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Jul 13, 2012

Steel supplier implements cost-effectiveness initiatives, mitigates losses

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Cogeneration|Eskom|Evraz Highveld Steel|Hatch|Witbank|China|South Africa|Cogeneration|Disciplinary Professional Services|Electricity Intensity|Energy|Energy Consumption|Off-gas Energy|Reduction Technology|Steel|Steel Facility|Steel Giant Faces Additional Challenges|Steel Producer|Steel-making Costs|Steel-making Process|Vanadium Supplier|Cogeneration|Franz Holy|Mike Garcia|Existing Technology|Reduction Technology
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Steel and vanadium supplier Evraz Highveld Steel has identified 2015 as the target year for commission- ing its cogeneration plant, which will produce an estimated 75 MW to 150 MW of power, depending on the final process design and capacity converted, says COO Franz Holy.

South Africa’s second-largest steel producer will go ahead with its plans to install the plant at its eMalahleni (previously Witbank) steel facility, in Mpumalanga, after an initial environmental-impact assessment, which is currently under way.

CEO Mike Garcia says the assessment results are likely to be announced in the first half of 2013. The company hopes to reach financial closure of the project at that time. This will be followed by con- struction, which should take about two years to complete, and lead up to the final commissioning phase in 2015.

If all goes as planned, the cogenera- tion plant will ultimately convert off-gas energy, produced at the company’s iron plant, into electrical power through steam generation.

Conflicting Initiatives
Evraz Highveld is not the first company to pursue cogeneration using off-gases from processing plants but, as Garcia points out, the steel giant faces additional challenges that are offsetting the plant’s progression.

While continuing with its plans for cogeneration, the steel producer is also implementing new reduction technology at its iron plant. Reduction technology is used to reduce iron-ore to metal content before it is placed in furnaces to make iron. “This consumes a lot of energy and it’s this point in the process where a lot of off-gases are produced,” says Garcia.

He adds that changing the reduction process will affect the amount of off- gases produced, which will impact on the progression of the cogeneration plant. Unless the company knows exactly what it is going to do in terms of the new reduction technology, it cannot properly design the cogeneration process.

“Ensuring that we understand the interdependencies and the timing of that decision has probably been the biggest challenge for us. This is why we haven’t accelerated implementation of the cogeneration plant as fast as we would have liked to, because we’ve had to wait for the determination of the new reduction technology,” he explains.

The new reduction technology involves a more efficient reduction of iron-ore, which will reduce the company’s energy consumption and improve its overall process efficiency.

Garcia stresses the necessity of reviewing this technology and notes that the existing technology has not changed in any substantial way since it was com- missioned more than 40 years ago.

“We now have the opportunity to work with our technology partner, multi- disciplinary professional services firm Hatch, to review the technologies that are available and have continued to undergo refinement over the last 40 years, and update [our own] technology,” he says.

Garcia believes that, the cogeneration plant and, the new reduction technology will significantly reduce the electricity intensity of the company’s steel-making process.

He adds that, as a result, the company’s steel-making costs will be significantly lower, owing to the fact that energy is one of the primary drivers in the steel- making process.

Continued Improvement
Garcia emphasises the company’s continued efforts to improve efficiency and reduce its overall costs, adding that, together with a handful of strategic projects like new reduction technology and cogeneration, Evraz Highveld also has multiple continuous improvement projects under way.

For instance, the company continues to pursue efficiency gains in the mills from multiple projects that are designed to increase the availability of production assets and increase metallic yield through the process, he says.

“But those are not large one-off projects,” he explains. “Those objectives are being pursued through multiple small projects and continuous improvement, as well as working with our workforce to operate more efficiently and in a more standardised way.”

Garcia adds that all the projects serve the purpose of moving the company down the cost curve, increasing its competitiveness and making it more sustainable in the South African steel market.

Meanwhile, Evraz Highveld also signed a power buy-back deal with State-owned power utility Eskom, in terms of which it agreed to curtail its electri- city demand when necessary, and to make a portion of that demand available to the utility.

In exchange, Eskom offered a monetary amount that would contribute to offsetting some of the total cost of the steel producer’s electricity use.

“The agreement is permanent, but it can be terminated with one month’s notice,” explains Holy. He adds that, in the winter months, Eskom will not demand as much of an electricity use reduction from Evraz, as all the utility’s power plants will be running.

“We will see from September or October, once [Eskom’s] plants start undergoing maintenance again, if we will continue with the agreement.”

Officially, the agreement enables Eskom to request Evraz Highveld to reduce its consumption by 25% for up to two hours a day if the electricity system is taking strain, Engineering News reported in March.

“[Eskom] has asked us a couple of times to take demand offline, which we did,” says Garcia. He emphasises, however, that the agreement is not a prenegotiated deal during which Evraz Highveld agreed that their demand would be capped at a certain level.

“Basically, we [are] unconstrained until Eskom runs into challenges with overall demand and we are one of the customers that has agreed to take some of our demand off line, where necessary,” he clarifies.

The company did this by reducing the power input at its iron plant’s furnaces. “So, while we did not have to shut down production completely, we did slow it down,” he says.

By curtailing production, the steel- maker produced less iron, which means it was producing fewer tons of steel. While Garcia admits that he would have preferred to make and sell steel, he still feels positive about the agreement, and tells Engineering News that its buy-back deal with Eskom did not significantly affect the company.

“We did not have to shut departments down or send people home. We simply reduced the power input at our furnaces, which slightly reduced throughput,” he says.

Mitigating Challenges
It is no secret that, in recent years, pressure has mounted on the steel sector in South Africa with regard to costs, says Garcia, who cites rising energy, labour and raw material costs as significant contributors.

He notes that, while every steel industry in the world has its own unique cost challenges, he does not think these challenges compare with the escalating costs in South Africa.

Further, because services and other costs have increased to match the rate of inflation, Garcia says that passing addi- tional costs on to customers in the current market environment is very difficult. “Customers have options, one of which is to buy imported steel. Ultimately, the price is set by this open market in South Africa.

“For a South African steel producer to compete successfully, we have to be very good, very aggressive and very passionate about mitigating these multi- ple cost increases, because steel from China is being imported at a very com- petitive price that we have to match,” he states.

In June, Engineering News reported that Evraz Highveld recorded a loss of R94-million for the first three months of 2012, owing to lower sales volumes, compared with a profit of R21-million for the first quarter of 2011.

It was also reported that the producer was moving forward with a comprehensive cost reduction plan, which included labour restructuring.

Garcia confirms that the company is still focused on its current cost position, and is doing what it can to shed costs internally. “This includes restructuring, evaluating our operations and practices, and restructuring our operations and maintenance structures, as well as our front-office structures.”

He looks forward to the long-term pay out of the strategic projects currently being put in place, including the new reduction technology and the cogenera- tion plant, envisioning a real benefit to the company’s cost position.

Edited by: Chanel de Bruyn
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