NEW TECHNOLOGIES IN STEEL PRODUCTION: IMPLICATIONS FOR INTERNATIONAL COMPETITIVENESS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T01298R000300120001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: January 3, 2011
• Sequence Number: 1
• Publication Date: August 1, 1985
• Content Type: REPORT

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I ot-k77419
New Technologies in Steel.
Production: Implications for
International Competitiveness
NOT NOCROFtLMED
For Data Entry
GI 85-10214
August 1985
Copy 3 2 6
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New Technologies in Steel
Production: Implications for
International Competitiveness
and Industry Division, OGI,
This paper was prepared byl Office of
Global Issues. Comments and queries are welcome
and may be directed to the Chief, Civil Technology
Secret
GI 85-10214
August 1985
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New Technologies in Steel
Production: Implications for
International Competitiveness
Key Judgments Research under way in Western Europe, Japan, and the United States
Information available promises innovative new technologies that will fundamentally change the
as of 1 July 1985 way steel is made in the 1990s. The two most important of these
was used in this report.
technologies are:
? Near-net-shape casting. Processes that cast liquid steel to shapes close to
finished products, eliminating the reheating of semifinished steel and
most of its rolling into finished product.
? Direct smelting. Processes that would replace the blast furnace and the
coking and sinter plants, and would substitute ordinary coal for expensive
metallurgical coal.
Another promising technology is the application of plasma torches to
steelmaking. Together, these processes could reduce the costs of making
flat-rolled steel by 15 to 20 percent. The new processes also would reduce
the cost of building a basic flat-product steel mill by at least one-third.
Thus far, Japan probably has mounted the most extensive research and
development (R&D) program in near-net-shape casting. Extensive R&D is
also under way in the United States that appears to be achieving results
equal to or better than Japan's. Most of the R&D in direct iron smelting
has been done in Sweden and West Germany; one German process is now
on the verge of its first commercial application.
The new technologies are likely to cause considerable industry restructur-
ing as production moves away from large, integrated mills toward smaller,
more highly specialized operations because:
? The new technologies will broaden the minimill product line, thus
encouraging a new surge in the minimill sector.
? Production in the integrated sector of the steel industry will decline and
become increasingly specialized in products still not suited to the
minimills.
Third World steel producers also will benefit. Because the new technologies
will cost much less to implement than conventional processes, the capital-
scarce LDCs will be better able to continue their steel expansion programs.
The countries that aggressively adopt these new technologies have a
significant opportunity to enhance their competitive position. Although
Japan will be in the strongest position to implement the new processes, it
iii Secret
GI 85-10214
August 1985
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probably would gain the least because its steel industry already has
achieved some of the cost reductions these technologies will provide. At the
other extreme, US firms will have the greatest incentive to invest in the
new processes that offer cost-effective ways to overcome their technological
lag. Moreover, because of relatively low scrap prices in the United States,
expansion of the highly competitive minimill sector is likely to go further
here than elsewhere.
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Technologies for the 1990s
Direct Iron Smelting
1
Direct Iron Smelting
4
Improved Profitability
7
The Integrated Mills
8
The Near-Term Steel Technologies: Building a Bridge to the Innovative
Technologies of the 1990s
11
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New Technologies in Steel
Production: Implications for
International Competitiveness
Steel Industry in Transition
Steel industry research and development (R&D) is
exploring radical new approaches that will fundamen-
tally alter steel production during the 1990s. The new
wave of R&D is a response to the steel crisis of the
past decade, a crisis that combined weak demand and
low prices with soaring costs for energy, labor, capital,
and environmental control. The industry also is re-
sponding to growing concern over the long-term avail-
ability of some of its basic materials, chiefly metallur-
gical coal and steel scrap. Although some of the new
technologies are only now approaching commercial-
ization, we believe they will begin to have a major
impact on the steel industry in the early 1990s. F_
Cost reduction is the greatest advantage of near-net-
shape casting. Preliminary studies done for the De-
partment of Energy in 1983 indicate that total US
operating costs for hot-rolled sheet could be reduced
by 10 percent or more:
? Substantial amounts of energy would be saved by
eliminating reheating, improving yields, and sharply
cutting the amount of rolling required.
? Labor would be reduced as would the cost of
refractories, mill rolls, and miscellaneous materials.
? Capital costs would be cut substantially by eliminat-
ing reheat furnaces and reducing the size of rolling
mills.
In addition to lower costs, some US industry experts
believe near-net-shape casting would improve quality
by reducing the segregation of impurities that occurs
Steel industry R&D is turning increasingly to technol-
ogies that will lead to much smaller, more compact,
and economical steel mills. An integrated mill of this
type, producing basic flat-rolled sheet, would cost at
least one-third less to build and would cut operating
costs 15 to 20 percent below conventional technology.
Near-Net-Shape Casting
We believe that near-net-shape casting is the most
important new steelmaking technology since continu-
ous casting was developed more than two decades ago.
At that time, standard steel technology required the
casting of liquid steel into ingots, cooling the ingot,
reheating before rolling, primary rolling into semifin-
ished shapes, another reheating, and, finally, rolling
into a hot-rolled product. Continuous casting short-
ened the process by directly casting the semifinished
product. Near-net-shape casting would simplify the
process further by casting liquid steel directly into
shapes close to a finished product. The ultimate
objective is to cast the finished shape with no rolling.
as liquid steel solidifies.
Direct Iron Smelting
Direct smelting of iron ore promises to replace the
blast furnace and the supporting coke and sinter
plants as the basic technology for smelting iron ore.
The main advantages are lower costs and a cleaner
operation. Operating costs are lower because the need
to convert coal to coke is eliminated and because
ordinary coal replaces expensive and increasingly
scarce metallurgical coal. These new smelting proce-
dures would also cut capital costs because direct-
smelting units will cost less than a blast furnace per
ton of capacity, and there is no need for coking and
sintering plants. Elimination of coking operations also
rids the industry of one of its most difficult pollution
problems (see foldout).
Direct smelters would benefit both minimills and
large, integrated mills. Because direct smelters can be
economically constructed and operated on a small
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Near-Net-Shape Casting
Research and development in near-net-shape casting,
under way in the United States, Japan, and Europe
for more than two decades, has accelerated in recent
years. Although established in nonferrous metallur-
gy, the casting of thin metal strips has not been
successfully transferred to steel.
Most near-net-shape casting R&D aims at producing
thin slabs-the, semifinished product for flat-rolled
shapes. Slabs cast in a 1- to 2-inch thickness, com-
pared with today's standard of 6 to 12 inches, would
greatly reduce the cost of reheating and rolling to
hot-rolled strip'. After failing to produce thin slabs
when continuous casting was first developed more
than 30 years ago, industry research and two decades
of production experience in casting thick slabs have
led steel technicians to believe that thin slabs are now
possible.
The more radical R&D seeks to direct cast steel strip
in gauges as thin as finished products. Two lines of
research are being pursued. extending today's tech-
nology for casting semifinished steel to the produc-
tion of thinner products and utilizing rapid solidifica-
tion technologies now used to cast steel in very thin
sheets of foil. The latter aims at scaling the product
up to sheets of commercial thickness. A number of
laboratory machines are now able to cast strip as thin
as conventional hot-rolled steel. Thus far, however,
only narrow strip has been cast, and many experts
believe that it will be difficult to scale up. It may also
be difficult to achieve the high throughput required
by large-tonnage steel production. Most important,
no one has demonstrated an ability to cast carbon
steel, the industry's basic product, into thin strip with
a high-surface quality or with adequate internal
structure and mechanical properties-although this
has been achieved for stainless steel.
The cost-reduction estimate in this study assumes-
as many experts do-that casting of thin strip, in its
initial stages at, least, will require some hot rolling to
achieve acceptable surface and other properties. Ac-
cording to most estimates, this casting and rolling
mix could cut energy consumption in the US industry
by about 5 million Btu per finished metric ton
compared with current levels, saving $20 to $25 per
ton. A study done for the Department of Energy
estimates that the value of labor and miscellaneous
materials savings would about equal the energy
savings, thus achieving a total cost reduction of $40
to $50 per ton offinished product.
Direct Smelting
The new direct-smelting technologies are essentially
an extension of direct-reduction processes available
for many years. Conventional direct reduction pro-
duces a solid porous material with a 92- to 93-
percent metallization called sponge iron or directly
reduced iron (DRI). The new processes carry direct
reduction further by smelting the DRI to achieve a
molten material similar to the hot metal from a blast
furnace. The smelting process results in a further
separation of iron from the nonferrous elements in the
DRI, thus achieving a higher metallization than
Nearly a dozen direct-smelting processes are under
development. Although these processes differ in many
respects, all are based on the gasification of ordinary
coal (thus eliminating the need for coke) to produce
the reduction agent needed to separate the iron from
its oxide-the basic chemical process that takes
place in the blast furnace. Smelting is achieved in
different ways depending on the technology used. The
most prominent of the new systems, Korf's KR pro-
cess developed in West Germany, uses the excess heat
generated by coal gasification to smelt the DRI.
Direct-smelting systems being developed in Sweden,
however; use an electric furnace to smelt the DRI. A
quite different direct-smelting system under develop-
ment by Kloeckner-Werke in West Germany uses a
modified basic oxygen steelmaking furnace to smelt
iron ore fines. The ore fines are injected through the
side of the furnace while oxygen and fuel-usually
powdered coal-are introduced through the bottom.
The iron ore fines are usually smelted along with
steel scrap.
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scale, they are highly applicable to minimill opera-
tions. Small scale also gives flexibility to large inte-
grated mills. Today's integrated mill, which depends
on a few large blast furnaces operating close to
capacity to maintain efficiency, is greatly disadvan-
taged when output must be reduced. In contrast, a
series of small, direct-smelting units would provide
greater flexibility to adjust production.
Plasma Torch Technology
Plasma torches are created by passing an electric arc
through a stream of inert gas. The arc heats and
ionizes the gas by causing some electrons to separate
from their nuclei. Such plasmas achieve very high
temperatures, efficiently converting electric energy
into heat. After passing through the electric arc, the
plasma state ceases, but the gas stream maintains its
high temperature, providing the heat source needed
by blast furnaces, electric furnaces, direct smelters,
and other steel mill operations.
Near-Net-Shape Casting
Research on near-net-shape casting is vigorously pur-
sued in Western Europe, Japan, and the United
thickness, compared with today's 6- to 12-inch slabs,
would save substantial amounts of energy and rolling,
the ultimate gains from casting strip would be much
greater. Much of the current Japanese research con-
centrates on adapting a technology for casting nonfer-
rous metals developed in the United States by the
Hazelett Strip-Casting Corporation. Like Japanese
R&D, European R&D also is focusing on thin slab
casting. The Swiss firm Concast has been working on
such a system since the mid-1970s, and West Ger-
many's Mannesmann-Demag also has been active for
some years. In addition, Krupp in West Germany,
Danieli in Italy, and British Steel in the United
Kingdom are working on this technology; US Steel
and Bethlehem Steel are working jointly to develop
the Hazelett caster into a thin-slab-casting system for
steel production.
minimill using thin slabs.
Despite the intensive activity abroad, there is a good
chance that the first commercial thin-slab-casting
system will be built in the United States using US
technology. In mid-1985, after an extensive survey of
the Japanese and European alternatives, a major US
minimill operator concluded that the Hazelett caster
offered the best hope for a near-term solution to the
thin-slab-casting problem and has purchased one for
testing. The tests are expected to take about a year. If
the Hazelett technology measures up to expectations,
the company plans to install the caster in a new mill,
which probably would be the world's first flat-rolling
a commercialized thin-
slab-casting system is not likely from a Japanese or
European company for another three to five years. In
.Japan, Sumitomo is cast-
ing slabs 1 to 2 inches thick in batches up to 40 tons.
Nippon Steel and Kawasaki Steel also are casting thin
slabs experimentally but on a much smaller scale.
quality is good enough for the
the Japanese are taking a
fairly conservative approach, focusing most of their
resources on a thin-slab-casting system rather than on
strip casting. Although slabs cast in 1- to 2-inch
basic sheet grades used in construction and some
containers. In Europe, the Swiss firm Concast-oldest
builder of continuous casting equipment-told US
Embassy Bern that it has developed a thin-slab-
casting process and is ready to build a pilot plant.
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Table 1
Innovative Steel Technologies
Processes to extend today's
continuous casting of semi-
finished steel to cast either a
thin slab 1 to 2 inches thick
or to directly cast steel strip
0.1 inch in thickness.
Direct iron Processes to replace blast
smelting furnaces and coking and
sinter plants. Iron reduction
is carried out in a separate
chamber from smelting, al-
lowing gasification of ordi-
nary coal both to create re-
duction agent and heat
R&D Key Countries and
Companies
Japan. Nippon Steel, Kawa-
saki Steel, Sumitomo Metal,
Mitsubishi, Hitachi, and
others.
West Germany. Mannes-
mann-Demag, Krupp
Switzerland. Concast
Italy. Danieli
United Kingdom. British
Steel Corporation
West Germany. Korf
Engineering
Sweden. SKF Steel
Engineers, Boliden, Stora
Kopparberg
Japan. Kawasaki Steel,
Sumitomo Metal
Netherlands. Hoogovens
Major Advantages Time Scale to
Commercial Application
For hot-rolled sheet: Thin slabs, three to five
? 15- to 20-percent re- years; thin strip, 10 to 15
duction in operating years.
cost
? 33-percent reduction
in capital cost
? Better emission control
As replacement for a First commercial units
blast furnace: may be under construc-
? 15-percent reduction tion within a few years.
in operating cost
? 25- to 30-percent re-
duction in capital cost
? Major advance in
emission control
needed for smelting.
Plasma i Application of plasma Austria. Voest-Alpine
technology torches to steelmaking. Belgium. Cockerill-Sambre
Plasma torches efficiently Sweden. SKF Steel
convert electric energy to Engineers
head by ionizing a gas
i stream. The hot gas is then
available for use in various
steelmaking processes.
Greater efficiency in: Some application in
? Electric furnaces electric furnaces is likely
? Blast furnaces within a few years.
? Direct-smelting
processes
? Mill waster manage-
ment
West Germany's Mannesmann-Demag is doing com-
The United States is generally taking a. bolder ap-
proach to near-net-shape casting than its international
competitors. Most research is focused on the direct
casting of a product roughly equivalent to hot-rolled
strip, the industry's primary flat-rolled product. This
is a more difficult challenge than thin slab casting
because the quality requirements are much higher.
Research is under way in several major US steel
companies and at the Battelle Memorial Institute and
the Massachusetts Institute of Technology. Allegheny
Ludlum now has a process to cast thin stainless steel
strip that yields a high-quality product with only
limited cold rolling. Many engineering problems re-
main, however, in adapting the process to carbon
steel, in moving from narrow to commercial-width
strip, and in scaling up to large-tonnage operations.
Direct Iron Smelting
Most Western R&D is taking place in West Germa-
ny, Sweden, and Japan. In Germany, Korf Engineer-
ing has developed the KR (Coal Reduction) direct-
smelting system that uses a fluidized bed to gasify
ordinary coal and then introduces the gas into a
conventional direct-reduction shaft furnace where it
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reduces the iron ore, or concentrate, to sponge iron.
The sponge iron is then fed into the smelting chamber
where excess heat from the gasification process smelts
it to hot metal. The waste gas discharged from the
KR process recovers possibly as much as 60 percent of
the initial energy input and is available for use in
other parts of the mill or possibly as an industrial
feedstock. Close variants of the KR process have been
developed by the Dutch steelmaker Hoogovens and by
Midrex in the United States. In Japan, the Sumitomo
process is modeled after the KR system.
Swedish firms have developed three separate direct-
smelting processes: Boliden's Inred, Stora Koppar-
berg's Elred, and SKF Steel Engineer's Plasmasmelt.
These processes differ from the KR system primarily
in the use of electric furnaces for the smelting stage.
Elred and Inred use waste heat and gas from the
reduction and smelting process to generate all the
needed electric power; the Plasmasmelt process re-
quires significant amounts of additional electricity.
Kawasaki's direct-smelting technology is similar to
SKF's Plasmasmelt.
Korf Engineering successfully operated a pilot KR
plant in Kehl, West Germany, from 1982 until its
shutdown in early 1985; and steelmakers worldwide
tested it. Despite these tests, several important ques-
tions remain concerning the KR system's economics
that probably can not be resolved without several
years of continuous production in a commercial or
demonstration plant. This now seems likely to occur in
South Africa where Korf sold its first commercial unit
in 1985. South Africa's chief steelmaker, ISCOR, will
begin KR operations by 1987-88 as replacement for
old blast furnace and coke oven capacity. Korf is also
negotiating with other steelmakers for additional
sales, including a possible sale to North Korea. In
Sweden, Boliden's Inred process has attracted serious
interest from at least one potential buyer. A report
from the US Consul Madras indicates that the Indian
Government is considering one or more of the Swed-
ish processes for a new integrated mill instead of the
conventional Soviet technology originally planned. In
Japan, Sumitomo Metal has announced its intention
to build a plant to demonstrate its direct-smelting
technology.
Plasma Torch Steelmaking
Although the United States accounts for much of the
basic laboratory work in plasma torch technology,
most applied R&D is being done abroad. Austria's
Voest-Alpine, for example, has an electric furnace
that uses plasma torches in place of the usual elec-
trodes. In Sweden, SKF uses plasma technology as a
major element in its Plasmasmelt direct-smelting
system, and Belgium's Cockerill-Sambre has put plas-
ma torches in the tuyeres of a blast furnace. Although
industry experts believe its large electric power re-
quirement clouds the outlook for plasma technology in
steelmaking, we believe the technology will find spe-
cialized uses in the industry, particularly in areas with
low electric power rates.
Who Will Lead in Application?
Once proved in theory, the difficult task of moving
from pilot plant to full-scale production begins. We
believe this transition could be especially difficult,
time consuming, and expensive for the capital-
intensive steel industry. For these reasons, we think
many firms will be reluctant to take the lead in
bringing these technologies on line. Those companies
seizing the initiative, however, have a unique opportu-
nity to enhance their competitive position and slash
their production costs.
Japanese steelmakers have been the most aggressive
in bringing new technologies on line, a key reason why
they are now the lowest cost producers. US steel-
makers, in contrast, have been slow to apply new
processes, a fact that helps account for the industry's
current technological lag. We believe, however, this
attitude may be changing. Trade journal reports and
our discussions with industry experts indicate aggres-
sive US interest in the new processes. In addition to
the thin-slab-casting project already discussed, we
believe there is a good chance that a US company also
will be among the first to build a commercial KR
direct iron smelter.
The availability of investment funds will be a key
determinant in the widespread application of these
new steelmaking technologies. Because of its substan-
tial financial resources, we believe the Japanese steel
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industry will beibetter able to exploit the new technol-
ogies than its major rivals. Japan's steel industry has
been profitable during most of the crisis years because
it generally has,the newest facilities and is the low-
cost producer. Continuing modernization, moreover,
should further strengthen its position.
At the other extreme, we believe the EC probably will
be in the worst position to take advantage of the new
technologies. Although modernization and rational-
ization have brought the EC industry to the verge of
profitability, it remains the weakest of the major steel
industries. Moreover, the EC may be at the point of
cutting back or even eliminating the subsidies that
have sustained much of its steel investment over the
past decade. Further, the EC steel industry is particu-
larly vulnerable to any fall in the US dollar. The EC
steel market is fiercely competitive, and lower domes-
tic currency earnings from exports because of a
weaker dollar would likely lead to a cut in domestic
steel prices as well.
Financially, the US steel industry probably will occu-
py a position between those of Japan and the EC.
Through most of the crisis years, the US industry has
performed somewhat better than that of the EC.
Moreover, cost-reduction efforts are slowly improving
the industry's competitive position, which would bene-
fit further from dollar depreciation. Some of this
benefit, however, could be lost if voluntary import
restraints negotiated with major foreign steel suppli-
ers are phased out. The current program to hold steel
imports to 18.5 percent of US consumption, for
example, is scheduled to expire in late 1989.
Beyond these considerations, it is difficult to project
the steel industry's financial ability to exploit technol-
ogies that will not come on line until the 1990s. If the
steel crisis of the past 10 years continues unabated,
investment capital will continue to be scarce. The
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Improved Steel Market
We believe that the market for steel should improve
somewhat during the second half of the 1980s with
the gradual phasing out of a number of the factors
that have helped depress demand over the past 10
years. These include:
? The decline in steel inventories.
? The decline in scrap generation by important steel-
using industries.
? The depression in world shipbuilding.
? The downsizing of passenger automobiles.
? The neglect of infrastructure investment in many
developed countries.
Improved Profitability
Near-Net-Shape Casting. Industry studies suggest,
and we concur, that near-net-shape casting appears to
offer the highest potential return on investment of any
of the new technologies. One study has estimated, for
example, that a strip-casting system combined with
some hot rolling could reduce operating costs about
$50 per metric ton on an investment of possibly as low
as $100 per ton. On the basis of a 25-year lifespan,
this indicates a better than 25-percent aftertax dis-
counted cash-flow return on investment. Yields could
be higher if tax advantages, such as investment tax
credits, accelerated depreciation, and deductions for
interest paid on borrowed funds remain available.
Many long-term negative factors will remain, howev- Direct Smelting. Although payback for the direct-
er, as economic activity continues to shift toward smelting processes appears less favorable than for
services and high-technology industries with small near-net-shape casting, the savings can nevertheless
steel requirements and as further substitution of be significant. The KR system, for example, is likely
other materials for steel takes place. Consequently, to prove the most effective of the group and is
we believe the steel market improvement will be estimated by industry analysts to save $25 to $30 per
modest with the declining trend at best reversing to metric ton of hot metal in operating costs, compared
no more than very slow growth. with today's blast furnaces. With required investment
estimated to be somewhat more than $200 per ton of
hot metal produced and an aftertax profit improve-
ment of only $15 per ton, however, returns on invest-
steel market in the developed countries still appears to ment are inadequate to justify construction except in
be weakening. We believe, however, that this trend the case of an older plant replacement. Compared
may bottom out in the next few years as some of the with a new blast furnace costing about $300 per ton of
special factors that have depressed demand gradually capacity, a KR plant-which also has significantly
are worked off. lower operating costs than a conventional blast
Economic Implications:
Industry Performance and Restructuring
Innovative steel technologies will provide new oppor-
tunities for profitable investments, trigger further
restructuring of the industry toward the minimill
sector, and give a new boost to Third World steel
development. Although the changes will be funda-
mental, they will take place slowly. Steel has a huge,
costly, and long-lived capital stock, and the time
required to shift from one technology to another
normally is measured in decades rather than in years.
furnace-is the clear choice.
We believe the KR system is particularly attractive as
a replacement for old coking plants. Coking capacity
currently costs approximately $150 per ton of hot
metal (the cost per ton of coke output is about $300,
but only half a ton of coke is needed to produce a ton
of hot metal in an efficient blast furnace). Thus, with
only a moderate increase in capital outlays, a firm can
cut operating costs significantly by replacing both the
coke plant and the blast furnace with a KR plant.
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Table 2
New Steel Technologies: Expected
Operating Cost Savings
for Hot-Rolled' Sheet
US $ Per Ton
Percent of
Total Cost
Near-net-shape casting
45
10.0
Materials !
11
2.5
Direct iron smelting
25
5.0
Energy
13
2.5
Labor
12
2.5
This would be of particular benefit to US and Europe-
an industries because of their large amounts of over-
age coking capacity. Other factors may further im-
prove the KR's,economics. The Hoogoven's process,
for example, modifies the system to fit into the shell of
an old blast furnace, improving its economic viability
by reducing construction costs by one-third, according
to one industry expert. The system's economics will be
further improved if natural gas prices continue rising;
higher prices would increase the value of the off gas
produced by the process, an important part of its
economic advantage.
i
Industry Restructuring
We believe the new steelmaking technologies will be a
major force in restructuring the steel industry toward
smaller and more highly specialized units. Perhaps
the most notable changes will occur as the minimill
sector expands and consequently causes further con-
traction in the integrated sector of the industry.
Minimills. Near-net-shape casting will spur industry
restructuring by shifting more steel production to the
minimills. Until now, the minis have been limited
almost exclusively to the production of bars and light
structural shapes. If so confined, most industry ex-
perts believe that the minis will be unable to increase
their market share much further. The minimills have
been unable to produce flat-rolled products except on
a small scale because the huge mills needed to roll
conventional slabs are not feasible for small electric
furnace operations. Thin slab, or directly cast strip,
however, will require much less rolling, and we belies
near-net-shape casting will bring the minis into the
flat-rolled business in a big way. Most analysts expec
the minis to begin with basic grades of hot-rolled stri,,?
and sheet, which primarily are used for decking,
siding, and containers, such as drums and pails. Past
history suggests, however, that the minis will move
gradually to more sophisticated sectors of the market
as the technology develops.
The price of scrap will have a critically important
impact on the speed and breadth of this trend. Based
on the average scrap price prevailing in early 1985,
minimills in the United States probably could product
hot-rolled sheet for $75 to $100 per ton less than
today's integrated mills because of the low cost of
their raw materials, the lower operating costs of a
thin-slab- or strip-casting system, and lower wages.
This advantage will erode, however, if further mini-
mill expansion drives up scrap prices. At today's
technology, we estimate that a scrap price of $130 per
ton, compared with $80 at the beginning of 1985,
would wipe out the minimill's advantage, assuming no
change in the cost of hot metal from blast furnaces.
A rise in scrap prices is likely to be offset, in part,
however, by ongoing advances in electric furnace
technology. As the cost of smelting and refining scrap
in an electric furnace continues to decline relative to
the cost of refining hot metal in a basic oxygen
furnace, the minimills will be able to tolerate higher
scrap prices without losing their competitive edge.
Moreover, other new technologies, such as the
Kloeckner KS process or the Energy Optimizing
Furnace (EOF);developed by Korf, may lead the
minimills away from electric furnaces, freeing them
from the need for high-cost electric power. (See
appendix for a discussion of new electric furnace
technologies and the KS and EOF processes.)
The Integrated Mills. As the minimills continue to
expand, the integrated sector probably will be forced
into further contraction because it is unlikely that
growth in demand will be sufficient to absorb the new
capacity. Because the oldest and least efficient inte-
grated mills will be the first to close, marginal costs of
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production will decline until a new equilibrium is
achieved between the integrated and minimill sectors.
As the integrated sector contracts, we believe it will
undergo some change of function as well. We believe
the largest integrated producers will concentrate on
cold rolling, tin plating, galvanizing, and other spe-
cialized finishing operations not well suited to the
minimill. Other integrated mills will abandon iron
and steelmaking altogether to become rerolling opera-
tions using semifinished steels supplied by other
mills-a trend already in its nascent stage. Indepen-
dent cold-rolling and finishing mills could also develop
using hot-rolled coil supplied by either the integrated
or the minimill sectors. Finally, some minimills will
become small, integrated operations in their own right
by the installion of direct iron smelting capacity.
The Third World Steel Industry. We believe the new
steel technologies will be introduced steadily in the
Third World as it pushes to build new mills to meet its
growing steel requirements. Although financial diffi-
culties have slowed expansion, most industry experts
continue to believe that the LDCs will increase capac-
ity 30 to 35 percent by the end of this decade. The
new technologies could be particularly advantageous
in that they will reduce steel mill construction costs
and thus ease the financial burden of steel industry
expansion in these capital-scarce countries. Direct-
smelting and near-net-shape casting technologies are
especially interesting to the LDCs for this reason.
Some of the new technologies will be of particular
benefit to selected LDC steel industries because of
energy-related issues. Plasma technology could bene-
fit those LDCs with an abundance of cheap hydro-
electric power. Direct smelting will appeal to heavy
importers of coal or those countries with little or no
metallurgical coal. The largest LDC steel producer,
Brazil, which has large hydroelectric resources but
little metallurgical coal, would strengthen its competi-
tive position by the application of both direct iron
smelting and plasma technology. Direct iron smelting
also would improve the already strong position of the
two most competitive LDC steel producers, South
Korea and Taiwan, which have virtually no domestic
coal resources. Finally, LDCs with abundant and
cheap natural gas may find new export opportunities
for their directly reduced iron as the innovative
technologies expand minimill production in the devel-
oped countries. Growing minimill steelmaking will
generate added demand for scrap and for directly
reduced iron as well because it is the chief substitute
for scrap.
major steel producers.
We believe the industries that aggressively adopt the
new technologies have an opportunity to enhance their
competitive position. The incentive to invest in innova-
tive new processes, however, is likely to vary signifi-
cantly from one industry to another. Consequently,
the spread of the new technologies probably will lead
to some shift in the relative competitive position of the
The US steel industry's return on investment in the
new technologies is likely to be greater than any of its
major competitors because it is currently the highest
cost producer. Near-net-shape casting, in particular,
offers US steelmakers a profitable way to replace
their aging and generally antiquated rolling-mill ca-
pacity. Direct iron smelting will also provide benefits
as a cost-effective replacement for badly deteriorating
coking capacity and old blast furnaces. Minimill
expansion should also bring a new infusion of state-of-
the-art technology into the industry. Although a
similar trend will occur in other countries, the process
may be more limited abroad than in the United
States. Scrap prices are already relatively high in
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The Soviet Steel Industry and the New Technologies
We have no evidence that current Soviet R&D pro-
grams include any of the processes discussed in this
paper. Nevertheless, we believe that the new technol-
ogies will be of considerable interest to the Soviet
steel industry and that they could offer the Gorba-
chev regime a means to improve sharply the perfor-
mance of this crucial industrial sector.
Direct iron smelting is likely to be the most attractive
of the new processes to Soviet steel planners.. Short-
ages of coking coal have constrained Soviet steel
production for some time, and we expect this problem
to grow worse in the years ahead. Since direct iron
smelting eliminates the need for coke, the Soviet
industry is likely to look carefully at the new process
as a way to mitigate and eventually eliminate its need
for metallurgical coal.
On the energy front, both direct iron smelting and
near-net-shape !casting should interest the Soviet steel
industry because of the savings these processes offer.
We estimate, for example, that together these tech-
nologies would save the US industry 7-8 million Btu
of energy per ton of finished product, and the savings
are likely to be, greater in the USSR. Near-net-shape
casting, moreover, would have the extra attraction of
upgrading the quality of Soviet finished steel prod-
ucts, an important goal for the upcoming five years.
Finally, the new technologies probably will recom-
mend themselves to Soviet planners because they cost
less per ton of capacity than conventional processes.
The Soviets have indicated that half the funds to be
invested in the steel industry over the next five years
are aimed at re i building and renovating existing mills.
Soviet steel authorities can be expected to be attract-
ed to any technology that not only cuts operating
costs but also stretches investment funds to the
maximum.
most other Western countries, and any further in-
crease in price because of minimill expansion will
eliminate the sector's cost advantage faster abroad
than in the United States.
We believe the situation of the EC steel industry will
be closer to that of the United States than to that of
Japan. EC steel capacity is somewhat newer than that
of the United States, and the EC has scrapped more
of its old plants than either the United States or
Japan. Nevertheless, the EC's real production costs
remain close to those of the US industry, and the
region will continue to be under heavy pressure to find
new and innovative ways to cut cost and restore
profitability. The major EC problem may be the
availability of investment funds; the key element
being how much additional funding EC governments
are willing to supply.
The shift in relative competitiveness, in any event, will
be moderate and slow in coming. Historically, steel
technologies have been available throughout all pro-
ducing countries, and we believe this will be true for
the new technologies as well. Moreover, because of
the industry's size, the basic changes to be expected
from the new processes will occur gradually, giving
players time to adjust to new circumstances. If a given
company or industry is too cautious in moving toward
the new processes, however, its competitive position
could deteriorate seriously, leading to a declining
financial position and loss of market share.
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Appendix
The Near-Term Steel Technologies:
Building a Bridge to the
Innovative Technologies of the 1990s
Many steelmen believe that extensive R&D, together
with 20 years of production experience, has brought
conventional continuous casting technology to a very
high state of development and that little further
progress is likely. In terms of application, however,
continuous casting has some way to go. Even in
Japan, where the process has been rapidly adopted,
continuous casting accounts for only 60 percent of
semifinishing capacity. In the EC, continuous casting
is about 55 percent of capacity, and in the United
States it is 35 percent. By 1990, however, industry
experts expect the continuous casting share to rise to
80 percent, 70 percent, and 50 percent, respectively.
Electric furnaces account for 30 percent of total steel
production in the developed countries, up from less
than 20 percent 10 years ago. Electric furnace tech-
nology also has developed rapidly and reduced the
time and power input required to melt a given amount
of scrap. This has been accomplished chiefly by the
introduction of water-cooled wall and roof panels,
which permit an increase in the power input, and by
the use of fuel and oxygen injection to improve
furnace thermal efficiency. Application of these tech-
nologies will spread as existing furnaces are retrofit-
ted. The use of waste furnace heat to preheat the
scrap charge and to further increase furnace efficien-
cy is increasing, and we believe it will continue to
grow. Other new technologies include direct current
furnaces, water-cooled and coated electrodes, bottom
pouring, and possible continuous charging.
Basic Oxygen Furnace (BOF) Technology
Experiments have been conducted for some time with
various combinations of top and/or bottom blowing to
replace conventional top blowing in BOF practice.
Adoption of the new blowing technologies has been
limited, but their use is likely to increase. Existing
furnaces can be retrofitted at a moderate cost thus
increasing furnace yields (liquid steel output to hot
metal and scrap input). A more recent bottom-
blowing variant-the KS system developed by
Kloeckner-Werke in West Germany-also injects
pulverized coal or coke into the furnace to increase
the scrap-to-hot-metal ratio in the furnace charge. It
offers cost savings as long as scrap is cheap relative to
hot metal and gives an integrated producer the flexi-
bility to shift its raw material mix as scrap prices vary
relative to iron ore. Because the process can take a
100-percent scrap charge, it may offer an alternative
to the electric furnace for minimill operations. Anoth-
er modification to BOF practice now receiving limited
trial involves the use of a change vessel. This system
could increase the productivity of a given BOF shop
by 5 to 10 percent with a moderate investment for
additional machinery and space. Under conventional
practice, a furnace is shut down about every three
months (at full output) for refractory reline, a job that
takes some 10 days. With a change vessel, a furnace
needing relining is replaced by the spare vessel and
the BOF stand continues to operate.
A potentially important modification of the old open-
hearth furnace has been developed by the Korf orga-
nization at its Brazilian subsidiary, Siderurgica Pains.
The new system, called the Energy Optimizing Fur-
nace (EOF), injects powdered low-sulfur coal and
oxygen through tuyeres directly into the metal bath.
According to Korf, this practice enables the furnace
to refine efficiently various combinations of hot metal
and scrap. Perhaps most important, Korf believes the
EOF can be an efficient scrap melter and an alterna-
tive to the electric furnace. Korf is now preparing to
demonstrate this possibility by installing an EOF in a
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new minimill located in Connecticut. If this venture is
successful, it could further improve the minimill's
competitive advantage over the integrated mill. =
Ladle Metallurgy
This process ranges from simple to very complex.
Used traditionally by specialty steel producers, ladle
metallurgy is being adopted rapidly by carbon steel
makers as a relatively inexpensive way to upgrade
product, improve productivity, and achieve a better
link between BOF and continuous casting operations.
Ladle metallurgy transforms the vessel used to move
liquid steel from the steelmaking furnace from a
simple transfer, vehicle to one that advances the
refining process. Degassing, decarbonization, desul-
furization, and alloying are all functions now per-
formed in the ladle. Techniques range from simple
stirring devices to help degas the liquid steel to
sophisticated processes that transform the ladle into a
Rolling Mill Technology
Among the various developments in rolling technol-
ogy, the most noteworthy probably is the trend toward
smaller hot-rolling mills. New coil-box and reversing-
stand technologies allow a scaling down of the hot-
strip mill from today's large, very expensive opera-
tions. This trend will be reinforced to the extent that
near-net-shape casting is brought to fruition. Smaller
hot-strip mills would yield important capital and
operating cost savings to integrated plants needing to
replace aging equipment. More important, perhaps, it
would open the way to strip and sheet production by
c
the minimill se
tor.
Recent improvements in Steckel mill technology also
may prove to be a major new development. Steckel
mills reduce slabs to hot-rolled strip by successively
passing the steel back and forth through a single
rolling stand rather than sending it in a single pass
through a continuous mill of 10 or more stands. The
Steckel mill has the great advantage of compactness
and low cost but has never been able to produce a
high-quality product and has generally been used only
to produce narrow strip. Now a major US equipment
builder believes it has upgraded this technology to
achieve much higher quality and is building a mini
rolling mill to produce hot-rolled strip and plate to
demonstrate its achievement. If this venture is suc-
cessful, it will mean that minimills may be able to
break into the flat-rolled sector of steel production
whether or not near-net-shape casting becomes a
reality.
Direct-reduction technology is well established. About
8 million tons of directly reduced iron (DRI) is
produced annually in the non-Communist world,
mostly as a supplement for scrap in electric furnaces.
Thus far, however, natural gas or fuel oil has re-
mained the only practical reduction agent for DRI,
and the rising cost of these fuels has almost driven
DRI production from the developed countries and
confined it to those less developed areas with extensive
petroleum resources. Coal-based direct reduction has
been available for a decade but has been plagued by
technical problems. Recently, however, several suppli-
ers appear to have improved the technology's reliabil-
ity. Nevertheless, coal-based DRI still is not competi-
tive with today's cheap scrap or with DRI from areas
with inexpensive gas and oil supplies. This is likely to
change in the future as electric furnace steelmaking
increases and pushes both scrap and DRI prices
higher.
Hot Charging and Direct Charging
to the Hot-Rolling Mill
This technology is now being applied limitedly, partic-
ularly in Japan. Despite its difficulties, it probably
will increase in time because of the significant energy
saving to be achieved. Conventional practice permits
steel slabs to cool completely for inspection and
surface reconditioning when necessary. Hot charging
allows only some cooling, followed by a minimum of
reheating before charging to the rolling mill. Direct
charging sends the semifinished steel directly from
the casting machine into the rolling mill with no
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reheating. Both hot charging and direct charging
require new technologies to assure the quality of
semifinished steels because conventional inspection
and reconditioning are not possible. These new tech-
nologies are still only in the early stages of develop-
ment, and their current inadequacy constitutes one of
the major barriers to the spread of direct and hot
charging. Direct charging also requires close coordi-
nation between the operating rate of the casting
machine and that of the rolling mill, a link that is
difficult to achieve.
Process and Quality Control Sensors
The major steel industries are developing high-
technology sensing devices to replace the rather crude
tools now used to monitor many important steel mill
operations and the physical state of semifinished
steels moving through the mill. Computer technology
allows the processing of the large volume of data
needed to precisely control steel mill operations. Al-
though computers have found wide application
throughout the steel industry, their effectiveness in
some critical areas has been limited by a lack of the
sensing devices needed to collect the basic data they
require.
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Alternate Iron Smelting, Steel Casting, and
Hot Rolling in Flat-Rolled Integrated Mills
Pam
Iron ore and KR direct
concentrates smelter
Hot Liquid
metal steel
Reheat Roughing Finishing Coiler
!I
NJ
WE
fl
Ell
Roughing Finishing Coiler
stands stands
Rolling mill Hot-rolled
coil
Iron ore and KR direct
concentrates smelter
Hot-rolled
Rolling mill coil
Birect casling wan 111f 1111t:
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Alternate Iron Smelting, Steel Casting, and
Hot Rolling in Flat-Rolled Integrated Mills
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