Steel, the future for the UK and Europe
Professor Julian Allwood considers the recent developments in the European steel industry and offers an approach for the future.
Recent news from the steel industry in the UK and Europe has been grim – plant closures, low prices, reduced output. These are hard times for the steel industry in Europe, but in a wider context they’re not surprising and neither were they unanticipated. The most modern steel making technology in the world is in China, which has significantly lower labour costs than Europe. Globally, steel production has seen astonishing growth since 2000, driven by construction in China. This has, in turn, driven explosive growth in steel-making capacity. Construction in China has peaked and now Chinese steel makers can make more than they need, so what’s going to happen next?
Globally, there is excess capacity, and it is unlikely that any more will be needed. The forecast of global steel requirements to 2050 are shown to the right (figure 1) and, while the anticipated production of around 2,500Mt/year in 2050 is significantly greater than today’s 1,500Mt/year, this expansion will be met by increasing production from scrap. On average, steel products last for around 35-40 years (figure 3), and steel is the most recycled material on the planet so, to a reasonable approximation and by volume, all future growth in steel demand can be met by electric arc furnace (EAF) production from scrap steel. In developed economies, we build up our stocks of steel until we have around 13Mt per person, and replace them at a rate that leads us in the UK to a per capita demand for production (globally) of liquid steel at around 500kg per person per year. The forecast future growth in steel requirements can therefore be served by expansion of the secondary steel route – today's primary production capacity will be enough.
And, in fact, the outlook for the owners of Europe’s primary capacity is worse, for two reasons. Firstly, economic development in India is likely to trigger further expansion in global primary steel making capacity with more modern plants, and even lower labour costs. Secondly, if we decide to take action globally on climate change, and let’s hope we do, then the primary steel industry must shrink. Steel making currently contributes around 9% of all energy- and process-related anthropogenic emissions, largely from the primary production process. Efficiency measures won’t reduce this by much because the industry is already so good in this area. The top performers in the steel industry run the most energy-efficient processes in the world, and best-practice steel production now occurs with an energy intensity around twice the chemical energy of the bond between iron and oxygen atoms in haematite. No other industry comes close to this staggering achievement.
The numbers about global capacity requirements are not shocking news. They’ve been known for many years, but they’ve been ignored. The bosses of European steel companies have continued their policy of the past thirty years, hoping to create value by further innovations in composition and processing to create yet more exotic properties in steel. This has led to great innovations but many of them are applicable only at small scale and the steel industry doesn’t exist to serve small-scale niche markets. It’s a massive global producer of a commodity, and the users of reinforcing bars, steel sections and car body panels don’t particularly require further innovation in composition. While the strength of steel has increased due to recent innovations, its stiffness remains unchanged, and little progress is being made in improving the trade-off between strength and ductility.
The European steel industry has worked with intelligence, creativity and commitment to improve its older assets. Access to local knowledge and skills in the development of upgrades, automation, process control, IT, sensors and commitment to maintenance and the control of air quality and much more has led to extraordinary achievements in defining world standards for energy and environmental performance of primary production. As a result, the emissions intensity of the best European plants may be comparable with that of the best plants in China, with the Europeans out-performing on other environmental indicators. However, with low profitability, there is little chance of raising the capital to extend these developments much further – energy and emissions performance is already approaching limits, and the problem of global over-capacity remains.
Steel is a fantastic material. It is quite literally the backbone of every industrial economy. It will never be replaced, as there’s nothing else available on the same scale – humanity is utterly dependent on it. But the European steel industry will not be sustained if its owners continue to believe that volume growth in a commodity market is an intelligent strategy and neither is Europe going to innovate its way out of trouble with new metallurgy. It’s no wonder that closures are happening in the UK, and it won’t be a surprise if further closures are seen in primary production in Europe. That is the reality.
Confronting the issues
The real choice facing the steel industry is to continue as it once was, complain to governments about energy prices, dream of miracle new compositions… or wake up! Wake up to the fact that massive growth is forecast in the secondary steel market. Wake up to the fact that if climate change targets are imposed on the industry, secondary steel making must take over. The era of growth in primary steel production from ore is over, but we’re still completely dependent on steel, so why not grasp the reality of what’s going to happen anyway? There are four strategies open to European steelmakers, and no one else is pursuing them yet, so the field is open. Who’s going to take the opportunity?
Firstly, if future growth in steel demand is going to be met by secondary production from scrap, then we need to invest rapidly and with commitment in every aspect of the EAF route. We need to continue to optimise current electric technologies, look for innovations in electric production, and capture opportunities to use low-carbon electricity supplies if they become available.
Secondly, steel makers have always marketed their product as an intermediate commodity because the final consumers don’t want their product. People want cars, buildings and equipment, not coils of steel strip. Around half of all steel strip made each year is scrapped in manufacturing because no one wants a constant width slice of steel strip. The steel industry can integrate downstream and become a producer of components. By internalising the processes of blanking and forming, the steel industry could optimise the value of its own production and minimise waste. By getting closer to the real customers, not the distributors and stockists who handle their product today, steel makers could serve customer needs by doing it themselves.
Thirdly, the steel industry has, for centuries, attempted to integrate upstream to the mines. But mining and primary steel-making have little, if any, further growth, so why not integrate upstream into the scrap market instead? The UK typically generates around 10Mt of steel scrap, of which around 9Mt is collected, with two thirds exported at minimum value. If the steel industry took control of this resource stream, it could transform its value. For decades, metallurgists have awarded each other medals and prizes based on their invention of new compositions and processes, requiring ever more refined inputs and more precise control of increasingly complex thermo-mechanical processes. But what about the scrap stream? Who has won a prize for scrap management? For composition identification, sorting, refining? Who is overcoming the hot shortness of copper concentration, who is organising the feedstock to the EAF with scientific precision? Where are the innovations in the electro-chemistry of the scrap melt? Which steel company has given the same commercial priority to sourcing steel scrap as they do to sourcing iron ore?
Fourthly, the whole business of steel is based on a pile-it-high, sell-it-cheap approach. No wonder that doesn’t work when there’s an excess supply. But that’s not what steel is to its end users – it’s vital. The steel industry is currently selling its product at around £300/t, or lower, yet commercial buildings sell for around £5–10,000/t and cars at £10–20,000/t or more. The business model of the steel industry could be quite different. If steel is so valuable to society, why aren’t the steel producers keeping it on their own balance sheets and renting it out? On average, commercial multi-storey steel framed buildings in the UK are built with around twice the mass steel required by the safety standards of the Eurocodes. Why? Because it’s so cheap, that economic rationale requires that fabricators and contractors minimise labour costs by adding more steel wherever it can save labour. We could optimise our designs, with the right steel section at each location in the building to avoid wasting valuable steel, but not with today’s business model. The steel industry could be producing kits of parts to make optimised, efficient buildings designed for flexibility, adaptation, deconstruction and re-use. How difficult would it be for the bosses of the steel industry to talk to a few fabricators and component manufacturers and develop new partnerships?
Primary steel producers in Europe are in an extremely difficult position, and it’s going to get worse. Yet society depends on steel. We should infuse knowledge into its applications, rather than selling it off as an intermediate product as cheaply as possible. This can work in Europe. If we shift to secondary production from scrap, add knowledge to steel, move on from trading it as an undifferentiated commodity, and recognise and value it for the irreplaceable wonder that it is, we could transform the European steel industry from a casualty needing state aid to a vibrant beacon of knowledge-rich value ready for a low carbon future.
Julian Allwood is Professor of Engineering and the Environment at the University of Cambridge, author of Sustainable Materials: with both eyes open and, in 2015, was made an Honorary Fellow of the Institute of Materials, Minerals