THE CHANGING STRUCTURE OF WORLD STEEL

FROM THE TELEGRAPH OF 7 NOVEMBER 2006

Steel – the new conjuncture

Steel was hardly ever in the news in the past thirty years; suddenly in the past year, Lakshmi Mittal and Ratan Tata put it on front pages. The press likes to personalize stories. But Mittal and Tata were not acting on a foible; there were reasons for their acquisitions. What drove them to make spectacular moves? What forces are stirring up the steel industry? A bit of history will help to put the present juncture in perspective.

Steel is an exceptionally versatile material. It is strong: it can bear extremely heavy loads. It is tensile: it can be bent and twisted to make all kinds of shapes. And it is stable under extreme conditions; it will keep its shape over a wide range of temperatures and humidity.

These properties depend on steel’s chemical composition. Pure metallic iron is brittle. It can be made stronger and more tensile by adding carbon to it. The original steel was just an alloy of iron with 4 per cent carbon; now many other alloys have been developed with varying properties.

Iron found in natural conditions is mostly in the form of iron oxides, consisting of iron up to 60 per cent, oxygen, and varying quantities of silica. Some three millennia ago, people in India and elsewhere worked out that the way to get metal out of iron ore was to mix ore with some form of carbon – it was charcoal then – light a fire and stoke it with bursts of air from a bellows. At a high enough temperature, the oxygen in the iron would combine with the carbon and escape as carbon dioxide; silica, being lighter, would float on molten iron, form a slag and could be skimmed off, leaving behind metallic iron.

But this rough-and-ready cooking gave iron that was too brittle. Then it had to be turned into a product with precisely controlled chemical composition. This second step required higher temperatures. For it, the open hearth furnace was developed in the eighteenth century; in this broad, shallow furnace, iron is cooked with measured quantities of carbon, and samples are repeatedly taken until the right brew is obtained. India is about the only country where open hearths are still working; those who are curious should go and see them in SAIL’s plants before they vanish into history.

Then in the mid-nineteenth century, Bessemer invented the converter. This is a vertical cooker shaped like a cement mixer, with a conical bottom, topped by a tall cylinder, and another cone on top of it sealed off with a lid. This converter has vents at the bottom through which air – and more often now, oxygen – is blown in. The converter is stacked with coke – a strong porous lattice of carbon made by burning a particular type of coal for hours without oxygen so that dust falls out of it. The coke is then ignited with oxygen blown in through vents at the bottom of the converter. It mixes with the molten iron poured into the converter. By controlling the oxygen inflow, temperature and duration, one can obtain steel of the composition one wants. Against an open hearth furnace, which may take 8-10 hours, a converter can make steel in less than an hour. It uses less fuel, and being faster it saves capital. So today, converters are the commonest devices to make steel out of iron; they account for about two-thirds of steel production.

Most of the rest is made in electric furnaces. They simply heat scrap until it melts. But since the last World War, a method has been developed of mixing and heating iron ore with powdered coal on an escalator; the resulting sinter can be melted in an electric furnace. This direct reduction can thus replace the combination of a blast furnace and a converter, and save capital.

Molten steel has to be made into shapes required by users – bars required by builders, rods required by wiremakers, sheets required by carmakers and so on. Rolling used to be a separate operation, but increasingly, steel is given its final shape as it comes out hot and malleable out of the converter or electric furnace; 90 per cent of the steel produced is continuously cast today.

Steel mills last for decades; I have seen furnaces in Tata Steel in the 1980s which dated back to 1909. So the steel industry is a museum of vintages of technology developed over the past two centuries. Mills are generally built for particular market – be it construction, the car industry, shipping or whatever – which determines their location and product mix.

Their raw materials are heavy, so primary steel mills also tend to be located near sources of iron ore. The first great steel industries of Britain, Germany and the US were based on and located near their iron ore and coal mines. But by the latter half of the 20^th century, they had largely run out of good ore. Japan, which emerged as a great steel power after the War, had neither iron ore nor coal. So it imported both from Australia and Brazil.

Most of the steel capacity in the 1950s was in old industrial countries, and  was located near their sources of ore and coal. After World War II, the reconstruction of Western Europe and Japan led to a boom which tripled world steel production between 1950 and 1970. Then growth slowed down; output rose only fro 600 million tons in 1970 to 800 million tons till 1990.

As the volume of steel structures and artifacts grew, so did the supply of scrap. Melting scrap is a convenient way of making steel, avoiding the transport of huge quantities of ore and coal and their smelting in expensive steel mills. So wherever scrap was available – which was mainly in the industrial countries – electric furnaces came up to melt locally generated scrap for local markets.

This picture began to change with the collapse of the Soviet Union in 1989. The Soviet Bloc countries believed steel was a foundation of socialism and built up an oversized steel industry. After the Soviet Union collapsed, their self-sufficiency became unsustainable, and they began to export steel. Their steel went to Western Europe, whose steel mills had to look for markets abroad. South-east Asia was then booming, and became a major importer. International trade in steel went up from 28 per cent of world output in 1991 to 42 per cent in 2004.

These trade flows are churning up local markets. Mittal has been buying local steel mills, modernizing them, and exporting their products further afield. Growing competition from abroad has led to the consolidation of industries in the old industrial countries. Corus was an early instance; Arcelor a more recent one. Primary steel producers have been buying local mills to use them for rerolling ingots and selling in the local markets; Tatas have been active in this way. China has grown into the biggest producer, making a third of the world’s steel. Today it is largely self-sufficient; but when its demand falls even slightly short of domestic supply, its imports stir up international markets. World’s steel markets are getting increasingly integrated; that is behind the current turmoil.