Iron And Steel Report

Chatham House Sectoral Study on the Iron and Steel Industry Yiping Zhu

Interdependencies on Energy and Climate Security Environment Energy and Development Programme

February 2008

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Introduction The world steel production landscape has been changing dramatically since the 1980s. One notable trend is for firms in industrialized countries to reallocate iron and steel production facilities to developing countries. Growing production capacity in developing economies, especially China, has been fostering their economic growth and expanding their exports on low-value-added steel products. Since 2002, China has overtaken the EU to become the world’s largest iron and steel exporter. However, along with this growth, energy shortages and increasing greenhouse gas (GHG) emissions are threatening sustainable growth in these countries and globally. The iron and steel sector accounts for about 19% of global final energy use, about a quarter of direct CO2 emissions from the industry sector, and roughly 3% of global GHG emissions, mainly CO2 (OECD, IEA, 2007). As China is the world’s largest iron and steel producer, there is serious concern for it to increase energy efficiency and reduce CO2 emissions in the steel industry. Iron and steel have a complex industrial structure. The efficiency of an iron and steel plant is closely linked to several elements including technology, plant size and quality of raw materials. Owing to the large proportion of small-scale blast furnaces and high proportion of basic oxygen furnaces (BOF), the energy efficiency of China’s iron and steel industry, on average, is lower than that in industrialized economies, for example the European Union. Thus, industrial restructuring in China’s steel industry is highly desirable. And by the same token, joint efforts by industrialized and developing countries to tackle global energy shortages and global warming are presenting new challenges and unprecedented business opportunities to the European steel industry. Enhancing technology cooperation, information-sharing and joint research between the EU

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and China are required. Iron and steel trade flows between the EU and China have changed dramatically in recent years. This study aims to explore the opportunities for cooperation between them in this sector. It will address concerns about first, the development and structure of the global steel industry and China’s growing production capacity; secondly, energy efficiency and CO2 emissions in the steel industry; thirdly, EU– China steel trade; and fourthly, policy suggestions for enhancing EU–China cooperation in the steel industry to tackle energy and environmental issues.

The world steel industry

World steel production Iron and steel are the main constituents of many products used in everyday life. Crude steel is used to make semi-finished and finished products destined for the consumer market or as inputs for further processing. Semi-finished products include steel shapes (blooms, billets or slabs) that are later rolled into finished products such as beams, bars or sheet. Finished products are subdivided into two basic types: flat and long products. There are more than 3,500 different grades of steel with many different properties – physical, chemical and environmental. Alloyed steels, which are sometimes also called special steels and may be considered specialty products, contain small portions of alloying elements such as chromium, cobalt, manganese, molybdenum, nickel, niobium, silicon, tungsten or vanadium. They are used in special applications, particularly those requiring high strength or corrosion resistance. The most important of these is stainless steel, which contains mainly chromium and nickel in varying proportions. Alloyed steels account for a relatively small portion of all finished steel products, and their

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production and use are concentrated in developed countries and also in China. The history of the world steel industry can be divided into three periods: two booms and one transformation. The first steel industry boom lasted from 1950 until the first oil crisis in 1973. This period witnessed a flourishing world steel market sustained largely by the reconstruction of European countries after the Second World War and their automotive industry boom. However, the 1973–4 oil crisis put a brake on the fast pace of steel production growth and further led the global steel industry into a transformation era lasting two decades. The period 1975–2000 was characterized by production stagnation, in terms of scale, and structural transformation driven by widespread technological innovation which created 75% of the categories of steel products used today.

Figure 1: World crude steel production, 1950–2006

Source: IISI.

The second steel industry boom started at the beginning of the 21st century. Since 2000, world crude steel production has risen at an unprecedented rate. According to the International Iron and Steel Institute (IISI), world steel production has 4

increased by nearly 63% from 750.1 million tonnes to more than 1.22 billion tonnes between 2000 and 2006. This dramatic growth was especially remarkable during the period 2002–06, when production rose at an annual rate of 8%. Developing countries such as China, India and Brazil were the main contributors to this second steel industry boom.

Figure 2: World crude steel production, 1975–2004 (million tonnes) 1400 1200 1000 800 600 400 200

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

0

Source: IISI.

The value of world exports of iron and steel (Standard International Trade Classification (SITC) position 67) doubled in the period 1985–2002 from US$70.3 billion to US$143.2 billion, while their share in total world merchandise exports fell from 3.64% to 2.27% and their share in world commodities exports rose by 0.5% (from 10.2% in 1985 to 10.7% in 2002 (UNCTAD, 2005).

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China’s steel industry China is one of the main contributors to the recent global steel industry boom. Over the period 1996–2006, China’s crude steel production increased by 316.9%, a rate higher than that of any other country or region: India (60.4%), Russia and Ukraine (together 55.9%), the EU (16.9%), or NAFTA (5.7%). 1 By 2002, China had overtaken the EU as the world’s largest steel producer. In 2006, world crude steel production of the 67 countries reporting to the IISI was 1.22 billion tonnes, of which China alone accounted for 34.6% with its annual production rocketing to a record 423.1 million tonnes. At the same time, compared with China’s phenomenal growth, total crude steel production in the EU stagnated, decreasing slightly to 164.7 million tonnes or 13.5% of the world total. As Figure 3 shows, China is the world leader in steel production.

Figure 3: Major economies' crude steel production, 2001–06 (millions of metric tonnes) 450 400 350 300 250 200 150 100 50 0 2001 EU

2002

Russia/Ukraine

2003 NAFTA

2004 Brazil

China

2005 India

2006 Japan/S. Korea

Source: IISI.

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At the same time, there has been a sharp rise in China’s export capacity. In 2006, in terms of quantity, it overtook Japan, Russia and the EU-25 to become the world's biggest steel-exporting country. Its steel exports reached 49.2 million tonnes − an increase of 92% over the figure of 25.7 million tonnes in 1975. Europe and America have increasingly seen a wide range of steel products from China flowing into their economies. China is not only the largest steel producer; it is also the largest steel consumer (see Figure 4). In 2006, its total steel consumption rose to 356 million tonnes, accounting for more than 30% of the world total, ahead of consumption in the rest of Asia (247 million tonnes), the EU (185 million tonnes) and NAFTA (155 million tonnes). However, at the same time, China has clearly become more self-sufficient in steel; its steel trade deficit peaked at 35.4 million tonnes (worth US$18.3 billion) in 2003 (IISI, 2007a). China slipped from second largest importer in 2005 to fourth largest in 2006. Its steel imports fell to 18.6 million tonnes, down 30% on the total of 26.8 million tonnes for 2005. With its crude steel self-sufficiency rate up from 88.8% in 2000 to 91.3% in 2005, 2 China could become an importer of high-valueadded products. China’s strong production capacity was fuelled by surging domestic demand, which accounted for more than one-third of total world steel consumption in 2006. Steel consumption increases as governments invest more in infrastructure and transport and business and private sector build new factories and houses. Remarkably, the construction and automotive sectors function as the main drivers of the surging domestic consumption. The construction sector alone accounts for more than half of Chinese demand for steel. Strong economic development has intensified the

1 Data source: IISI, 2006. 2 Sources: OECD 2007a, 2007b, IISI 2007a.

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demand for construction of industrial facilities and factories, residential housing, railways and bridges, etc. The booming automobile industry also contributed to rising domestic steel consumption. According to the Chinese Steel Industry Association’s forecast, China’s steel consumption will grow further by 9% per annum until 2011, reaching 550 million tonnes. Apparently, therefore, flourishing fixed investment and demand for domestic consumption have been the driving forces behind China’s steel industry boom in recent years.

Figure 4: Apparent steel consumption by major area, 2006 (world total = 1,113 mt) Asia (excl. China), 247 China, 356

Middle East, 37 Africa, 22 Latin America, 36

NAFTA, 155

EU-27, 185 CIS, 48

Other Europe, 28

Source: IISI.

EU steel industry EU crude steel production dropped slightly from its 2004 peak of 193.5 million tonnes to 164.7 million tonnes in 2006, accounting for 17% of the world total. Germany, France, Italy and Spain are the four largest producers. The EU, together with the United States, remains one of the key steel-importing regions, importing a record 39 million tonnes in 2006 − 12 million tonnes more than in 2005 − of which 4 million tonnes came from China. The United States also

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imported an extra 12 million tonnes in 2006 − up 42% on 2005, with significant increases in imports from China and Russia − although the tide turned in 2007 and US imports are currently on a downward trend. The structure of EU consumption and demand is different from China’s. Although construction is also one of the main drivers of increasing demand in the EU, its contribution to total EU steel consumption is only slightly higher than that of other sectors. As reported by the European Confederation of Iron and Steel Industries (Eurofer), construction, automotive, mechanical engineering, metalware and tubes accounted for 24%, 18%, 13%, 13% and 10% respectively of EU total steel consumption in 2006 (Eurofer, 2007b).

Energy efficiency There is little doubt that at least one of the advantages of steel producers in China and some developing countries has been the weak environmental control in these countries. With increasingly serious concerns over energy and environmental issues in industrialized economies, this fact alone has pushed and will continue to push world steel production away from countries with strict environmental law and regulations to those with more lax ones.

Best available technique One way of estimating the potential for improving of energy efficiency and GHG emissions is to compare the actual level of energy use and the level that could be achieved through the use of the best available technique (BAT).

European Union Directive 96/61/EC concerning integrated pollution prevention and control (IPPC) defines BAT as ‘the most effective and advanced stage in the 9

development of activities and their methods of operation which indicate the practical suitability of particular techniques’. This is further elaborated as: 3

_ ‘Techniques’ shall include both the technology used and the way in which the

installation

is

designed,

built,

maintained,

operated

and

decommissioned.

_ ‘Available techniques’ shall mean those developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages ... as long as they are reasonably accessible to the operator.

_ ‘Best’ shall mean most effective in achieving a high general level of protection of the environment as a whole.

Production process The iron and steel industry accounts for about 19% of world final energy use, about a quarter of direct CO2 emissions from the industry sector, and roughly 3% of global GHG emissions, mainly CO2. CO2 emissions from iron and steel production are caused by the combustion of fossil fuels, the use of electrical energy, and the use of coal and lime as feedstock to reduce iron oxide to iron and later as an additive to strengthen steel. However, energy intensity and emissions largely depend on which processes are used in iron and steel plants. Steel is an alloy of iron and carbon containing less than 2% carbon and 1% manganese (and small amounts of silicon, phosphorus, sulphur and oxygen). The iron- and steel-making process can be divided into five basic stages: 1) treatment of raw materials; 2) iron-making; 3) steel-making; 4) casting; and 5) rolling and finishing.

3 European Union Directive 96/61/EC.

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A large share of the differences in energy intensities and CO2 emissions among plants and countries can be explained by variations in the number of steps used, the quality of the materials and the type of energy used, and the cost of energy. Three dominant processes, with different energy intensity and CO2 emissions, exist in steel-making: (i) basic oxygen furnace (BOF); (ii) electric arc furnace (EAF); and (iii) directly reduced iron-based electric arc furnace (DRI-EAF).

Production process and energy efficiency

Coke oven In the first stage, coke is used in blast furnaces for the chemical reduction of iron ore. The energy efficiency and CO2 emissions are determined by the quality of the coke oven and coke. Coke is produced by heating coal for several hours or days to high temperatures in a pyrolysis process. Coke ovens are of two general types: recovery ovens, which collect hot gas and are usually slot ovens; and non-recovery ovens, which are usually beehive ovens. Old beehive ovens require less investment and lower operating costs, but are less energy-efficient and more polluting.

Blast furnace In the iron-making step, iron ore is chemically reduced and converted into liquid hot iron metal through a blast furnace. The size of a blast furnace largely determines energy efficiency and the quantity of emissions generated during this stage. A 11

larger blast furnace is usually more efficient because the heat losses are lower (lower surface/volume ratio) and it is usually more economical to install energyefficient equipment. It is estimated that small furnaces emit 20% more CO2 than large ones. However, for blast furnaces of a certain size, energy efficiency is independent of the production capacity.

Basic oxygen furnace Steel-making in the BOF process typically takes place in a large integrated steel plant that implements stages 1–5 outlined above. Basically, the energy and emission intensities in integrated steel plants are higher than those in EAFs. In integrated steel-making, energy consumption is about 23.2 GJ (Gigajoules)/tonne compared to about 10.5 GJ/tonne in EAF steel-making. The carbon dioxide intensity of integrated steel-making is 1.6 tCO2/tonne (0.44 tC/tonne) of crude steel, whereas for electric furnace steel-making it is 0.7 tCO2/tonne (0.19 tC/tonne) of crude steel, yielding a sector intensity of 1.25 tCO2/tonne (0.34 tC/tonne) crude steel.

The raw material that is used in the steel-making process is another factor influencing energy and emission intensities during the steel-making process. In the BOF process, pig iron and scrap are used and converted to steel in an oxygen blown converter. The proportion of pig iron in the metal input varies between 65% and 90%, with scrap or scrap substitutes (e.g. directly reduced iron) accounting for the rest. Substituting scrap for pig iron in the BOF process provides an an option to substantially reduce CO2 emissions during steel-making processes.

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Electric arc furnace (EAF) The EAF process normally only includes stages 3–5 above. The main raw material is scrap although small amounts of pig iron may be used as well. Electricity is the main energy source for the process, and electric power production accounts for a major share of the CO2 emissions in this steel-making process, the level varying by region owing to different production methods (coal, gas, hydro, nuclear, etc.). These differences are taken into account in the calculation of CO2 emissions.

Directly reduced iron-based electric arc furnace (DRI-EAF) The EAF using directly reduced iron constitutes a special category, accounting for 15–20% of total EAF steel-making. When DRI is used, the share of scrap in the metal input is normally between 20% and 50%. There are over 100 known technologies for producing DRI. The predominant commercial processes are based on the reduction of iron ore by natural gas. Owing to the large volumes of gas needed, DRI production principally takes place where a cheap supply is available. The use of natural gas in DRI production causes substantially higher CO2 emissions than does the scrap-based process, a difference intensified by the fact that DRI-based plants are generally more electricity-intensive than scrap-based mills.

Energy efficiency in China’s steel industry China’s steel industry has not made significant progress in energy efficiency in the last few years. The net energy use index of the primary energy equivalents per tonne of product in the different production processes are well above the international level of 1994. Although several plants with advanced technology have attained much higher energy efficiency, the average level is still low. The energy

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efficiency of BOF, which is used by more than 85% of China’s steel plants, is significantly lower than the international level.

Table 1: Net energy use per tonne of product in steel production processes: comparison between China and the world average (primary energy equivalents, in GJ/t)

Sintering

Coking

Blast furnace

BOF

EAF

Rolling

International

1994

1.7

3.8

12.8

–0.3

5.8

−

China

2002

2.0

4.3

13.8

0.8

6.7

3.0

China

2003

1.9

4.1

14.2

0.7

6.2

2.9

China

2004 average

1.9

4.2

13.7

0.8

6.2

2.7

China

2004 advanced

1.5

2.6

11.6

–0.1

4.3

1.6

China

2004 laggard

3.2

6.7

17.3

2.2

9.5

8.4

Sources: CISA, IEA, OECD.

In China, low energy efficiency is mainly due to the large proportion of small-scale blast furnaces, high ratio of BOF, limited or inefficient use of residual gases, and low-quality ore. In 2006, 32% of world steel plants adopted the EAF process, while 65.5% used BOF. In the European Union, 59.5% of crude steel was produced by integrated BOF plants and the remaining 40.5% was produced by the EAF method. The old open hearth furnace (OHF) technology had been phased out entirely. BOF accounted for 87% of China’s crude steel production processes, while EAF accounted for 13%, a level well below the world average of 32%. The low efficiency of BOF can largely explain the low energy efficiency of China’s steel industry.

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Table 2: Crude steel production by process, 2006 Production

BOF

EAF

Million metric tonnes

%

%

EU-25

197.9

59.5

40.5

Russia

70.8

61.6

Ukraine

40.9

NAFTA

OHF

Other

Total

%

%

-

-

100

18.4

20.0

-

100

56.4

9.8

33.8

-

100

130.3

42.7

57.3

-

-

100

Brazil

30.9

73.9

24.4

-

1.7

100

China

422.7

8.07

13.0

-

-

100

India

44.0

47.3

50.5

2.3

-

100

Japan

116.2

74.0

26.0

-

-

100

South Korea

48.5

54.3

45.7

-

-

100

Taiwan, China

20.2

53.0

47.0

-

-

100

World

1241.7

65.5

32.0

2.4

0

100

%

Source: IISI.

CO2 emissions About 75% of the CO2 emissions from the steel industry are related to the combustion of coal in primary integrated steel mills. Coal is used in the production of coke, which again is used both as an energy source in the preparation of ore (sintering) and as a reducing agent and an energy source in the blast furnace. Pulverized coal may also be injected directly into the blast furnace. A minor share of the carbon content of the coal is bound in steel products (<1%), but most of it is released into the atmosphere as CO2. Switching to larger blast furnaces requires modern technologies. The Chinese government target is to close all blast furnaces below 100 m3 by 2007 and to close all furnaces below 300 m3 by 2010. All steel-making furnaces of less than 20 tonnes capacity are to be closed in 2007.

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Table 3: China’s blast furnace emission indices

Sources: CISA, IEA, OECD.

Technologies for improving energy efficiency and reducing CO2 emissions The volume and nature of air emissions created by steel production depend on the process used. Iron and steel have a complex industrial structure, but only a limited number of processes, mostly the less efficient ones, are used worldwide. The efficiency of a plant in the iron and steel industry is closely linked to several elements, the most essential of which for developing countries is technology. Modern steel-making relies on advanced technologies. Steel companies all over the world are investing in state-of-the-art steel-making systems and practices to improve their operations and yield. One example is the so-called Finex iron-making process, used by Korea’s IISI member company, POSCO. In preliminary tests, the Finex system showed strong potential for reducing emissions of environmentally harmful materials. POSCO officially inaugurated its first commercial-scale Finex plant at its Pohang steelworks in 2007. The new plant has a capacity of 1.5 million tonnes a year (IISI, 2007b). Furthermore, coke dry quenching, ultra-low CO2 steel16

making and maximizing the value of steel industry byproducts also provide more options for the world steel industry in addressing energy and environmental issues.

Coke dry quenching technology The kind of quenching affects the coke strength. Coke dry quenching (CDQ) and a new advanced wet quenching process (coke stabilization quenching (CSQ)) may lower energy demand in the blast furnace. The CDQ process was originally developed on an industrial scale in the former Soviet Union in the early 1960s (it was known as the Giprokoks process), the main driver being that wet quenching is not suitable for cold winter conditions. CDQ improves the quality of the coke, reducing coke consumption in the blast furnace by about 2% and saving 0.6 GJ/t of coke. The new wet coke technology, which brings the coke into contact with water from both top and bottom, has to date only been used in Germany (by ThyssenKrupp

and

Hüttenwerke

Krupp

Mannesmann

GmbH).

However,

introducing coke dry quenching and advanced wet quenching processes to China could help to lower energy consumption in blast furnaces.

Ultra-low CO2 steel-making The steel industry continues to develop new steels to reduce CO2 emissions over the life-cycle of the end product. For example, new electrical steels have been developed which improve the energy efficiency of electric motors. Similarly, new ultra high-strength low-CO2 automotive steels have achieved major reductions in passenger car weight without compromising safety (IISI, 2007b).

Maximizing the value of steel industry byproducts The use of steel industry byproducts, such as slag, can save energy and

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emissions. Slag that would formerly have been dumped is now used in the cement industry, dramatically reducing CO2 emissions in cement production.

EU−China steel trade

Trade flows between the EU and China Steel trade flows between the EU and China have changed dramatically. China is now the EU’s main source of imports. Its crude steel exports to the EU have been strong since the first quarter of 2006. The share of Chinese-made steel in total EU imports rocketed from 3.3% in the fourth quarter of 2005 to 31.4% in the first two months of 2007, according to Eurofer (2007a).

Trade flows between the EU and China comprise both primary iron and steel products, and steel articles. As regards the primary iron and steel products trade, China exports mostly low-value-added products (e.g. products from HS (harmonized system) codes 7201 to 7217) to the EU market, and imports relatively high-value-added products (e.g. products from HS codes 7218 to 7229) from the EU. Ferro-alloys and flat-rolled products of iron and non-alloy steel account for the largest shares in total Chinese exports to the EU. However, several stainless steel products such as flat-rolled stainless steel and flat-rolled alloy steel are the main categories that the EU exports to China (see appendix). China has a strong export capacity for steel articles. For most of these, it has started to accumulate large surpluses in its trade with the EU. These products cover a wide range including tubes, pipes, cloth, screws, nails, springs, radiators, household articles, sanitary ware, etc. However, EU exports of seamless tubes and pipes to China are quite strong.

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Trade disputes The European Commission announced its decision on 4 January 2008 to launch an anti-dumping investigation into certain hot-dipped metallic-coated iron or steel flatrolled products imported from China. Although European steel users complain they have to rely on imported steel because European local production is not adequate, Eurofer argues that Chinese steel products have been flooding into the European market and brought down EU domestic product prices by up to 25%, making European steel manufacturers’ life harder. International pressure stems not only from a reaction against Chinese export levels but also from concerns about pending global overcapacity driven by Chinese expansion, and about the environmental impact of the multitude of smaller, inefficient Chinese producers. There have been mounting complaints that the growth in the Chinese steel industry has been a result of direct and indirect subsidies by both local and central government in breach of undertakings to the WTO. In February 2007 the United States brought an anti-subsidy case against China to the WTO. Internally, the volume of exports is putting pressure on raw materials as well as on power and water supplies. The Chinese government is taking further steps, however, to discourage and close small inefficient mills and to increase its control over smaller mills through changes to the iron ore import regime and environmental licences. In May 2007 China's National Development and Reform Commission released its latest list of outdated iron and steel capacity to be closed by 2010. Steel-making capacity closures are running at 42 million tonnes per year and iron-making capacity closures at around 40 million tonnes per year.

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Import tariff The EU’s import tariff on most primary iron and steel products is zero, except for pig iron and ferro-alloys. The Chinese tariff on primary iron and steel products ranges from 0.04% on ferrous waste and scrap to 10% on several high-valueadded stainless steel products such as flat, bars and wires. The EU imposes import tariffs of about 0.7% to 3.7% on various categories of steel products including tubes, screws, bolts, household articles, sanitary ware, etc. Chinese import tariffs on high-value-added steel articles, ranging from 4% to 20.6%, are higher than those of the EU.

Tax rebates and export tariffs by Chinese government Along with its effort to close small inefficient mills, the Chinese government has cut value added tax (VAT) rebates and export tariffs on crude steel and steel final products in order to prevent fluctuations in production and export capacity. In 1994, the Chinese government set VAT export rebates at 17% on crude steel and steel final products. In 1995–96 rebates were cut substantially to 9%, but the level was restored to 15% during 1998–99. A second wave of reductions in VAT export rebates started in 2004 when China changed from being a net importer to a net exporter of steel 4. ‚

On 1 January 2004, the Chinese government cut export rebates from 15% to 13%.

‚

On 1 April 2005, it ended the VAT export rebate on crude steel and other primary steel products.

‚

On 1 May 2005, it further cut rebates to 11% on almost all finished steel products.

4 Source: Mysteel website, Greatwall Securities (2007), and Essence Securities (2007).

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‚

On 1 November 2006, it levied a 10% export tariff on 30 items including crude steel.

‚

On 15 September 2007, it cut rebates to 8%.

‚

From 15 April 2007 VAT export rebates were cut from 8% to 5% on higher-grade long and flat products and from 8% to 0% on more basic grades.

‚

From 20 May 2007 these 0% rebate items also require an (automatic) export licence. In addition from 1 June 2007 0% rebate items attract export taxes, 5% for flat products and 10% for long products. The 10% tax on semi-finished exports also increased to 15%.

‚

From 1 July 2007 welded tubes with outside diameter no greater than 406.4mm have export rebates cut from 13% to 0%. The rebate for rails, sheet piling, seamless tubes and tube fittings was cut from 13% to 5%. OCTG (Oil Country Tubular Goods) tubes still have a 13% rebate.

Enhancing sustainable development in the steel industry The world iron and steel industry is experiencing an unprecedented transformation through mergers and acquisitions. The structural transformation in China’s iron and steel industry is ongoing, which offers the EU business community significant investment opportunities. The high fixed assets investment rate (28% per annum 5 ) indicates its substantial demand for steel and steel products. The supply-demand gap

for

high-value-added

steel

products

and

new

energy-efficient

and

environmentally friendly technologies constitutes an unprecedented opportunity for world business. There is a strong tendency for EU–China cooperation in the steel industry to exploit business opportunities for the EU, and to adopt low-carbon technologies for China to tackle energy and environmental issues, and in a broad

5 Data source: World Bank World Development Index.

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sense, to ensure sustainable development for the world economy.

China’s restructuring The restructuring of China’s steel industry will have global repercussions. China is expected to increase its steel-making capacity by 53.8 million tonnes per year by the end of 2008. It is aiming to produce high-value-added steel products, which are currently in insufficient supply. However, the Chinese central government, which regards the steel sector’s overcapacity as a pressing problem, intends to eliminate existing out-of-date upstream facilities, that is, about 100 million tonnes of iron-making capacity and 55 million tonnes of steel-making capacity per year, between 2006 and 2010 in line with the New Steel Policy issued in July 2005. The implementation of this programme will have a profound effect on future trends in steel-making capacity in the economy. One important project is the plan to reduce output at the Shougang plant and relocate it. The 21 km2 new plant of the Beijing Capital Iron and Steel Group Company, known in Chinese as Shougang, will be operational at the end of 2008 and will completely replace the old facilities in Beijing by 2010, becoming the country's largest steel production base. It has been reported that emissions of dust and sulphur dioxide per tonne of steel will be reduced to 0.44 kg and 0.42 kg respectively. The reallocation and restructuring of Shougang mark a clear departure from the earlier policies of growth regardless of energy and environmental consequences.

Technology transfer Technology transfer will play an essential role on promoting low-carbon technologies in the steel industry. During this process, best available technique

22

(BAT)

is

essentially

important

for

efficient

technology

diffusion

and

commercialization. The IISI (2007b) has challenged governments worldwide to work with the steel industry to develop new and imaginative global approaches to climate change in the post-Kyoto period. The success of these approaches, known as the Global Sector Specific Approaches for CO2 Reductions, will require cooperation, in particular technological cooperation, between steel industries in developed and developing countries. Many European steel companies are already operating with almost the lowest emissions levels possible with today's technology as a result of the major technical innovations introduced by the steel industry over the last 25 years. However, in China, there are small and medium-sized steel plants with much poorer technological standards and emissions performance. The transfer of efficient technology to expedite the replacement of steel plants that bring down the global performance of the steel industry would benefit both the Chinese steel industry and the sustainability of global economic development.

Data analysis The creation of an energy use and CO2 emissions databank to carry out energy and CO2 analysis on a scientific basis is also crucial to harness global energy shortage and environmental issues. The ability of the steel industry to evaluate the potential impact of energy-efficient and environmentally friendly technology is hampered by inconsistencies in monitoring and reporting methodologies and the lack of meaningful data on emissions (IISI, 2007b). There is a need for shared and verified reporting procedures that account for and report progress towards achieving CO2 emission reductions. Cooperation in data analysis between the EU and China is highly recommended to ensure that common concerns are included in the decision-making processes of both sides, and in procedures for dealing with 23

bilateral trade and investment relations.

Recycling of steel scrap As the raw material used in steel production processes is one of the determinants of steel plants’ energy efficiency and CO2 emissions, steel scrap is more environmentally friendly than iron ore. Replacing blast furnace with basic oxygen furnaces and further with electric arc furnaces and substituting iron ore with scrap can help cut down energy use and CO2 emissions. Steel is already the most successful material in terms of both total amounts recycled and percentage rates of recycling. Yet more can be done to ensure all end-of-life steel is recycled. Domestically, this involves working with local governments to maximize the recycling of steel in household waste, and working with customers to help design steel-using products in a way that facilitates end-of-life recycling. Internationally, the steel industry demand–supply gap may foster deeper vertical cross-border specialization, and trade in steel scrap may be beneficial in the sense of enhancing energy efficiency and reducing CO2 emissions.

Conclusion The global steel industry is experiencing a historic transformation. China is the world’s largest steel-maker, and its growing production capacity, domestic demand and export capacity are the three important factors impacting on the EU steel market and the global steel industry. The recent boom in the global steel industry, which accounts for about 19% of the world’s final energy use, a quarter of direct CO2 emissions from the industry sector, and roughly 3% of global greenhouse gas emissions, presents threats and new challenges to sustainable development

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worldwide. In the context of this trend, the energy efficiency of China’s steel industry and its emission reductions are crucial. However, in order to tackle both threats, cooperation is urgently required in the iron and steel industry between the EU, which has the most state-of-the-art technology but is experiencing production shortages, and China, which is the largest steel-maker but has more than 85% of steel plants performing at a significantly lower level of energy efficiency than the international level. Such cooperation involves bilateral efforts to facilitate trade negotiations, encourage technology transfer and promote direct investment into high-value-added products. Joint efforts on data construction and analysis are necessary to achieve market and policy transparency.

25

Appendix

Tariff rates in the EU and China on steel products, and bilateral trade flows HS Code

Product name

Tariff

Trade flows in million euros

(MFN, %) China

EU

China-EU

%

EU-China

%

Balance

7201

Pig iron and spiegeleisen in pigs, blocks or other

1.00

1.27

4.01

0.41

1.07

9.21

-2.94

7202

Ferro-alloys

2.17

2.71

312.65

5.74

3.06

0.86

-309.59

7203

Ferrous products obtained by direct reduction

2.00

0.00

0.04

0.01

0.02

0.45

-0.02

7204

Ferrous waste and scrap; re-melting scrap ingots

0.04

0.00

42.81

1.42

390.63

13.74

347.82

7205

Granules and powders, of pig iron, spiegeleisen

2.00

0.00

12.69

9.55

4.72

7.08

-7.97

2.00

0.00

1.33

4.77

0.38

1.46

-0.95

2.00

0.00

91.76

3.03

3.54

0.41

-88.23

4.21

0.00

1237.33

24.54

45.58

1.69

-1191.76

4.49

0.00

150.17

16.82

21.05

2.73

-129.12

5.94

0.00

589.59

25.45

67.30

2.71

-522.28

7206 7207 7208

7209 7210

Iron and non-alloy steel in ingots or other primary steel Semi-finished products of iron or non-alloy steel Flat-rolled products of iron or non-alloy steel of a width >=600mm, hot-rolled Flat-rolled products of iron or non-alloy steel of a width >=600mm, cold-rolled Flat-rolled products of iron or non-alloy steel of a

26

width >=600mm, hot-rolled or cold-rolled, clad, plated or coated Flat-rolled products of iron or non-alloy steel of a 7211

width <600mm, hot-rolled or cold-rolled, not clad,

6.00

0.00

16.88

4.88

41.68

9.42

24.80

7.29

0.00

39.54

27.50

39.92

10.49

0.37

4.77

0.00

238.18

23.89

61.20

9.04

-176.99

3.61

0.00

21.69

1.57

5.33

0.68

-16.36

6.08

0.00

4.29

1.14

11.89

4.67

7.60

plated or coated Flat-rolled products of iron or non-alloy steel of a 7212

width <600mm, hot-rolled or cold-rolled, clad, plated or coated

7213 7214

7215

Bars and rods, hot-rolled, irregularly wound Other bars and rods of iron or non-alloy steel, not further worked than forged Other bars and rods of iron or non-alloy steel, cold-formed or cold-finished

7216

Angles, shapes and sections of iron or non-alloy

4.99

0.00

12.10

2.44

18.09

1.20

5.99

7217

Wire of iron or non-alloy steel

8.00

0.00

99.24

20.85

8.62

1.84

-90.62

7218

Stainless steel in ingots or other primary forms

2.00

0.00

2.28

3.23

25.46

6.33

23.18

7219

Flat-rolled products of stainless steel

5.87

0.00

432.59

24.06

797.03

20.36

364.44

7220

Flat-rolled products of stainless steel

10.00

0.00

4.53

2.22

30.81

6.25

26.28

7221

Bars and rods, hot-rolled, irregularly wound coiled

10.00

0.00

0.14

0.17

6.07

2.39

5.93

7222

Other bars and rods of stainless steel; angles

10.00

0.00

3.79

1.16

13.34

1.67

9.55

7223

Wire of stainless steel

10.00

0.00

26.96

13.58

3.30

2.38

-23.66

7224

Other alloy steel in ingots or other primary forms

2.00

0.00

3.05

1.98

1.31

0.88

-1.74

27

7225

7226

7227

Flat-rolled products of other alloy steel with a width of >=600 mm Flat-rolled products of other alloy steel with a width of <600 mm Bars and rods, hot-rolled, in irregularly wound coils

4.14

0.00

25.60

5.71

218.86

11.13

193.26

3.58

0.00

1.49

1.18

38.97

6.74

37.48

3.12

0.00

0.17

0.29

3.02

1.96

2.85

7228

Other bars and rods of other alloy steel

3.55

0.00

27.47

4.42

49.50

4.39

22.03

7229

Wire or alloy steel other than stainless

6.84

0.00

7.93

15.03

10.96

8.48

3.03

7301

Sheet piling of iron or steel, whether or not drilled

7.00

0.00

2.01

5.86

22.98

8.69

20.97

7302

Railway or tramway track construction material

6.12

0.70

2.12

2.97

23.99

4.62

21.87

7303

Tubes, pipes and hollow profiles, of cast iron

4.00

3.20

26.65

34.54

0.26

0.23

-26.39

7304

Tubes, pipes and hollow profiles, seamless, of iron

4.53

0.00

157.60

14.51

875.68

16.10

718.08

7305

Other tubes and pipes (for example, welded)

6.46

0.00

1.12

0.86

20.62

1.12

19.50

7306

Other tubes, pipes and hollow profiles

4.52

0.00

125.90

9.53

61.91

4.24

-63.98

7307

Tube or pipe fittings (for example, couplings)

6.05

3.41

304.78

33.26

109.68

5.73

-195.11

7308

Structures (excluding prefabricated buildings)

4.80

0.00

334.66

27.18

79.08

1.95

-255.58

7309

Reservoirs, tanks, vats and similar containers

10.50

2.20

5.46

8.75

28.64

5.17

23.18

7310

Tanks, casks, drums, cans, boxes

14.57

2.70

69.12

33.77

8.78

1.77

-60.34

7311

Containers for compressed or liquefied gas, of iron

12.75

2.70

9.86

4.39

9.55

2.68

-0.30

7312

Stranded wire, ropes, cables, plaited bands, sling

4.00

0.00

59.86

13.01

46.03

9.01

-13.83

7313

Barbed wire of iron or steel

7.00

0.00

3.40

38.62

0.03

0.26

-3.37

7314

Cloth (including endless bands), grill, netting

9.61

0.00

82.11

43.24

6.51

1.97

-75.61

28

7315 7316

7317 7318 7319

Chain and parts thereof, of iron or steel Anchors, grapnels and parts thereof, of iron or steel Nails, tacks, drawing pins, corrugated nails, staples Screws, bolts, nuts, coach screws, screw hooks Sewing needles, knitting needles, bodkins, crochet hooks

11.88

2.70

137.57

42.09

31.32

5.49

-106.25

10.00

2.70

10.52

65.98

0.38

0.76

-10.14

10.00

0.00

72.06

40.63

1.08

0.74

-70.98

8.61

3.70

730.73

26.51

152.95

8.67

-577.78

10.00

2.70

7.33

46.57

0.33

3.22

-7.00

7320

Springs and leaves for springs, of iron or steel

8.43

2.70

14.90

5.60

33.67

8.23

18.77

7321

Stoves, ranges, grates, cookers

13.11

2.70

277.83

42.90

6.90

0.83

-270.93

7322

Radiators for central heating

20.60

3.04

27.19

7.96

5.55

1.53

-21.63

13.64

3.20

869.00

72.93

9.11

1.62

-859.89

7323

Table, kitchen or other household articles and parts

7324

Sanitary ware and parts thereof, of iron or steel

19.72

1.55

112.90

52.97

5.11

1.56

-107.78

7325

Other cast articles of iron or steel

13.85

2.11

326.84

44.42

16.59

3.80

-310.25

7326

Other articles of iron or steel

9.93

2.62

909.82

35.86

191.27

5.49

-718.55

Total

-4420.91

Sources: Tariff data from WITS (World Integrated Trade Solution) (2005 for China, 2006 for the EU). Trade data from Eurostat (2006).

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References American Iron & Steel Institute, Steel Manufacturers Association, Specialty Steel Industry of North America, Canadian Steel Producers Association, and La Cámara Nacional de la Industria del Hierro y del Acero (2007), Environmental Aspects of Global Trade in Steel: the North American Steel Industry Perspective, submitted to the Steel Committee of the OECD. CISA (Chinese Iron and Steel Association) (2007), Steel Production Statistics online resource, Beijing. Essence Securities (2007), 盈利稳定与外部成本内部化：钢铁行业2007 年中期投资策略, Guangdong。. Eurofer (2007a), EU Crude Steel Production Statistics, Brussels. Eurofer (2007b), Report on the Economic and Steel Market Situation, Brussels. Eurostat (2007), Annual Statistics on the Balance Sheet for Electrical Energy in the Steel Industry. Greatwall Securities (2007), 短期调整不足，行业景气度有所回升, Shenzhen。. IISI (International Iron and Steel Institute) (2007a), Crude Steel Production, Brussels. IISI (2007b), Steel Industry Commits to Reduce CO2, Steel News – Media Release, Brussels . IISI (various years), Steel Statistics 2001–2007, Brussels. OECD and IEA (International Energy Agency) (2001), An Initial View on Methodologies for Emission Baselines: Iron and Steel Case Study, Paris. OECD (2003), Environmental Policy in the Steel Industry: Using Economic Instruments, Environmental Directorate and Directorate for Financial, Fiscal and Enterprise Affairs, Paris.

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OECD (2004), Iron and Steel Industry 2004, Paris. OECD (2007a), Growth in World Steel Market, Paris.

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UNCTAD (2005), Promoting Participation of Developing Countries in Dynamic and New Sectors of World Trade: (iii) Steel and Related Specialty Products, Trade and Development Board, Geneva. Worrell, E., N. Martin and L. Price (1999), Energy Efficiency and Carbon Dioxide Emissions Reduction Opportunities in the U.S. Iron and Steel Sector, Ernst Orlando Lawrence Berkeley National Laboratory.

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