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Mini steelworks in Pakistan.

Mini Steelworks in Pakistan

In this paper - "Mini-Steelworks in Pakistan, Concept and Feasibility" - I have decided to divide it up in several clear areas. Firstly, I will briefly describe the steel industry in Pakistan as we understand it and in particular the non-integrated sector with its proliferation of very small and varying production units. In this section I intend to draw upon our experience of the steel industry within Pakistan gained from, amongst others, an extensive and comprehensive study of the whole Pakistan steel sector to develop future strategies for the industry. Secondly I believe it will be useful to introduce the mini-mill concept and very briefly take you through the way that concept has developed and where it might be going in the future.

Following these reviews of the present industry in Pakistan and the mini-mill concept and its development I will then consider how the industry may be developed within Pakistan, taking into consideration the desirability of developing national resources, creating employment in areas of need, producing products to international quality standards at economic and competitive production costs.

A Review of the

Pakistan Steel Sector

The Pakistan steel sector be divided into four main categories

(a) Pakistan Steel Mills which is located near Karachi and which is the only fully integrated steek works in Pakistan and the largest single steel producer;

(b) the mini mill non-integrated works with melting, casting and rolling facilities;

(c) the melters with electric furnaces and forms of ingot casting;

(d) the re-rollers operating on ingots and billets;

(e) the re-rollers operating on strips of scrap ship plate which have been recovered from an extensive ship breaking industry.

Pakistan Steel Mills Corporation

PSMC was conceived mainly as a flat products supplier for Pakistan's construction and manufacturing industries with a small steel semi-outlet for rolled billets to supply the re-rollers in Pakistan. The foundation stone for the works was laid by the late Prime Minister Mr. Bhutto in 1977 and the plant commissioning sequence started in 1981 when the first coke over battery and blast furnace were brought on line. During the following two years the steel plant, the billet mill, hot strip mill, cold mill and galvanising lines were brought into operation.

The overall rated annual capacity of the plant is about 1.1 million tonnes of liquid steel but this level of output has yet to be achieved. The plant should be capable of producing up to 260,000 tonnes per year of billets which would be sold to the re-rollers in Pakistan and up to about 870,000 tonnes per year of flat products including hot rolled sheet and plate, cold rolled sheet and coil and galvanised sheet and coil. Since this paper is mainly aimed at the non-integrated steel sector it is sufficient to say that PSMC main efforts must now be directed at improving their operations to achieve the rated production output of the right qualities from the plant and then expand and modernise the facility to follow the markets in the country for their products.

The Non-Integrated Steelmakers

During our study of the sector in 1986-87, 65 enterprises were identified and engaged in the melting and refining of steel. These companies were operating 98 furnaces and between them produced a total of about 550,000 tonnes of liquid steel. Only one of the 65 companies operated in the Karachi area due to the high cost of electricity in the region whilst all the others operated to the north with the majority located in the Lahore region where cheaper electricity was available.

All these companies were operating as extremely small production units with the sole exception of plant at Ittefaq Foundries which was capable of producing more than 170,000 tonnes per year. The majority of other enterprises claimed to produce less than 10,000 tonne per year. From our survey at that time the following illustrates the pattern of steel producers in the country.

As can be expected from the above outputs, the size of the electric furnaces employed was small; over 70 per cent of the production is in furnaces of less than 10 tonnes capacity with over 30 per cent in furnaces of less than 2 tonnes.

The liquid steel produced by these enterprises was cast as foolows:-

(*1) continuous cast billets - 43%

(*1) up-teemed ingots - 32%

(*1) open mould ingots - 25%

It should be noted that only three of the companies operated continuous casting facilities.

Rollers and Re-Rollers

In our survey in 1986-87, 479 companies with a total of 541 rolling mills were identified and can be divided into 3 categories:-

(*1) mini-mills that have their own steelmaking facilities and use a feed stock of continuous cast billets or ingots produced from their own melting facilities.

(*1) rolling mills which roll billets from PSMC, small ingots or open mould ingots.

(*1) re-rollers which mainly re-roll ship plate from the Gadani ship breakers.

Of the 541 rolling mills 131 were located in the Karachi area with the other 410 around Lahore and to the north of the country. The total production from these rolling mills was some 1.15 million tonnes in 1986 of which about 700,000 tonnes were rods and bars and 450,000 tonnes sections. Out of these totals nearly 400,000 tonnes of the feed-stock came from plate recovered from the ship breaking operations at Gadani and went to the production of reinforcing bars to the construction industry.

The Current State of the

Non-Integrated Steel Sector

Although this survey was carried out just a few years ago (1986) it is unlikely that the overall picture has changed very much in the meantime. From this survey it is worthhile to compare the findings with the mini-mills in the more industrialised countries.

Production Output

With the sole exception of Ittefaq Foundries none of the other 64 operating companies produced more than 30,000 tonnes per year with the majority of less than 10,000 tonnes. These are an extremely small production units and could not possibly survive by normal international competitive standards. As a bench mark the minimum production output from a mini-mill is about 100,000 tonees in a competitive environment and even at that size there must be some special factors which would apply to ensure competitiveness e.g. low scrap costs, cheal electricity and/or low labour costs.

Furnace Size

The electric arc furnaces are very small by international standards with none greater than 15 tonnes capacity and 52 (62%) of less than 2 tonnes capacity. Furnaces of this size have greater operating costs compared with larger units. It should be noted that mini-mills operate with electric arc furnaces of up to 200 tonnes capacity with 75 - 150 tonne furnaces commonly found in mini-mill operations. These larger units derive substantial benefits from the economies of scale.

Quality of Products

Few of the operators either had the equipment or the procedures to ensure a controlled product quality. About 25 per cent of the production was in open trough type ingot moulds, the products from which must be of a very dubious quality. Similarly, some 35 per cent of the rolled products came from re-rolling of cut up ship plate to re-inforcing bars without any control of the quality. Thus the future developments of the steel industry in Pakistan must be to aim at an improved and controlled quality, derive the cost benefits from economies of scale and focus upon local natural resources which are available and can be developed in Pakistan.

History and Concept

of the Mini-Mill

First of all I would like to give you a brief resume of how the mini-mill originally started and then developed. The mini-mill concept first developed in the north of Italy in the 1950's as for the following main reasons:-

there was an abundance of local and cheap scrap available from the aftermath of the war;

there was ample and cheap electrical power for electric arc furnace melting;

there was a large local market for reinforcing rod and bar as a result of reconstruction requirements in the area after the war;

the capital investment required for electric melting furnaces and unsophisticated bar mills was low;

the re-inforcing bar products required only a low level of technology.

As a result a large number of small steelworks sprang up, particularly in the Brescia region, and were known as "Mini-Mills". These "mini-mills" could compete extremely effectively against the larger integrated producers and had much greater flexibility in responding quickly to the local market conditions and requirements. Since those days in the 1950's the "mini-mill" concept has made tremendous technological advances and can no longer be regarded as relying solely on the lower quality products.

One of the most important technical advances throughout the steel industry was the development of the continuous casting machine in which liquid steel in continuously cast directly into billets, blooms or slabs rather than the previously accepted practice of casting ingots. This technique greatly reduced the operating costs as well as making a significant improvement to the yield of material. The mini-mill operator was quick to adopt this new technology which added to his competitive edge over the integrated producers. Thus, what could now be termed as the classic "mini-mill" configuration, is:-

electric arc furnace scrap melting and steelmaking;

continuous casting, usually of billets;

long product mills, normally rod and bar mills.

Generally the output from the majority of these mini-mills lies in the range of 100,000 - 1,000,000 tonnes per year although there are, of course exceptions, with capacities outside this range. During the 1980's as a result of the second major oil crisis in 1979 the world steel industries suffered one of the severest and longest lasting recessions in history when demand was substantially curtailed. As a result many steel works, both integrated and mini-mill, were closed down. However, during this harsh economic climate great efforts were made to improve the efficiency of plants and reduce their operating costs with a particular emphasis placed upon the need to reduce energy consumption. Thus mini-mills are no longer the relatively low technology production units they once were, but many are now employing all the latest high technology systems to produce products of high and consistent quality and at very competitive costs. As a result the mini-mill operators, particulary in the USA and Europe have largely taken over from over from the major integrated producers the markets for rods and bars and are already making in roads into the higher quality product areas.

Presently and through the 1990s with the advent of think slab casting, we are likely to see the mini-mill operators start to attack the flat products market which, up to now, has been the exclusive preserve of the major integrated producers, because of the large capital investment requirement and the need for high outputs to achieve economic production levels. This technique will substantially reduce the capital and operating cost requirements for hot rolled strip production. The economic annual production capacities of such complexes can be substantially reduced to as low as 500,000 tonnes. Production capacities for thin slab casting are designed in the range 0.5 - 1.0 million tonnes compared with a production of at least 1.5 million tonnes for a conventional hot strip mill. However, the technology is still in its infancy and much more development and proving trial are required before it can be fully accepted. At present the eyes of the world steel industries are focussed upon the developments at the NUCOR works in the USA where the first production plant went into operation late last year and is striving to reach its rated capacity. Future Potential for Mini-Mills in Pakistan

It is evident that the growtn predicted for the flat products steel market in Pakistan could be met by PSMC achieving and exceeding its rated capacity. But the long products markets will be best served by the mini-mills located near to the markets, the sources of scrap or scrap substitutes (such as direct reduced iron ore) and cheap electric energy. Traditionally over 60 per cent of the production from whatever raw material source has been to the north of the country. The high preponderance of facilities in the north, albeit of a small size, has mainly resulted from the lower costs of electricity. We feel therefore that developments in the industry for the manufacture long products should continue to concentrate to the North. Furthermore, the only reserves of raw material in terms of iron ore are also situated to the north.

Our plan, therefore, would be to develop an efficient mini-mill complex firstly in the Lahore area as a priority, which would compete directly with the melters and rerollers in that area. Certainly a unit of 500,000 tonnes should be an attractive and viable proposition and lead to the production of known high quality long products which are so important and necessary in an earthquake zone. The possibility of a good ore deposit, we believe, is being investigated in the Lahore region and this could be interesting if sufficient reserves of good quality are proven, as it could then provide the plant with a high quality direct reduced feedstock. Thereafter a mini steel mill complex or complexes should be seriously considered and investigated for the far northern regions of Balochistan where there is ore (of an uncertain grade), but where the demand for re-inforcing rods and bars is likely to increase substantially both in Pakistan itself and in the two adjoining countries that must now embark on massive long term reconstruction programmes following the devastation from both the recent terrible earthquakes and the wreckage of war. The concept will be dictated to a large extent by historical factors: Pakistan Steel Mills is a fact, and as such it should be developed to follow the demand for flat steel products. The works now requires modernisation, up grading and balancing to meet the development of flat products.

The long products market served presently by small producers requires urgent restructuring, as their products, mainly re-inforcing bars and light sections for the construction industry, are of uncertain quality. The government must recognise that the non-integrated industry in Pakistan cannot continue its present structure with a vast number of very small and inefficient operating units. This state cannot be allowed to continue if Pakistan has any future aspirations to serve its own growing demand for good quality construction steels and also export to the neighbouring countries. There is no doubt in my mind that the increasing long products demand is best met by the introduction of plants of the true "mini-mill" concept, with new facilities located near to the markets for their products, a good supply of raw materials (scrap or direct reduced iron) and electrical energy at equitable price per unit. The billets produced by Pakistan Steel Mills will be a useful addition to the supply of semi-finished product to the re-rollers provided that they can be produced and supplied at the right price but this billet production at PSMC should possibly be phased out in the longer term as the mini-mills develop to produce their own feedstock. They can be considered to be prime feed stock of a known composition. The remainder of the long products feed sock was and probably still is served by a strange mix of raw materials and feed stock in the following proportions:-

Incentives should be given so that ship plate is used as melting stock and mini-mills developed to produce products in the quantity and quality to meet the market demand. There are many factors in the structure of the present non-integrated sector that cry out for restructuring and redevelopment:-

Nearly all the present mills are too small to have any economis of scale or to efficiently utilize their resources.

There are no national standards which dictate quality of the products.

The existing units are old and in poor condition

Capacity utilization is low

Much of the feed stock to mills is of a doubtful quality. The resulting products are poor and at the best units of a very uncertain nature. In a country that lies within an earthquake zone, the practice invites disaster and should not be allowed to continue. At least any low or unknown quality products should be restricted for use to low structures.

The economies of scale are well known, but varying from 50,000 T/A to 500,000 T/A in terms of the cost of product including capital charges is considerable. The message is evident Pakistan must act now on the strategy set out in a 1987 report which we believe is still the only way forward. The message then was to build ministeel works of reasonable size with private investment together with Government support possibly via consortia of existing plant builders.

The designs should be simple, in order to keep capital investment to a minimum as can be seen from the Brescia experience, but set out so that sophistication can be introduced at a later stage. They should be able to attack the markets presently secured by the multitude of small producers and supply good quality products of certain origin at the right price. This strategy will allo Pakistan to satisfy their own market demand and provide the country with a platform from which to export products to their neighbouring countries when the possibility occurs, as it inevitably must.
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Author:Jenkins, Stuart T.; Willcox, Ian J.
Publication:Economic Review
Date:Oct 1, 1990
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