Industrial Management: Steel
Europe's Steelmakers Get Lean and Green
Environmental pressures have helped them to slash costs
It's a bad time to be making steel in the U.S. Beset by global overcapacity, falling prices, and crushing debt loads, nearly a dozen steelmakers have filed for bankruptcy since 1998.
The story is different in the European Union. There, steelmakers are not just surviving. They're investing in new technology, starting to see improvements on the bottom line, and at the same time achieving cleaner production processes. Few analysts believe that Europe's steelmakers can permanently escape the pressures that plague the rest of the world. But for now, they're getting some results that are worth bragging about.
Whether it proves temporary or not, Europe's edge has little to do with luck. The industry's progress toward "sustainability"--a buzzword for environmental friendliness--comes after years of financial struggle and consolidation. Over the past two decades, world steel prices have fallen by an inflation-adjusted average of 2.7% per year, estimates CRU International Ltd., a London-based metals consultancy. The trend can't go on: "Ultimately, prices must bear some relationship to costs," the consultancy concludes. But analysts agree that prices won't right themselves until consolidation shakes out much of the industry's excess capacity.
The long downward price spiral has had one good result. It has forced Europe's mills to consolidate in order to become more efficient--a step that many analysts feel their U.S. counterparts missed. Today, more than 60% of the EU's steel output is in the hands of just five groups, compared with 23% in 1993. And over the past decade, the number of steelworkers has fallen by 40%, while output has jumped by 20%. The upshot: Today's EU mills are among the world's most productive.SOFTWARE SAVES. They are also getting greener. Undeterred by meager profit margins and slumping prices, Europe's steelmakers are reducing capacity in some areas and investing in new technology designed not just to produce higher-quality steel but to make it at a lower cost and with less wear and tear on the environment. In the mid-1990s, France's Sollac Atlantique, a subsidiary of one of the EU's largest steelmakers, Usinor, spent $8.1 million on an artificial intelligence system to manage six of its blast furnaces. Called SACHEM, the software alerts workers to minute changes--in temperature, water pressure, and thousands of other conditions--in furnaces where iron ore and coal are superheated and transformed into pig iron.
The benefits? SACHEM helps to extend the useful life of the furnaces. One such oven, at a mill in Dunkirk, France, will be renovated this summer after 14 years--well beyond the nine-year industry norm. And by optimizing furnace conditions, SACHEM helped to cut emissions of greenhouse gasses by conserving fuel. What's more, Usinor estimates the system saves the company $1.55 per ton of steel produced--good money when multiplied by its annual output of 11.5 million tons. Usinor's chairman and CEO, Francis Mer, is adamant that small steps can make a difference. "Day after day, we have no other choice than to look at the possibility to save money," he says.
Indeed, for Usinor, these recent steps are just a start. The company plans to roll out SACHEM to its other plants. Further afield, Usinor is also exploring ways to derive more value from scrap steel and to make greater use of the mills' gaseous byproducts. "One part of cost saving is becoming more environmentally friendly," Mer says.
Germany's companies are just as aggressive. ThyssenKrupp Stahl, the world leader in stainless steel, recently spent $287 million on an industry first: a new casting-rolling plant that can churn out 0.88-millimeter-thick steel sheets directly from molten metal. By eliminating a second rolling phase, the system promises to slash production time and energy use, saving the company tens of dollars per ton along the way.LIGHTER, STRONGER. Many are taking a cue from Usinor by trying to make better use of byproducts, such as using ash to make cement. EKO Stahl has coordinated work on behalf of Royal Philips Electronics and Voest-Alpine Industries Inc. on a new way to transform iron oxide sludge into ferrite powder for use in magnets. The process consumes less than a tenth of the energy it would otherwise demand.
Working together, Europe's leading steelmakers are also developing an ultralight auto body that weighs 25% less than conventional steel yet is 80% stronger. Less steel on each car, they hope, will contribute to more fuel-efficient vehicles and help stave off competition from plastics and other lighter materials.
Europe's results are encouraging. Four-fifths of the steel products now on sale didn't exist a decade ago. And the air is cleaner. Over the past 20 years, the EU industry has reduced greenhouse gas emissions by almost 40%, well before the Kyoto climate accord.
Green is certainly good, but it may not be enough. Investing in more efficient technology will be to little avail if European companies are undercut by cheaper, albeit less green, imported steel, says Julien Onillon, a Paris-based analyst with HSBC Securities. Philip Tomlinson, director of steel at CRU, puts it more bluntly: In the face of steadily falling prices, and low-cost imports from East Asia and Russia, Europe is simply "the least bad of the major regions."
But for now, Europe's steelmakers prefer to take a longer-term view. They're concentrating efforts on more efficient technology and setting standards in environmental management that the rest of the world may be forced to emulate.By Renee Cordes in BrusselsReturn to top