Saturday, August 30, 2008

WSJ: Steelmakers Develop New Iron Recipes

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Necessity is the mother of innovation - however it strikes me as strange with the "end of the commodity boom" imminent why people would bother? Ah, these people actually are *in* the industry and not a hedge fund computer. As we bring online another 2 billion humans to the plant, along with hundreds of millions more into cities and into 2nd and eventually 1st class living standards we are going to need many of these type of innovations in our "World of Shortages" scenario.
  • Faced with environmental demands and rising costs, some steel companies are reformulating the centuries-old recipe for making the iron used to fabricate steel.
  • Companies in Europe, Australia and North America have developed processes that skip a high-polluting step in iron's creation, and they are finding steelmakers in Asia and Africa that are willing to gamble on the innovation.
  • But South Korea's Posco, the world's third-largest steelmaker, has moved even further from the traditional iron-making blast furnace.
  • Steel is usually made by refining iron in three steps. First, iron ore and coal are heated into materials -- sinter and coke, respectively -- that can bind easily. Then, they're thrown together in a hot furnace where they combine to become pig iron. Finally, the pig iron is melted further and mixed with other materials into a liquid form of steel, which is then cast in forms or rolls.
  • Posco, though, has built a furnace that can prepare cheaper types of coal and iron ore to be converted into pig iron without putting them through the highly polluting ovens used in traditional fabrication. Pursuing the new approach was "the second biggest risk Posco has taken," says Posco's president, Chung Joon-yang, adding that the biggest was the decision to start the company in the late 1960s, when South Korea was still an agrarian backwater.
  • Steelmakers have experimented with new processes at the iron-making stage for years, chiefly tinkering with the ratio of ingredients in hopes of reducing the use of coke. Most alternatives never made it to market because they consumed too much energy.
  • Over the past year, cost pressures have grown for steelmakers as they have been forced to accept huge price increases for coking coal and iron ore. The gap in per-ton prices between coking coal and the cheaper fine coal used in Posco's new furnace has surged from $15 to $50 this year. Recently, Posco also agreed to pay a key supplier 96% more for lump iron ore, the kind used in traditional blast furnaces. By contrast, the price for the iron ore used in its new furnace has risen only 79% from a lower base. (I guess it's all relative)
  • Even as the economic case for new iron-making techniques is growing, Christian Boehm, a marketing manager at Siemens-VAI, says he is spending more time talking about reduced pollution and other environmental effects with prospective customers. "Every producer is asked about pollution by the people in their community," he says. "New laws are always coming. China is getting even tougher than Europe on emissions." (I think people will be very surprised at the China in 2018 vs the China in 2008 in terms of environmental friendliness - hence another huge opportunity we are very early on)
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