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Steel markets Europe analyze. More on: http://laplaceconseil.com
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EAF and/or BF/BOF
Which route is best for Europe ?
Marcel Genet Laplace Conseil
© Laplace Conseil 2012
Our current view of the industry
The Steel market is globalized, China is key
Market is +/- static in developed world
There is a large and persistent overcapacity
Overcapacity is correlated with low profits
Therefore we need to cut excess capacity
Agree
Agree
Agree
Agree
Disagree
While highly desirable, overcapacity has never been significantly cut in the last 35 years ! • 1980 EU Manifest Crisis ; 1 billion DM aid for 1 Mt capacity cut
• 1980 US free market and “ruthless ultra liberalism”
• 1990 Japan MITI and industry consensus method
• 2000 China autocraIc policy for 100 Mt of “obsolete” capacity • Closures lead to high disrupIon to customer relaIonships • Closures generate enormous badwill with workers, authoriIes • Closures are extremely costly and take years to implement • Bankruptcy almost always lead to restart with new owner
• It is easier to quit smoking…
Depuis 1975, le marché mondial de l’acier a quasiment toujours été surcapacitaire
Le niveau minimum d’utilisation des capacités nécessaire pour induire une hausse conjoncturelle des marges et des profits est de 85 à 90%. Ce niveau n’a presque jamais été atteint malgré les efforts de réduction
Evolution du taux d’utilisation des capacités mondiales de production d’acier brut
Chocs pétroliers
Crise Manifeste en Europe
Implosion de URSS
Crise asiatique
Croissance chinoise
Crises financières
2012e
Source : OCDE, Analyse Laplace Conseil
The market will not save you; generic solution won’t save you; good strategy will
0
25
50
75
100
125
150
1 2 3 4 5 6 7 8 9 10 11
Value as of May 2012 of a capital of 100 $ invested in June 2006 in 11 leading global steel companies
x 3,5
Source : Bloomberg
Good strategy is the result of an innovative equilibrium between capital, labor and technology.
InnovaIve Technology
InnovaIve People relaIonships
InnovaIve Capital and risk Management
Well adapted technology must be coupled to sound labor relationship and smart capital management
• Smart technological choices are different by region as a result of local availability and price of raw material and energies, local market size, share, product mix and local skills base.
• A global or international company can get leverage as long as it remembers that, for the most part, steel (unlike iron ore or coal) is a local business and “one size does not fit all”.
• It is impossible to make good steel with a poorly motivated workforce, adversarial unions and discouraged management
• It is impossible to make good steel with financial management disconnected from the customers, the suppliers and the workforce aspirations. Further, volatility must be addressed with modern tools
In this presentation, I will focus on a single example, the strategic choice between integrated
mills and scrap based mills
In EU 27, the share of EAF is currently equal to 42% of the total crude steel production
42%
58%
BOF and EAF share of EU27 steel production (2010)
Source WorldSteel, Laplace Conseil analysis
In EU27, EAF steel production share has grown to 42%, while it has grown to 62% in US
Source : WorldSteel, Laplace Conseil analysis
US and EU 27 EAF production share , %
0%
10%
20%
30%
40%
50%
60%
70%
1950 1960 1970 1980 1990 2000 2010
US
EU
62%
42%
Source : WorldSteel, Laplace Conseil analysis
In the US, the EAF replaced a greater share of the obsolete technologies than in Europe
0%
20%
40%
60%
80%
100%
1950 1960 1970 1980 1990 2000 2010 0%
20%
40%
60%
80%
100%
1950 1960 1970 1980 1990 2000 2010
EU share of EAF, BOF and old technologies (%) US share of EAF, BOF and old technologies (%)
EAF EAF
BOF BOF
OHF, SM, Bessemer,… OHF, SM, Bessemer,…
Nevertheless, EU27 recycle a greater share of the steel available in the region than does the US
0%
10%
20%
30%
40%
50%
60%
70%
80%
1950 1960 1970 1980 1990 2000 2010
Scrap consumed = 1,1 x EAF + 0,15 x BOF + 0,35 x OHF Steel available = Steel producIon – net direct export – net indirect export Net indirect export = export of steel intensive products such as auto, ship, machines, … EU27 is a net steel direct and indirect exporter contrary to the US
Share of recycled scrap compared to steel available (unlagged)
EU
US
US and EU 27 are by far the largest scrap exporters. Turkey, Korea and China, the largest importers
Steel scrap importers, 2010
Turkey 35%
South Korea 14% China
10%
Taiwan 9%
USA 7%
EU 6%
India 6%
Malaysia 4% Canada 4%
Indonesia 3% Thailand
2%
Steel scrap exporters, 2010 Mt
USA 37%
EU 34%
Japan 11%
Canada 9%
Russia 4%
Australia 3% South Africa
2%
Source: BIR, Laplace Conseil
Source : WorldSteel, WTO, Laplace Conseil analysis
The EU scrap “mine” is bigger than the US “mine” but not all can be collected now !
0
500
1 000
1 500
2 000
2 500
3 000
3 500
1950 1960 1970 1980 1990 2000 2010
Size of the scrap « mine », proven probable and inferred, Mt
EU 27
US
Scrap price are back to a high and volatile level as a consequence of robust world demand
European schredded scrap prices, €/t
0
100
200
300
400
janv.-00 janv.-01 janv.-02 janv.-03 janv.-04 janv.-05 janv.-06 janv.-07 janv.-08 janv.-09 janv.-10 janv.-11 janv.-12
Source : Platts/Steel Business Briefing
Total costs of BOF and EAF crude steel in EU 27 (€/t)
0
100
200
300
400
500
600
jan-00 jan-01 jan-02 jan-03 jan-04 jan-05 jan-06 jan-07 jan-08 jan-09 jan-10 jan-11 jan-12
EAF
BOF
Source : SBB, EIA, Worldsteel, steelonthenet.com, Laplace Conseil analysis
EU27’ EAF costs are highly correlated to BOF costs and usually lower, especially in weaker markets
CAPEX and Maintenance costs are much lower for EAF steel than for BOF steel
• New integrated capacity costs 800 – 1200 $/tonne up to semis depending of location (China is cheaper)
• New EAF capacity costs 150 – 300 $/tonne up to semis
• Annual maintenance costs represent on average 7% of Capex that is 50 - 80 $/tonne for integrated mills and 10 – 20 $/tonne for EAF
• Moreover, in integrated mills, reinvestments often come in large putlays to replace a major piece of equipment : for example a new coking battery may cost 300 – 400 M$
• Environmental costs and CO2 reduction investment compound the difficulties.
Recycling is much more environmentally friendly
• Steel recycling uses 74% less energy, 90% less virgin materials and 40% less water; it also produces 76% fewer water pollutants, 86% fewer air pollutants and 97% less mining waste.
• Recycling one tonne of steel saves 1100 kg of iron ore, 630 kg of coal, and 55 kg of limestone
• CO2 emissions are reduced by 58% through the use of ferrous
scrap.
• Recycling one tonne of steel saves 642 kWh of energy, 1,8 barrels (287 litres) of oil, 10,9 million Btu's of energy and 2,3 cubic meters of landfill space.
Source : BIR
In Greater Europe (all countries up to but excluding CIS), there are 8 to 10* mid sized integrated mills that are threatened and are risking closures, but
could be rejuvenated by switching to EAF technology.
So why not ?
* 3 plants for long products, 5 to 7 for flat products
Some objections often voiced
• We cannot make all grades with EAF’s ; copper pollution in scrap cannot be eliminated in the steel shop.
⇒ Yes but : 85 % of flat products and 95% of long products grades can be made. Scrap merchants are happy to recycle valuable copper from their raw material source. Prompt scrap and substitutes can be used to dilute residuals
• There is not enough scrap; an increase in demand will lead to an immediate increase in price.
⇒ No because : scrap price are set by reference to iron ore and coal prices on the basis of a global supply and demand; supply is extremely elastic. Europe is a large and growing exporter. The global equilibrium would barely be affected by a European switch of 20 – 30 Mt scrap
• There will be job losses and a need for retraining => Yes but : a lot less than if the plant is closed
In our judgment, the choice is based on the equilibrium between technology, social and capital Example from History : Neuves-Maisons and Mondeville (mid 80ies) • Neuves-Maisons in Lorraine was an aging small integrating plant
producing wire rods and bars from local ore and regional coke
• Mondeville in Normandy was a similar integrated plant with local ore and fairly similar product mix.
• Both plants were unprofitable and threatened with closure
• Neuves-Maisons with a strong manager, cooperative unions and local support started a tough program to convert the plant to EAF. It is still doing well under Riva ownership.
• Mondeville started ill fated investment in “special caster” to save plant and prevent job losses for local politician. It was closed shortly after
• Today, the same dilemma is being faced by many flat steel integrated
Tough questions to ask
Innovative Technology
Innovative people relationships
Innovative Capital and risk Management
Do I use the BAT for my local conditions ? How much do I need to reinvest in next 10 years Do I want to be there in the next 10 years ?
Customers Happy ? Suppliers Happy ? Managers Happy ? Workers Happy ? Community Happy ?
Shareholders Happy ? Bankers Happy ? Risk manager Happy ? Your gut feeling OK ?
Metal and Mining strategy consultant www.laplaceconseil.com
Thank you for your attention
I’ll be happy to answer any questions you may have