Trying to win steel competition
Scientists have worked out a technology that allows Ukrainian steelmakers to lower gas consumption by nine times
Ukraine is gradually losing ground in world steel ratings. “Since February 2009 until June 2012 Ukraine’s share in world [steel] output had dropped from 2.68 to 2.24 percent; in February 2012 it was close to the psychological barrier of two percent,” read findings by Standard-Rating (Ukraine). The analysis points to the Ukrainian and Russian steelmakers being crowded out by Chinese manufacturers whose share in the world market is on an upward curve.
The loss of markets affects the financial status of steelmaking businesses. According to Metalurhprom, these businesses added 5.8 percent (7 billion hryvnias) to their negative financial results as pretax losses in the first half of 2012, with the proceeds dropping by 11.9 percent (81.5 billion hryvnias) and profitability on a downward curve (-8.4 compared to –1.6 percent in 2011). These indices are alarming, considering that the steel industry is one of the central budget’s main assets; that any problems there automatically affect the revenues.
Previously Ukraine’s steel output placed it 7th in the world; now it is 10th, Vasyl Kharakhulak, Metalurhprom’s director general, told The Day: “In terms of industrial economics, Ukrainian steel is not competitive, because in some cases the production costs exceed the market price.” He believes the main reason is technological backwardness along with considerable power and steel intensity. Production costs are increasing. Since the start of the year the price of gas has increased by 52 percent compared to the first quarter of 2011, and that of electricity by 21.2 percent. The costs of the Ukrzaliznytsia reform increased transportation costs by 340 million hryvnias in four months in 2012. High natural gas prices remain the main challenge for the steelmakers. Now and then they ask for a solution to this problem “upstairs.” For example, Zaporizhstal’s CEO addressed a letter to Prime Minister Mykola Azarov not so long ago.
Experts say one shouldn’t expect the government to help solve this problem. Gas talks with Russia are complicated and their outcome is anyone’s guess, whereas Ukraine must win the competition on the world market now. Therefore, one ought to learn from one’s main rival’s experience of overcoming gas dependence by applying energy-saving technologies, particularly pulverized coal injection (PCI). This is the number-one steelmaking technology today. Its main advantage is an almost twofold economy on energy costs. “Whereas 1,000 cubic meters of natural gas cost 500 dollars, [the same amount of] coal costs three to four times less,” says Kharakhulak, adding that Ukraine has an advantage in using this technology. A team of domestic scientists has worked out a new kind of metal fuel. This development rates at least the State Prize of Ukraine in Science and Technology. It has no analogs anywhere in the world: “They made an energy cocktail of Ukrainian iron ore, coal and coke. It allowed two pilot steelmaking businesses to save 150 million hryvnias in terms of energy costs in one year.” The authors wrote about how much energy could be saved in the steel industry by using this technology, and how, in a paper entitled “Resource-saving Technologies in Steelmaking, Based on Ukrainian Coal.”
Says Anatolii Starovoit, director general of the Ukrkoks coking industry association: “Melting one ton of cast iron takes 530 kg of coke – it makes up 36 percent of the product’s cost price – whereas the stated technology requires only 308 kg. As a result, the cost price lowers by 15-17 percent.”
Experts note that Ukraine’s major rivals, China and the US, are actively using the PCI technology. Ukraine is only beginning to introduce it. Starovoit says Zaporizhstal was among the first to apply it in 2010 and had saved some 600 million hryvnias in 2011, with an annual economy rate of 120-130 million. He predicts big energy economy figures on a nationwide scale: “Previously, steelmaking businesses consumed at least 9 billion cubic meters of natural gas a year. In 2011, after some of them had introduced the new technology, gas purchases dropped to 5.2 billion cubic meters – in other words, minus 4 billion. By the end of this year we plan to lower this consumption to 4.5 billion cubic meters, and to one billion in the long run, owing to PCI and provided 70 percent of the businesses in the industry adopt this technology.” His estimates read that a transfer to PCI will take 3-4 years and will cost 10-11 billion dollars a year. These businesses have started increasing capital investments in production, including by 45.5 percent in the first quarter of 2012. All told, 3.5-4 billion dollars is expected to be invested in the industry this year.
However, technical retooling will not suffice to retain Ukraine’s position on the global market, experts told The Day. If the domestic steelmakers want to protect and increase their market share, they must upgrade the material resources involved in production, so they meet international standards. Starovoit says the steelmakers lack high-quality coking coal, so they have to export 8.5-10 million tons every year, and that material and energy resources make up over 40 percent of the steel’s cost price. In other words, melting one ton of cast iron in Ukraine requires 1,840 kg of ore and coking coal, compared to 1,740 kg in Russia, and an average 1,600-1,650 kg in Europe.
