its former position. With its output and capacity cut back and its labour force decimated, with steel demand increasingly decoupled from the GNP-growth, the steel industry had lost its prominent role as an engine for economic development. As a consequence, some steel companies looked for diversification of their activities into other sectors. In addition, rationalisation continued at a slower pace, leading to further cut-backs and job losses. Figures 3.1 and 3.2, showing profits, steel output and labour force of the British Steel Corporation from 1967 to 1987, illustrate the extent to which the steel crisis affected the once flourishing European steel industry and its employees. While different for each company, the overall pattern is characteristic for the European steel industry. While the current European steel industry has regained some of its former competitiveness, future expansion seems very unlikely. In many cases, governments are withdrawing themselves from their steel industries. Increasingly, steel production becomes an economic activity like any other, subject to the same economic conditions, and basing its decisions primarily on the company s interests. There is also a start of the formation of steel multi-nationals. CORUS, the results of a merger of Hoogovens and British Steel, the latter privatised in the late 8s, may serve as an illustration. The role of individual production sites is still very important, because of the huge costs involved in relocation of steel production. Mt steel annually Steel production by process EC 6, Oxygen Thomas Open hearth Electro Figure 3.3 Steel production of the original six ECSC members, by process. Mt steel capacity Steel production capacity by process EC 6, Oxygen Thomas Open hearth Electro Figure 3.4 Steel production capacity of the original six ECSC members, by process. 3.3 Production and capacity 6 After the second world war, steel production, shown in figure 3.3, rose rapidly from about 6 In order to avoid discrepancies, most tables and pictures show the developments for the original six ECSC countries. Often, only for these countries sufficient data is avialable for the 195s to In some cases, sufficient data exist for other European countries. Some data are only available at the total EU level, and do not allow reconstruction for the original ECSC members. 54

5 4 million tonnes in 195 to 1 million tonnes in 197. In 1973 and 1974, steel production peaked to some 15 million tonnes, but then production fell back to 12 million tonnes annually. Since then, European steel production is about stationary or even declining, and fluctuates between 12 and 14 million tonnes annually. The trends in steel capacity, shown in figure 3.4, often follow with considerable delay. Excess capacity as shown in figure 3.5 has been a characteristic of the ECSC steel industry ever since the 195s. However, until 197 excess capacity was low, an as long as demand continued to grow, it did not result in serious problems. But the expectations of continuing growth resulted in capacity increases up to 198, six s after the dramatic fall of steel demand. Yet, even the demand peak of had not required full capacity use in Europe. In 1981 excess capacity made up some 4% of total capacity. Figure 3.6 shows the EU steel capacity utilisation by process. Substantial decrease of capacity did not start before 1982, and after 1985 there has even been a slight increase again. This growth is mostly due to the expansion of electric steel capacity. Oxygen steel capacity continued to decrease at a slow rate. Excess electric steel capacity now makes up nearly half of total excess capacity, while the share of electric steel production is less than one third. This suits the notion that excess capacity is less expensive in electric steel production than in integrated steel production. The government influence in integrated steel production may also play a role. 2 Steel excess capacity by process EC 6, Capacity utilisation by steel process, EC Mt steel capacity Oxygen Thomas Open hearth Electro Figure 3.5 Excess steel capacity in the original 6 ECSC member countries, by process % Open hearth Thomas Oxygen Oxygen Thomas Open hearth Electro Electro Figure 3.6 Capacity use as a percentage of total available steel capacity, by process, EU In general, steel companies, but even more so labour unions and local governments, have been very reluctant to face the inevitable consequences of falling steel demand. Pig iron production and capacity have roughly followed the same trends as in oxygen steel production, as shown in figures 3.7 and 3.8. In the mid 197s pig iron capacity reacted a bit more directly to the demand decrease than steel capacity. It continued to expand until 1976, and started to decline after At a slower pace this decline has continued into the 199s. Figures 3.9 and 3.1 show the excess capacity and the capacity utilisation. 55

6 - 3.4 Applied processes The current production structure, with an almost exclusively primary sector and an almost exclusively scrap-based sector, has developed between 196 and 198. Right after the second world war, the thomas-steel process and the open hearth furnace, described in box 2.7, were the major steel processes. In the thomas steel or basic bessemer process, conversion of pig iron to steel takes place by blowing air through the pig iron for the oxidation of carbon and other elements. Contamination with nitrogen from the air results in a steel quality inferior to that of the BOF. Maximal scrap addition is not as high as that possible in the oxygen steel process. 2 Pig iron production EC 6, Pig iron production capacity EC 6, Mt pig iron Mt pig iron capacity bel fra ger ita lux ned Figure 3.7 Pig iron production of the original six ECSC members Not-utililised pig iron capacity EC 6, $ # # $ # # # # $ " " # $!!!!!!!!!!!!!!!!!!!!!!!!!!!" " " " " "!!!! bel % % % % % fra & & & & ger ' ' ' ' ita ( ( ( ( ( lux ) ) ) ) ) ned Figure 3.9 Not-utilised pig iron production capacity of the original six ECSC members. Mt pig iron capacity ,-,,,,,, ,,,,,,,,,,,, - - -, ,,,, ,, * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * bel / / / / / fra ger ita lux ned Figure 3.8 Pig iron capacity of the original six ECSC members. Capacity utilisation ratio 1 I N Pig iron capacity utilisation EC 6, G bel fra ger ita lux ned Figure 3.1 Pig iron capacity utilisation of the original six ECSC members. F L B The open hearth furnace or siemens-martin steel process may convert any mixture of pig iron and scrap to steel. Traditionally, it has been the most important scrap consumer. With fuel combustion above the furnace charge providing the required heat, steel production of one batch takes several hours. After the second world war, the mainly scrap based electric arc furnace existed already, playing only a marginal role. 56

7 The oxygen steel process combines potentially excellent steel qualities with very short reaction times, offering advantages above both the open-hearth and the thomas processes. Following its introduction around 196, it rapidly expanded its capacity. Part of this expansion went into the growth of total steel production, but it also gradually replaced the thomas steel process and open hearth furnace. The scrap based electric arc furnace also expanded its capacity, probably boosted by the decreasing scrap consumption by the open hearth furnace. Figures 3.11 and 3.12 give insight in the consequences of the developments in the steel processes for scrap demand. Nowadays in Western Europe, only two ways of steel production remain current. These are the primary blast furnace production route with the oxygen steel converter and the secondary electric arc furnace route. Figures 3.3 and 3.4 show the developments of steel production and capacity for the two current and the two now obsolete steel processes. 1.2 Pig iron per tonne steel by process, EC 1.2 Scrap per tonne steel by process, EC tonne pig iron per tonne steel tonne pig iron per tonne steel BOF EAF THOM OH Figure 3.11 Pig iron consumption per tonne liquid steel produced, by process BOF EAF THOM OH Figure 3.12 Scrap consumption per tonne liquid steel produced, by process. In a way, the segregation into a primary and a scrap-based steel sector continued within the sectors. During the 8s, both the average scrap charge of the oxygen furnace and the average pig iron charge of the electric arc furnace decreased gradually, as shown in figures 3.11 and Within the scrap-based sector economies of scale also begin to play a role, with the introduction of electric arc furnaces of one million tonne annual capacity. The latest important technology shift took place within both production routes. It involves the replacement of conventional batch-wise slab casting by continuous casting, currently the most widely applied casting process. Its application has resulted in considerably lower material losses and lower energy requirements for reheating. However, an important effect of these developments was the increase of excess steel production capacity. The lower material losses implied that less steel sufficed for the same output of final products. The development and introduction of new casting processes still continue. Near net shape casting and thin strip casting are beginning to penetrate, further increasing the overall production route efficiency. In addition to process substitutions, changes within processes were often as important. Especially the changes in input characteristics of the blast furnace are striking. Despite some evident discrepancies in the data sources of the definitions of the various kinds of fuel, figure 3.13 gives a clear illustration of increase in fuel efficiency. Scale economies, technological improvements such as blast preheating and oxygen enrichment, the increasing use of high quality pre-processed iron feed material, and, since around 1975, 57

8 5 increased fuel injection, all resulted in steadily decreasing coke rates and overall energy consumption. The coke rate of the current blast furnaces is less than half that of those around 195. An important side-effect of these developments is that the role of nearby coal extraction sites further diminishes, something which traditionally had a large influence on the location of steel plants. The changes in sintered ore input are also striking. Here, the changes were concentrated in the 195 and 196s. Sinter input per tonne of pig iron rose from 472 kg in 1956 to 1148 kg in After a peak in 1977, around 133 kg, relative sinter consumption has decreased to around 11 kg, probably due to the increased consumption of purchased pellets. t/t pig iron : : : : : Coke hard coal < < < < < fuel oil and gas oil Solid and liquid fuel consumption in the blast furnace, EC, = = = = = breeze ; ; ; ; brown coal kg sinter per tonne pig iron Sinter consmption per tonne pig iron Figure 3.13 Consumption of coke and other fuels per tonne pig iron produced. There are some discrepancies in the data sources. Figure 3.13 Consumption of sintered ore per tonne pig iron produced, EU. The present production routes hardly ever meet the exact characteristics described in chapter 2. Especially the blast furnace route offers possibilities for a wide range of variations. There are differences with regard to the ratios between sinter, pellets and lump ore, with regard to coke rates, scrap charging and various other characteristics. Factors playing a role in this include the purchase of coke, sinter, pellets and pig iron produced elsewhere, the age of installations, scrap availability, the capacity ratios between installations, local environmental regulations, resource price differences and the required steel quality. Table 3.1 gives an overview of the 199 capacities of the various processes by EU member, and table 3.2 shows the ratios of some capacities relative to that of the oxygen steel furnace. Evidently, the ratios between the various on-site capacities seldom correspond with those in the typical production routes. One important reason for this is that the typical production route, derived from Eurofer, assumes all production steps to take place on-site, in order to take account of all material and energy flows. 58

9 Table capacity in Mt per production process of EU members Process Coke* Sinter Pellet** Blast furnace BOF EAF & IF Refining Continuous Country\ casting Belgium Denmark.9.6 France West Germany East Germany Greece Ireland.4.3 Italy Luxembourg Netherlands Portugal Spain United Kingdom Total * data from IISI: 199 coke capacity still available in ** purchased by many companies The West European situation with regard to applied technologies, like the situations in the US and Japan, is a result of the development of the steel industry within mature or maturing economies. The relative abundance of alternative technologies in developing countries reflects the very different situation the steel industry faces in these countries. Box 3.1 gives some background information on the factors that determine the presence of certain technologies in these countries. Table capacity ratios of some production processes relative to the oxygen steel furnace (BOF) Process Coke* Sinter Pellet Blast furnace Country\ Belgium France Germany (East and west) Greece. 1. Italy Luxembourg Netherlands Portugal Spain United Kingdom Average Eurofer blast furnace route *data from IISI: 199 coke capacity still available in Production costs Compared to countries outside Europe, especially the developing countries, the European steel industry faces high wages, high prices of locally extracted and produced energy carriers such as gas and electricity, and high environmental costs. The prices of resources purchased on the global market do not differ very much from those paid in developing countries. 59

10 Table 3.3 Prices of resources according to Eurofer [1] resource Unit Price (Euro)* Remarks coking coal t 48. wet coal price injectant coal t 44. wet coal price, including handling and preparation costs iron ore fine t 17.6 per tonne of ore, not per Fe unit iron ore lump t 24. per tonne of ore, not per Fe unit iron ore pellet t 36. per tonne of ore, not per Fe unit limestone t 15.2 (natural) gas GJ 2.9 variable by country energy (electricity) MWh 4. reasonable price by European standard, wide variations oxygen 1 m on-site production assumed at lower costs low residual scrap t 124. relatively high scrap price obsolete scrap t 96. relatively high scrap price electrodes kg 2.4 DRI (direct reduced iron) t 18. zinc kg 88. labour man hour 2. within EU: 15 to over 35 Euro per man hour *West European prices for a coastal works Table 3.3 gives the resource prices according to Eurofer [1], valid for coastal plants with access to low price inputs. These prices have been the basic data sources for the calculations in chapter 4 and 6. Within Europe, variation is high. OECD energy price statistics [45] indicate a considerable variety in coal gas and electricity prices, by country, by quality and by. In addition, some steel producers may prefer to purchase more expensive high quality resources in order to achieve lower resource consumption or better quality products. Eurofer [1] also gives an estimate of capital depreciation, shown in table?, based on a reasonable estimate of the capital costs, output and life of new plant However, the Eurofer background information indicates that the exact meaning of the depreciation costs is unclear. Actual depreciation costs depend on depreciation policy, tax laws, the age structure of a plant and capacity utilisation. Moreover, new plant is not a clearly defined term. Many installations are operational for many s, sometimes many more than specified as the installation lifetime by Eurofer. Towards the end of an installation s lifetime, it is likely that very few original parts are still present. For example, extensive upgrades of the blast furnace, once in about twelve s, may result in a functionally new installation. This means that for many installations upgrade costs may be more relevant in determining the actual depreciation than the costs of new construction. Finally, Eurofer gives an indication of the production costs of intermediate and final products, shown in table 3.4, based on resource prices, installation input and output, operation costs of installations and depreciation. According to Eurofer, these data apply to good but not outstanding plants at coastal locations. Yet, in addition there is the statement that a very limited number of world class facilities with low input prices will achieve these figures. Inland production sites with higher than average labour costs may face costs 4 Euro/tonne higher at the hot rolling stage, which means 2 % higher production costs at this stage. 6

11 Table 3.4 Production costs according to Eurofer [1] Product* or intermediate costs in Euro/tonne a PRIMARY PRODUCTION incl depreciation b excl depreciation coke sinter hot metal (pig iron) hot metal (pig iron, de-sulphurised) liquid steel continuous cast steel hot rolled coil hot rolled coil for sale* cold rolled coil cold rolled coil, annealed, tempered and finished cold rolled coil, finished and packed* heavy plate* hot dipped galvanised coil* electro zinc coil* SECONDARY PRODUCTION structural sections, mini mill liquid steel continuous cast bloom hot rolled section* wire rod, mini mill liquid steel continuous cast billet wire rod* reinforcement, mini mill liquid steel continuous cast billet reinforcement* a Costs are at the bottom end of a wide range. A very limited number of world class facilities with low input prices will achieve these figures b For depreciation data see table 2.33 Box 3.1 Iron and steel production processes in developing economies The occurrence of new or alternative steel production technologies is much higher in developing economies than in Europe or other developed economies. Several factors may play a role in this. First, developing economies have different price levels for local resources for which global trading is not common, such as labour and natural gas. In addition, competitive consumers of these resources are often absent. Especially the presence of cheap natural gas, as a by-product of oil production, has played a role in the occurrence of direct reduction plants, for example in Venezuela. Another factor is the local presence of resources which are not commonly consumed in the established production technologies, or which have low value. Local governments may try to increase the value of these resources, and increase the value of their exports, by stimulating the application of technologies which are capable of using these resources in the production of higher value commodities. In addition, independence of foreign resources and trade balance policies are important in this respect. As an example, the presence of large deposits of non-coking coals in the Republic of South Africa is a factor favouring the introduction of COREX-based steel production. Last, many developing countries often have a fast-growing steel demand, which means that their available steel capacity is insufficient. Expansion of capacity generally offers favourable circumstances for introduction of new technologies. The smaller-scale and lower capital costs of many alternative technologies is also in their advantage, in countries where capital is not exactly abundant. 3.6 Age profiles of production capacity Capacity expansions, especially in primary production, are very unlikely in Western Europe. Therefore, new technologies have to force themselves into established, more or less optimised conventional plants. This means that the introduction of new technologies 61

12 B D C C B C E A has to wait for the moment that the continuation of the standing production capacity requires high investments. The analysis with regard to the shift costs, in chapter 4, shows that especially the replacement of the existing coke ovens increases the costs for continuation of the existing plant. This section shows the age of the current West European production capacity, concentrating on the coke oven, and identifies the period with relatively low net transition costs Age of Coke plants [29] The wearing out of the coke oven offers one of the most attractive opportunities for the introduction of new production routes. None of the new technologies requires coke. Moreover, steel producers may not be allowed to build new coke ovens, unless they take very expensive measures to reduce the emissions of coke production. For these reasons, the age distribution of the European coke ovens gives some indication as to when the circumstances favour a relatively inexpensive transition to new technologies. Given that a coke oven reaches a maximum age of 4 s, it is possible to give an indication of the growth of new technologies in Europe, if other factors are favourable enough. Figure 3.14 shows the 1992 distribution by construction of West European coke capacity. The oldest ovens date from 1951, but most capacity dates from around 1973, with a smaller peak around When the pre-197 coke ovens wear out, steel producers are probably able to continue blast furnace-based production at the same level by further reducing the blast furnace coke rates. However, this strategy cannot meet the much larger capacity decrease by the wearing out of the coke ovens from the 197s and 198s. Therefore, steel producers will eventually have to choose between constructing new coke ovens or adopting new production routes. Mt capacity West European Coke capacity, 1993 Construction Figure 3.14 Coking capacity by construction Mt annual capacity Coke capacity by country E E E E E E E Capacity left, maximum age 4 s UK C C C D D D E E E E E E E E E E G G G G G C C C C C C E E E E E E E E E H H H H H B B B B B B B B B B B B B C C C C C C D D E E Spain A A A A A A A A A B B B B B B B B B B B B B B B B B E E A A A A A A A A A A A A A A A A A A A A A A A A A A A B B E E E A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A E A A A A A A A A A A A A A A A A A A @ A A A A A A A A A A A A A A J J J J J?????? Sweden Portugal Netherlands Germany France Finland Belgium M M M M Austria Figure 3.15 Projected decrease of standing coke capacity. Coke oven life-time 4 s, no rebuilding. As shown in table 3.5 and figure 3.15, the situation varies by country. Of the larger coke producers, France, Italy and Belgium have the oldest average coke capacity, while Germany and the United Kingdom have the newest. The age distribution shows that the former three countries will face the choice of either rebuilding the coke ovens or adopting different production processes between 23 and 213. For the latter two countries the choice may come, on average, some ten s later. Around 22, more than half of the 62

13 current coke capacity still in use may be located in Germany. The critical moment also depends on the aforementioned possibilities for further reduction of the blast furnace coke rate. These possibilities depend on the difference between the reduction of the coke rate realised already and the technical maximum. Table average age of coke batteries and capacity by EU member [29] Country 199 average age of coke batteries by capacity(s) Total capacity (Mt) Austria Belgium Finland France Germany Italy Netherlands Portugal Spain Sweden United Kingdom Possible pig iron production in the blast furnace.5 15 Required alternative pig iron capacity if coke rebuilding is not possible 12 Mt annual capacity t coke per t pig iron Mt annual capacity Coke capacity coke rate (right y-axis) Sustained pig iron capacity constant demand 1 % growth 1% decline Figure 3.16 Coke capacity and supported pig iron capacity. No coke oven rebuilding; 2% a decrease of coke consumption per tonne pig iron Figure 3.17 Required alternative pig iron capacity for three pig iron demand scenarios. Combined with the wearing out of the coke ovens, demand developments may have an important influence on the introduction of new technologies. Declining or stable demand allows the steel producers to postpone the introduction of new technologies by decreasing the coke rate. The higher the demand, the earlier coke capacity becomes a problem. High demand will force some steel producers to an earlier introduction of new technologies. Even apart from the influence of the coking capacity, demand growth often provides more favourable circumstances for the introduction of new technology. Figure 3.16 shows the development of coke capacity and of the pig iron production sustained by this capacity, based on an assumed decline of the coke required per tonne of pig iron of 2% per. For three demand scenarios, figure 3.17 shows the required alternative pig iron capacity, if coke oven rebuilding is not possible. With a 1% per 63

14 growth of pig iron demand, coke capacity becomes a constraint from 212 onwards, with constant demand from 214 onwards. With a decline of pig iron demand by 1 % per, the shift towards new production routes may be postponed until 221. At the level of individual production sites, frictions between demand and supply may occur much earlier or later. Figure 3.18 shows the 1992 distribution of average coke capacity age by production site. Most sites have a rather uniformly distributed average coke plant age between five and twenty-nine s. If other circumstances favour new production technologies as well, a gradual introduction of the new production routes between 2 and 23 is likely, with a peak around 215. Some sites may adopt new production technologies as late as 235, unless circumstances favour an earlier transition. It is also important to note that on a small number of sites, the average coke capacity age exceeds 4 s. Confronted with the near virtual impossibility to build new coke ovens, steel producers may find ways to stretch the coke oven life-time even further Age profiles of other installations Sinter and pellet plants are much cheaper than coke ovens. In investment decisions, they will not weigh as heavily as coke plants. In addition, some of the new production processes, just as the blast furnace, require agglomerated ore. Therefore, ore agglomeration does not always discriminate between current and new production routes. But in some cases, in combination with the coke oven and other installations, ore agglomeration plants may just swing the balance. This means that the age of plants is especially important in combination with the ages of other installations on the same site. 12 Average age of coke capacity by site 16 West European Sinter capacity, 1987 Construction 1 14 Dry coke capacity Mt capacity Average age by site (s) Figure 3.18 Number of sites by average site age of coke capacity, 1992 Western Europe. Figure sinter capacity by construction, Western Europe Figure 3.19 shows the age distribution of sinter-plants. Construction of the existing plants had a peak between 197 and 198, largely coinciding with that of coke plant construction. However, not the coincidence on a European level, but that on the production site level is important. Still, generally, sinter plant age distribution will favour a transition between 2 and 22, although its effect will not even approach that of the coke oven. Even if data availability would allow so, construction of an age profile of blast furnace capacity is not really illustrative, because of the fact that the date of initial construction 64

15 gives no relevant information. A blast furnace, once built, may exist for over 6 s. Upgrades, each 12 to 15 s, may result in a complete rejuvenation of the blast furnace, often providing the opportunities to implement state of the art techniques and capacity increases in the existing installations. Such adaptations will determine the actual costs from case to case, but upgrade costs of about half the costs of new construction may be a good general indication [54]. It will be clear that for the role of the blast furnace, the initial construction date is of minor importance. 3.7 Environmental policy Traditionally, the European and national authorities have interfered extensively with the European steel industry. The less important role of steel production is likely to result in decreased direct interference by the authorities. Still, policy-makers will continue to have an important influence, probably most through actions not intentionally directed at the steel industry. Especially the increasing importance of environmental issues in national and European policies will play an important role in the interaction between authorities and industry. In the first place, there is the aforementioned role of the coke oven. Essential for the current primary production, but highly polluting, it may increasingly become a millstone to the current primary production route. Local, national or European authorities will demand continuing efforts to reduce coke oven emissions. They may not allow replacement of the current coke oven generation by a new one, forcing steel producers either to purchase coke or to adopt new production technologies. In the second place, there are national and European obligations to reduce greenhouse gas emissions, resulting from the Kyoto agreement. The steel industry is a major producer of CO 2, and therefore greenhouse gas policies will inevitably affect the steel industry. In case of greenhouse gases, CO 2 equivalent taxes or emission rights trading systems constitute likely policy instruments. The governments may also act as a facilitator of environmental measures, by offering grants, or by the creation of a CO 2 storage infrastructure. 3.8 Steel industry prospects The present post-crisis European steel industry increasingly resembles other private economic activities. It will have more and more room for taking the decisions that are in the company s interest, without direct interference of authorities. The perspective of the decision maker will increasingly coincide with that of the company, in stead of with a diffuse conglomerate of actors representing often conflicting interests. Companies will increasingly have the freedom to decide on the application of new technologies and on the amount and the location of capacity, yet within a well-defined framework of constraints. Authorities do play an important role in defining this framework. They implement restrictions on applied technologies, they enforce emission constraints and they offer grants for investments that serve the (perceived) public interest. They impose energy taxes or greenhouse gas taxes or may do so in the near future, thereby exerting great influence on the cost structure of the steel industry s resources. The maturity of the economies of Europe, and of other developed countries determine an important part of the steel industry s environment. It is profoundly different from that in developing countries. Despite the globalization of the steel market and the resources market, European steel companies will continue to face European prices for a number of resources, such as labour, electricity and natural gas. In addition, the development of steel 65

16 demand, both qualitatively and quantitatively, is entirely different in developed economies. The conditions for the European steel industry are unlikely to change such that they favour expansion of the steel industry. The output of developing countries will probably continue to rise, and the developed economies steel industries will aim at retaining the current output. In the longer term, the continuing stationary demand will lead to a changing ratio between the available scrap and the total steel demand. Traditionally, the amount of steel added to the steel stocks in goods, building and infrastructure has always exceeded the steel released from these stocks as scrap. The current scrap availability reflects the steel production between one and some 5 s ago. With stationary steel demand, the flows of steel input and scrap output will gradually grow towards each other. This means that the amount of available scrap will grow relative to total steel demand, and it is possible to produce a larger part of steel from scrap. The demand for primary steel may drop further, requiring further capacity cut-backs of primary plants or conversions of primary plants to scrap-based plants. The latter may be an attractive option for inland locations. Recently, the Arbed company has converted all of its Luxembourg integrated sites to scrap-based production. Further rationalisation of the steel industry may require further capacity reductions, but the necessity of production site closures is likely to decrease. Currently, excess capacity is much lower than during the 197s, and newer, small scale production technologies may offer opportunities for down-sizing production sites. Concluding, some aspects of the future of the European steel industry are fairly clear. It is unlikely that the steel industry will ever again be at the centre of national economic policies, and the interests intertwined with the steel industry are no longer as important as they once were. This gives steel companies much more freedom to take the decisions that are in the company s best interest, and enables them to respond adequately to a future that will pose many new challenges to the European steel industry. Examples concern the problems with the continuations of coke ovens, the increasing influence of greenhouse gas and other environmental policies, prolonged stationary or declining steel demand, and the increasing relative availability of scrap. With regard to technology choices, steel companies are likely to continue to introduce better and more efficient casting and rolling techniques, as these offer improvement on all aspects. Therefore, most new processes are more attractive than the old ones, regardless of prices and other factors. With regard to the iron reduction processes, the choices are more complicated. The differences between the processes, with regard to required fuel, steel processes and other associated processes, excess energy production and others result in entirely different responses to changes in prices, carbon taxes and other factors. The developments with regard to the applied iron reduction processes are the ones that are most uncertain. 3.9 Implications for investigating the chances of new technologies Chapter 4 and 6 will deal with the attractiveness of several new technologies. It will be clear that both the methodologies used and the choice of scenarios should reflect the European situation as good as possible. Clearly, production site-specific factors, such as the age of existing installations, may have a decisive influence on the moment that companies decide to introduce new production technologies. With prices and taxes different for each moment, these factors may even indirectly determine the outcome of the transition. Another example of site-specific factors is the on-site optimisation of material 66

17 and energy flows. Adequate incorporation of the influence of these site-specific factors is only possible by methodologies that start at the level of individual production sites. Companies increasingly have the room for rational decision-making in their own interest, due to the smaller importance of the steel industry in the national and European economic policies and in employment issues. Therefore, the analyses of the next chapters assume rational decision-making with regard to investment and production. It is important to note that many developments in the past, for example during the steel crisis, do not always allow an explanation from the perspective of the rational company. However, these developments concern more the decisions with regard to the total capacity than with regard to the choice of new technologies. Combining the perspective of the individual production site with the assumption of rational decision-making points towards a case-wise, micro-economic approach, in which scenario-parameters embody meso- and macro-economic influences. In this way, investigation of the technological developments in the steel industry essentially takes place in a bottom-up way. The overview of the European steel industry in this chapter influences the selection of scenarios as well. Relevant scenario parameters are demand development, scrap availability, coke oven age, and the availability of production technologies and other options, such as CO 2 storage. As a stationary or decreasing steel demand is very likely, the introduction of new technologies by capacity expansions is very unlikely at a large scale. The probably higher future scrap availability, due to continuing static steel demand, is a reason to investigate the competitiveness of technologies for the production of steel with higher scrap addition. The role of the coke oven as an important determinant of the most favourable transition moments necessitates the investigation of situations with both old and new coke ovens, with and without the possibility of rebuilding. Especially in combination with the possibly later availability of some technologies (e.g. CCF) and options (e.g. CO 2 - storage), this may influence both the transition route and its destination. While the current chapter has identified these possibly important factors, chapters 4, 6 and 7 chapters seek to determine their importance for technology choices, emission reduction and transition costs. 67