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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
1
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
2
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
3
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)
0
200
400
600
800
1000
1200
1400
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
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).
5
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)
0
50
100
150
200
250
300
350
400
450
2001 2002 2003 2004 2005 2006EU Russia/Ukraine NAFTA Brazil China India Japan/S. Korea
Source: IISI.
6
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-value-
added 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.
7
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)
China, 356
EU-27, 185
Other Europe, 28CIS, 48
NAFTA, 155
Latin America, 36
Africa, 22
Middle East, 37
Asia (excl. China), 247
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
8
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. 10
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 energy-
efficient 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.
12
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
13
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.
14
Table 2: Crude steel production by process, 2006
Production BOF EAF OHF Other Total
Million metric tonnes % % % % %
EU-25 197.9 59.5 40.5 - - 100
Russia 70.8 61.6 18.4 20.0 - 100
Ukraine 40.9 56.4 9.8 33.8 - 100
NAFTA 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.
15
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 steel-
16
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
17
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.
18
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 flat-
rolled 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.
19
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-value-
added 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 steel4.
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).
20
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 annum5)
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.
21
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 over-
capacity 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
24
25
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.
Appendix
Tariff rates in the EU and China on steel products, and bilateral trade flows
HS Code
Product name Tariff
(MFN, %) Trade flows in million euros
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
7206 Iron and non-alloy steel in ingots or other primary
steel 2.00 0.00 1.33 4.77 0.38 1.46 -0.95
7207 Semi-finished products of iron or non-alloy steel 2.00 0.00 91.76 3.03 3.54 0.41 -88.23
7208 Flat-rolled products of iron or non-alloy steel of a
width >=600mm, hot-rolled 4.21 0.00 1237.33 24.54 45.58 1.69 -1191.76
7209 Flat-rolled products of iron or non-alloy steel of a
width >=600mm, cold-rolled 4.49 0.00 150.17 16.82 21.05 2.73 -129.12
7210 Flat-rolled products of iron or non-alloy steel of a 5.94 0.00 589.59 25.45 67.30 2.71 -522.28
26
width >=600mm, hot-rolled or cold-rolled, clad,
plated or coated
7211
Flat-rolled products of iron or non-alloy steel of a
width <600mm, hot-rolled or cold-rolled, not clad,
plated or coated
6.00 0.00 16.88 4.88 41.68 9.42 24.80
7212
Flat-rolled products of iron or non-alloy steel of a
width <600mm, hot-rolled or cold-rolled, clad,
plated or coated
7.29 0.00 39.54 27.50 39.92 10.49 0.37
7213 Bars and rods, hot-rolled, irregularly wound 4.77 0.00 238.18 23.89 61.20 9.04 -176.99
7214 Other bars and rods of iron or non-alloy steel, not
further worked than forged 3.61 0.00 21.69 1.57 5.33 0.68 -16.36
7215 Other bars and rods of iron or non-alloy steel,
cold-formed or cold-finished 6.08 0.00 4.29 1.14 11.89 4.67 7.60
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 Flat-rolled products of other alloy steel with a
width of >=600 mm 4.14 0.00 25.60 5.71 218.86 11.13 193.26
7226 Flat-rolled products of other alloy steel with a
width of <600 mm 3.58 0.00 1.49 1.18 38.97 6.74 37.48
7227 Bars and rods, hot-rolled, in irregularly wound
coils 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 Chain and parts thereof, of iron or steel 11.88 2.70 137.57 42.09 31.32 5.49 -106.25
7316 Anchors, grapnels and parts thereof, of iron or
steel 10.00 2.70 10.52 65.98 0.38 0.76 -10.14
7317 Nails, tacks, drawing pins, corrugated nails,
staples 10.00 0.00 72.06 40.63 1.08 0.74 -70.98
7318 Screws, bolts, nuts, coach screws, screw hooks 8.61 3.70 730.73 26.51 152.95 8.67 -577.78
7319 Sewing needles, knitting needles, bodkins, crochet
hooks 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
7323 Table, kitchen or other household articles and
parts 13.64 3.20 869.00 72.93 9.11 1.62 -859.89
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).
29
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