Steel Manufacturing Could Use More Sensing and AnalysisAugust 1, 2012 By: Kiran Unni, Frost & Sullivan Sensors
New manufacturing plants and retrofits in the steel-making industry present growth opportunities for sensor vendors.
Accounting for about 1.5% of the total $65 billion global sensors market, the steel industry initially may not seem like a high-growth opportunity or one that will see expanded use of sensors in the future. For an industry that is set in its ways and is using technologies that are sometimes more than a hundred years old, this basic manufacturing sector is ripe for change. Increased automation, adherence to new standards and regulation, as well as better efficiencies and capacity utilization are compelling reasons for sensor vendors to sit up, take notice, and make use of these opportunities.
A combination of hardness, flexibility, and tensile strength made steel one of the pillars of the industrial revolution. Since then, in major steel-producing countries, the steel industry has represented a large percentage of GDP and is expected to remain so in the foreseeable future.
Until the 1960s, the U.S. met almost half of the world's demand for steel. Trends in the steel industry demonstrate that countries with sound and sizeable amounts of steel manufacturing are also those at the forefront of development and higher GDP growth and are among the decision makers for the world. Since then the picture has changed, with Japan and China taking on a larger portion of the production burden. More recently, India and Brazil have joined the fray. Currently, China is the largest steel producer—and the largest steel consumer—in the world. Rapid economic development and strong domestic demand have enabled China to lead the world steel market since the mid-1990s.
The world steel industry is experiencing a curious combination of trends. On the one hand, aggressive mergers and acquisitions strategies have caused rapid consolidation. Mittal Steels acquired Acelor in the mid-2000s. Today, the new company Acelor Mittal is the world's largest steel manufacturing entity and has several new projects planned in most of the world's steel-producing countries. In 2008, another major merger between Tata Steel and Corus cemented this trend. Although the list of large steel companies gets shorter, each company has been laying far-reaching plans to expand their existing plants and to build new ones wherever the highest growth in demand is expected.
The other major trend in the steel industry is its rapid change from a labor-intensive to a more capital-intensive industry, driven by serious concerns regarding energy consumption, emissions, standards, and requirements from end markets. All steel manufacturers are affected and all see that addressing these concerns will mean increased automation and adoption of methods to reduce emissions and energy consumption. This trend in particular holds great promise for sensor and instrumentation vendors. First, let us take a closer look at the steel industry's current state and then at its future.
The recent global recession hit the steel industry fairly hard, even after a decade of strong growth. Although 2008 was a tough year for the world steel market as a whole, the industry did bounce back in late 2009 and continued to grow in 2010 and 2011.
The construction and automotive markets are still the largest consumers of steel, absorbing more than half of the total steel produced. Houses, buildings, skyscrapers, and bridges rely on steel for their strength. Other steel-consuming industries include electrical equipment; appliances; agricultural implements; all types of containers; energy production, including the steel used in generation, transmission, and distribution; and industrial machinery (Figure 1).
Figure 1. 2010 steel shipments by market classification
Demand for steel in 2011 and early 2012 indicates that global challenges, such as the tsunami in Japan, the European debt crisis, and fluctuations in oil prices have not greatly affected the industry. The installation of new plants is happening at a rapid pace in developing countries, countering the slower pace of new-plant installation within developed nations. Within developed nations, the percentage growth in new plants is both smaller and growing at a slower rate but these countries also have more legacy plants. Also, the automotive industry is showing clear signs of recovery from the recession. In February 2012, motor vehicle sales reached their highest level since the recession began in 2008.
On the other hand, sluggish growth in the construction industry is also affecting the overall demand for steel. Although this effect is more prominent in the housing markets in the U.S. and Europe, it is less prominent in other emerging and developing nations. Nonresidential construction will be the key global growth area in this end market.
In spite of high demand for, and increased consumption of steel, most steel plants are operating below capacity. Figure 2 shows the trends in production and consumption and its comparison to capacity over the past few years.
Figure 2. Trends in steel manufacturing, global, 2008 to 2015
The pricing curve for steel in 2012 is peppered with frequent hikes. Several nations, as well as industries, are showing signs of recovery from the recession, while others (mainly in Europe and Africa) are not. However, there are some significant reasons for the change in today's steel prices.
Influence of raw materials. Coking coal, coke, and iron ore are key ingredients in the making of steel and mining these materials consumes tremendous amounts of energy. An increase in raw material costs correspondingly increases the price of steel. Historically, energy costs have fluctuated a great deal and energy conservation and reduction is a key driving factor for steel manufacturing companies. This has a direct impact on the demand for, and use of, different types of sensors and instrumentation to better analyze energy consumption, use resources more efficiently, and reduce manufacturing costs and final price.
Overcapacity. Many of the top steel-manufacturing companies are faced with overcapacity and wide fluctuations in exports and imports. Production capacity in China, the U.S., and several other countries exceeds demand. Domestic demand in many countries is often met by using cheaper steel from China, forcing domestic suppliers to reduce their prices.
After operating at high capacity levels for over a decade, the steel industry was unprepared for a drastic reduction in demand and the 2008 recession resulting in an oversupply in the market. Even though the industry as a whole is showing clear signs of recovery and growth, most plants are still not working at full capacity.
Materials that can substitute for steel. Advances in technologies and materials that can be used as steel substitutes affects both demand for steel and its price. For instance, some key steel end markets, such as the aerospace industry, have shown a growing demand for new composite materials that can take the place of steel. Once these alternative materials have been tested and proven their durability, it is likely that the automotive industry (the largest steel user) will begin using these substitutes.
Where Do Sensor Vendors Fit in?
A cautiously optimistic outlook for 2012 means that the steel industry will have to work out specific and far-reaching changes in its operational efficiency, customer outreach, and cost competitiveness. For the last several years, manufacturers have employed several strategies including vertical integration, better use of steel derivatives, capital optimization, and reducing manufacturing cost.
Sensors and instrumentation. An important cost-saving factor for steel manufacturers will be their ability to adopt new technologies. Advancements in sensing and instrumentation and the agility with which steel makers can adopt and implement these improvements will make a big difference in the manufacturers' efforts to save costs, improve productivity, and enhance overall product quality.
A host of sensors can be used to automate steel mills and improve overall productivity and product quality. Starting with the most obvious use of temperature and vibration sensors in hot rolling processes and other continuous casting, rolling, and final end-product manufacturing, other types of sensors and analyzers can be used in steel making:
- Hot metal detectors
- Laser scanners
- Optical/laser safety barriers
- Proximity and displacement sensors
- Roll force
- Fiber-optic sensors
- Machine vision
Reduction of energy consumption. Of all the industrial sectors, the steel industry consumes the largest percentage of energy in manufacturing. In the U.S. and Europe energy consumption accounts for 3%–5% of the total cost of production while this percentage climbs to close to 30% in other developing countries. Energy consumption for the worldwide steel industry has been reduced by >50% within the past 25 years. Unless new and advanced steel manufacturing techniques and technologies are employed, we can expect only a marginal improvement in current energy efficiency levels.
Across the board, concentrated efforts to reduce energy use have yielded good results. However, in both old legacy mills and new ones, there is a continuing need to monitor energy consumption. New mills use the sensors mentioned earlier. More recently, several older mills, built more than 20 to 30 years ago, are being revamped. Increasing the overall level of automation in these mills has resulted in a higher demand for different types of sensors. Therefore, new installations and retrofits present an opportunity for increased sensor use.
The best opportunities will be those plants that started up during 2011 and 2012. There are nearly 18 new plants to be initiated in 2011–2012, with a combined capital investment potential of $16 billion worldwide. Most companies are also investing heavily in retrofitting plants for better utilization and efficiency, and improving overall quality. Each of these new and installed plants could lead to large contracts for sensor solution providers and individual sensor vendors.
Steel's carbon footprint. While the steel industry consumes large amounts of energy, it also leads the pack in the production of emissions and effluents. In certain countries, steel making accounts for >50% of the total carbon dioxide (CO2) and other emissions. With demand for steel expected to increase, propelled by expedited urbanization in most major countries, long-standing debates on reducing emissions have taken on a new urgency with the recognition that the problem needs to be fixed rather than just talked about.
Make no mistake, steel is a key ingredient of a more sustainable, greener future for us all. The use of steel is imperative in the development of higher-efficiency vehicles, power stations, smart grids, and renewable energy generation. As a raw material, steel is also 100% recyclable.
The main argument is about reducing the greenhouse gas emissions produced during steel manufacturing. Findings from the International Energy Agency indicate that the steel industry currently accounts for 3%–5% of the total CO2 emissions worldwide. Clearly, there is an urgent need for new research and development to identify technologies to reduce emissions in steel manufacturing.
For the sensor vendor, the opportunities are varied. By helping to improve the level of performance and efficiency, they enable a better ROI for the steel manufacturer. Increased use of sensors also allows the steel manufacturers to better control and analyze their emissions, enabling them to adhere to standards and regulations and to use good manufacturing practices. While the World Steel Organization works to put together a common measurement and reporting system for CO2 emissions at steel plants, instrumentation and sensor vendors could influence that system with their technologies and product offerings.
The Long and Short of It
Recent research by Frost & Sullivan indicated a market for sensors in the metals industry in the range of $600 million to $650 million in 2011. While this accounts for approximately 1% of the total $60 billion market worldwide, it is also a rapidly growing market. Increased automation, spurred by the need for improved efficiency and product quality, has led to several retrofits of old steel mills. Although retrofits present a growth opportunity for sensor vendors, it is the newly initiated plants, especially those scheduled to go on-stream in 2015 and beyond, that truly represent the growth areas in the market. Energy efficiency and emission reduction represent two major reasons for sensor vendors to sit up and take notice of this often hidden industry.
ABOUT THE AUTHOR
Kiran Unni is Research Director with the Measurement & Instrumentation group at Frost & Sullivan, San Antonio, TX. She can be reached at through Jeannette Garcia at 210-477-8427, firstname.lastname@example.org.
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