Industry's large energy requirements will need use of fossil fuels for long
By Kunal Bose
Not only does growing big volumes of excess global steel capacity unsettle the market but the phenomenon has disturbing implications for the environment. OECD says: “Back-of-the-envelope calculations will show… reduction in global excess capacity by approximately one-third would lead to a reduction in emissions… in the range of 2 to 14 per cent and also much healthier business conditions for steel producers.” Alas, the pressure of overcapacity will become even more intense in the future. According to OECD, in the face of demand growth being clouded by economic headwinds, global steel capacity is to see significant rise in three years to 2026, “with 46m tonne addition underway and an additional 78m tonnes in the planning stage.”
In case global steel production remains at around last year's level, then with new capacity coming on stream, use of capacity will continue to shrink. OECD says: “World steel production as a share of capacity fell from 78.9 per cent in 2021 to 74.5 per cent in 2022.” What it also ominously says this level of capacity use is “not in line with a healthy and financial viable industry.”
Alongside growing capacity within the country compromising the principle of capacity swap, Chinese steel groups are making significant investment in building mills (some wholesale shifting of plants included) in Asia, ASEAN in particular and Africa. Chinese investment in ASEAN works out to 81 per cent of the region's total capacity expansion. Chinese aggressiveness in building capacity in Asia and Africa is evidenced by its cross-broader investments accounting for 65.1 per cent of such investments by all countries. But such Chinese moves are not necessarily a blessing for countries targeted for steel capacity creation. For, China is installing by way of wholesale transfer of old induction furnaces, which are environment polluting and products made therefrom are of inferior quality in ASEAN, inviting criticism of host nations.
China in fact is facing double whammy for its steel related activities. Besides the above, the country is responsible for causing disruptions in south-east Asian market for its unbridled export of steel products, often circumventing clearly laid down fair trade rules. Since south-east Asia happens to be a significantly large export destination for Chinese steel and exporters are taking too much liberty, it is not unexpected that Thailand, Indonesia and Vietnam are rising in protest against their shenanigans.
In view of growing India focus on infrastructure, housing and manufacturing, well over a century experience of steelmaking, anticipated demand growth for the metal and plentiful availability of raw materials, particularly iron ore, it is only natural that the country will be hooked to rapid capacity growth. JSW Steel is to build a 13.2m tonne greenfield mill at coastal Paradip in Odisha at an investment of Rs650bn ($7.8bn). ArcelorMittal Nippon Steel too has received major clearances to set up a 7m tonne mill at Jagatsinhpur in the same state at an investment of $4.68bn. Such greenfield projects apart, all the major groups, including Tata Steel, JSPL and government owned SAIL have major brownfield capacity expansion programmes.
Tata Steel, which has a major production footprint in Europe, will focus on brownfield capacity expansion in India following its some strategic acquisitions there. Elaborating on the company's growth strategy, Narendran says: “Basically, we want to increase capacity in India where we have been making the metal for over a century. We have already around 21m tonnes here and soon it will be 26m tonnes as Kalinganagar mill capacity expansion to 8m tonnes from 3m tonnes is nearing completion. We are concretising a few more plans to take our India capacity to 40m tonnes by 2030.”
SAIL, which has five integrated mills, will lift capacity by 15m tonnes to 35m tonnes in the first phase. “Whatever happens to steel will leave an impact on raw materials such as iron ore, coal, manganese ore and chrome ore. So when you are building new steel capacity, you have to think of corresponding step up of supply of steelmaking ingredients,” says RK Sharma, director general of Federation of Indian Mineral Industries.
Not only will the industry be engaged in building new capacity but investments will be made simultaneously to go up in product value chain. While India is seeing most capacity addition through blast furnace-basic oxygen furnace (BF-BOF) route like in the rest of Asia, other regions of the world are building capacity using electric arc furnaces (EAFs), promoting circular economy. OECD says around 65 low-carbon steel projects based on “new innovative technologies” are being set up in different countries.
In the meantime, as the economy everywhere is gaining in sophistication and sectors from defence to aerospace to automobile to railway require growing volumes of stainless steel, its use distinction with carbon steel is getting blurred in many ways. Stainless steel, an alloy of iron, highly resistant to rusting and corrosion, is also replacing carbon steel in construction in coastal areas. Like in carbon steel, China and India are the two leading producers of stainless steel and the former in particular though has the burden of overcapacity remains engaged in commissioning new capacity. China presently has stainless steel capacity of around 50m tonnes and capacity utilisation of 70 per cent. Despite this, the country is to bring on stream fresh capacity of 7m tonnes this year. Moreover, a further 6m tonne is in planning stage.
No doubt, such capacity build-up is based on hope that once the world economy has overcome headwinds, stainless steel demand will rise and with that better capacity use. After all, the new areas of application of stainless steel such as alternative energy, ethanol, hydrogen production and water storage and distribution hold great promise. The consulting group GlobalDataPlc says in a report that the industry's global revenue at $195bn in 2022 will grow at a compound annual growth rate (CAGR) of 5.5 per cent through 2030.
China lifted 2023 stainless steel production by 12.6 per cent to 36m tonnes. Exports, however, were down to 4.14m tonnes from 4.551m tonnes in 2022. Imports deceleration were sharp to 2.07m tonnes from 3.285m tonnes. Chinese spurt in stainless steel production is to be seen in the context of output falling in Europe and the US in response to demand fall. This will also explain setback in Chinese exports to the US and the EU. Exports would have suffered more had it not been for 94 per cent rise in Chinese despatches to Russia since 2020.
India, which is the second largest user of stainless steel, is seeing an 8 per cent CAGR over the past one decade and the forecast is per capita consumption of the metal will rise to nearly 12 kg by 2047 from the present 2.5 kg. In agreement with the demand forecast, Jindal Stainless managing director Abhyuday Jindal says: “India will be in the forefront of growth as we anticipate demand to scale up to 20m tonnes by 2037 from 4m tonnes last year. While this demand growth will be supported by traditional use sectors such as transport, construction and consumer durables, more and more of the metal will find application in aerospace, defence and water management.” But why has stainless steel become the “optimal” material choice? Jindal says: “Being completely recyclable and produced through scrap route, stainless steel is more than eco-friendly. It is best cost option on life cycle costing basis.”
Steelmaking is highly energy intensive and carbon intensive. A major concern for policymakers of countries where steel is made on some scale is how to make production processes less carbon intensive. Steel's environment harming problem is because of its high dependence on metallurgical coal primarily used as a reducing agent for extraction of iron from ore and also to provide carbon content needed in steel. International Energy Agency says that for steel to be on the pathway to net zero emissions by 2050 will require perfection of technology for replacement of coal by hydrogen and carbon capture. Making steel through EAFs by recycling scrap will also help in controlling emissions.
Several Chinese government departments want the share of EAFs in total steel production to become 20 per cent by 2030. In fact, as old, polluting and unviable mills are pulled down to make room for new capacity, EAFs are built in their place in China. Since 2017, the country is annually commissioning 110m tonnes of EAF capacity as part of capacity swap campaign. But disappointingly, EAF capacity use has remained low at about 60 per cent.
In any case, the world steel industry has since 1900 recycled over 25bn tonnes of steel and in the process cut iron ore consumption by around 33bn tonnes and coal use by 16bn tonnes. The industry's energy efficiency is also on ascendance: producing one tonne of steel now requires 40 per cent of the 1960 energy level. An environment friendly development is the commitment by growing numbers of industry constituents to use energy produced from renewable sources as a substitute for fossil fuels based energy. Alas, the industry's energy requirements are so large that fossil fuels will continue to figure prominently is generating power for steel mills. (IPA Service)
