New Steel Making Recipes

This is a straight copy from the wall street journal. Its interesting to see that the steel industry is actually somewhat dynamic and interesting...

Steelmakers Develop
New Iron Recipes

By EVAN RAMSTAD
August 29, 2008; Page B1

POHANG, South Korea -- Faced with environmental demands and rising costs, some steel companies are reformulating the centuries-old recipe for making the iron used to fabricate steel.

Companies in Europe, Australia and North America have developed processes that skip a high-polluting step in iron's creation, and they are finding steelmakers in Asia and Africa that are willing to gamble on the innovation. But South Korea's Posco, the world's third-largest steelmaker, has moved even further from the traditional iron-making blast furnace.

Steel is usually made by refining iron in three steps. First, iron ore and coal are heated into materials -- sinter and coke, respectively -- that can bind easily. Then, they're thrown together in a hot furnace where they combine to become pig iron. Finally, the pig iron is melted further and mixed with other materials into a liquid form of steel, which is then cast in forms or rolls.

Reuters/Newscom

Posco's steel plant in Pohang, South Korea, uses a technology called Finex.

Posco, though, has built a furnace that can prepare cheaper types of coal and iron ore to be converted into pig iron without putting them through the highly polluting ovens used in traditional fabrication. It spent more than $2 billion on research to create the process, called Finex, which it co-developed with the predecessor company of Siemens-VAI, now a unit of Siemens AG of Germany.

The Siemens unit previously built the Corex iron-making furnace at plants owned by ArcelorMittal's Saldanha Steel in South Africa, Jindal Vijayanagar Steel Ltd. in India and Baosteel Group Corp. in China. The Corex process eliminated the need for separate coke and sinter processing, and Baosteel, China's largest steelmaker, is now building its second Corex furnace, which is set to start production in 2010.

Posco and Siemens-VAI had planned to build a small demonstration plant using the Corex process, but they decided to take an additional step. While the Corex process can use cheap fine coal, the Finex process uses both fine coal and fine iron ore, making it more cost effective.

Pursuing the new approach was "the second biggest risk Posco has taken," says Posco's president, Chung Joon-yang, adding that the biggest was the decision to start the company in the late 1960s, when South Korea was still an agrarian backwater.

Steelmakers have experimented with new processes at the iron-making stage for years, chiefly tinkering with the ratio of ingredients in hopes of reducing the use of coke. Most alternatives never made it to market because they consumed too much energy. "If you manage to make it without spending much more energy than the usual process, then you win everything," says Jerome Lambert, technology and environmental manager in the Beijing office of the International Iron and Steel Institute.

The iron created in the Finex furnace can be used in any type of steel, including the high-grade kind used in cars, executives say. Posco says it uses the same inspection and quality-control processes for Finex pig iron that it uses at other blast furnaces. In both cases, the iron must have the same composition, and it is evaluated at both the iron-making and steel-making stages.

Posco's Finex plant, which began operating in May 2007, performed below production targets and above energy-consumption projections for months, in part because of mechanical problems. "In the beginning we were trying lots of things," says Lee Chang-hyung, a Posco engineer. "Until September, we couldn't reach our daily [production] target. After that, we got it stabilized."

Posco's plant now produces 1.5 million tons of iron a year, or about 6% of the company's steel-making needs. Its operating cost, which doesn't include fixed expenses, is 90% of the cost at its 10 traditional iron-making furnaces, when measured on a comparable output basis. With plans to expand to India and Vietnam, the company has at least six more furnaces on the drawing boards, and executives say they are likely to use the Finex design for them.

Over the past year, cost pressures have grown for steelmakers as they have been forced to accept huge price increases for coking coal and iron ore.

The gap in per-ton prices between coking coal and the cheaper fine coal used in Posco's new furnace has surged from $15 to $50 this year. Recently, Posco also agreed to pay a key supplier 96% more for lump iron ore, the kind used in traditional blast furnaces. By contrast, the price for the iron ore used in its new furnace has risen only 79% from a lower base.

Posco began working with Siemens-VAI on the Finex concept in 1993. Back then, Posco executives were focusing on the long-term prospect of competition from countries like China, whose economies were rising in South Korea's wake. They realized that the labor and other cost advantages Posco had as it was growing in the 1970s and 1980s wouldn't last.

"We could go two ways. One was to look for totally new businesses. The second one was to go for new technology," Mr. Chung says. "We decided to look at alternative processes."

Even as the economic case for new iron-making techniques is growing, Christian Boehm, a marketing manager at Siemens-VAI, says he is spending more time talking about reduced pollution and other environmental effects with prospective customers.

"Every producer is asked about pollution by the people in their community," he says. "New laws are always coming. China is getting even tougher than Europe on emissions."

Backruptcy and The Big 3

Interesting article contending that the car industry wouldn't benefit from bankruptcy like the airlines.

Madeleine K. Albright, Strategy Consultant

I was reading a WSJ article about Coca Cola's efforts to fully utilize the 2008 Beijing Olympics as a platform to catapult into a dominant position in the Chinese market place - where they had previously been in second place. Coke starting planning their operations as early as 2005, and apparently heavily used strategy consultants to guide themselves through all the ugly periods in Chinese relations between 2005 and now. Which consultancy, you might wonder, would they have used? Mckinsey, BCG, or Bain, perhaps? No - they used Albright Partners the firm eponynmously named firm of former secretary of state Madeleine K. Albright!

Well - I at least though it was strange that Madeleine Albright is now a strategy consultant. But, perhaps it isn't. She is also a principle at Albright Capital Management LLC, an investment advisory firm focused on emerging markets. I gues many politicians have gone far further to exploit their fame once leaving office...

The Rapid Advancement of the Chinese Automative Industry

I just stumbled upon two rather interesting articles on the Chinese automotive industry. The general idea is that Chinese auto-manufacturers won't have that hard of a time advancing to the point where they can compete in developed markets as management, engineering, design, and quality consulting firms from developed markets are helping Chinese manufacturers to advance rapidly.

To boot, Chrysler is helping to create future competition in exchange for better short term cash flows by transferring knowledge and production technology to Chery. Chrysler obtains an immediate source of income via sub-contracting deals with Chery, but Chery intends to enter the same markets as Chrysler several years down the line with their own brand of products.

Both articles are from "Automotive News Europe."

Deals with West boost expertise of Chinese; Maturing automakers will not 'reinvent the wheel' to compete with global giants

BYLINE: Alysha Webb

In July, Chery Automobile said it had agreed to supply small cars to Chrysler for the US, Europe and other export markets.

The deal helps Chrysler because the small, inexpensive car from Chery will fill a large hole in its US lineup. And the deal will help Chery, too.

By working with Chrysler engineers and executives, Chery will improve in areas such as quality control, manufacturing efficiency and supplier relations.

It is no secret that Chery and other Chinese automakers plan to compete in Europe and the US.

What few realize is that Chinese automakers are getting a lot of help from Western companies. European and American auto suppliers - and yes, Western automakers themselves - are providing the expertise and high-quality parts to help Chinese automakers compete overseas.

"The Chinese fundamentally lack products and knowledge, but they need to get into the market very quickly," says Michael Laske, president of AVL China, a division of engine designer AVL List of Austria. AVL designed an engine family for Chery.

Adds Frank Zhao, chief technical officer at another would-be exporter, Zhejiang Geely Holding Group: "A lot of foreign companies think Chinese domestics need to reinvent the wheel. That's not necessary."

Heart of the car

Chinese automakers "realize they can't compete without" the best engine technology, says Laske. AVL's business in China has taken off during the past three years, as more local brands look to export, he says. China now accounts for about 15 percent of AVL's revenue, and ranks third behind Germany and the US.

AVL's global revenue in 2006 was €537 million.

AVL competitor Ricardo also has many Chinese customers, including Shanghai Automotive Industry Corp. and heavy-duty vehicle producers such as FAW Group, says Lee Sykes, executive vice president and head of Ricardo Shanghai.

China accounts for 10 percent of UK-based Ricardo's activity worldwide. Ricardo's revenue for the fiscal year ending June 30 was £171.5 million. "Over the next three years, our plan is to triple our team in China," Sykes says.

Weak on safety

Safety systems are another area in which Chinese companies are weak; regulatory demands in China are less rigorous than in the US and Europe. Chinese automakers are using companies such as Autoliv of Sweden.

Autoliv supplies airbags, seat belts, steering wheels and airbag electronic control units to Chinese automakers.

Business with local automakers such as Brilliance China Automotive Holdings, SAIC and FAW will help push Autoliv's sales growth in China up by more than 50
percent in 2007, says George Chang, president of Autoliv China. Brilliance already has launched in Europe.

"Chinese brands are becoming an important part of Autoliv China's growth," says Chang.

Chinese automakers sometimes buy from a foreign company even when the component is available from a local supplier. Some Chinese automakers even advertise that their cars contain technologies provided by a foreign company.

"International companies ensure our product quality," says Great Wall spokesman Shang Yugui.

Says Vivian Zheng, a senior partner in Shanghai with Roland Berger Strategy Consultants: "The local automakers feel they need to use global service firms to buy some assurance and project credibility to the market."

Teams of Chrysler engineers are at Chery checking out every aspect of the Chinese automaker's operation, says John Felice, Chrysler's vice president for manufacturing technology and global enterprise.

"The engineers on each side need to understand what the customer needs are in the different markets we will sell vehicles in," says Felice.

That knowledge will be helpful when Chery starts to sell its own brand cars in those same markets.

Lan Lan, Luca Ciferri contributed

An article from the same source, but a little later in the year:

Chery: Big ambition or a pipedream?;
Tiny provincial automaker wants to win in Europe, US

BYLINE: Alysha Webb

SECTION: NEWS; Pg. 4

LENGTH: 1243 words

WUHU, China --

This small city in Anhui, one of China's poorest provinces, has little English-language education. So the families of many Western-trained Chinese engineers live in Shanghai, five hours away by train.

Nightlife in Wuhu amounts to karaoke at one of the town's two major hotels. Taxis and trucks share the road with bicycles and an occasional horse-drawn cart loaded with produce from the countryside.

Yet Wuhu, population 750,000, aims to be the car-export capital of China.

Chery Automobile Co., only 8 years old, is talking with major European distributors about selling its cars in Europe.

Chery has hired Italian design houses Bertone and Pininfarina to style models for export. Austria's AVL List and the UK's Ricardo will design engines that can meet European and US emissions standards.

The ambitious automaker also has signed a deal with American entrepreneur Malcolm Bricklin to ship cars built in China to US dealerships starting in January 2007. It plans to start selling cars in Europe in the same year.

Ludicrous, you say? A tiny provincial automaker wants to conquer Europe and the US?

Yes, it's a long shot. But a three-day visit here last month revealed much happening beneath the surface. Little-known Chery has a chance to realize its dreams, even though some of its engineers privately wonder whether it can meet its extreme deadlines to start sales in the West.

Here's why Chery could make it:

* Western-trained engineers are migrating to Wuhu, driven by a patriotic mission to build the Chinese auto industry.

* Highly competent suppliers from Europe and the US are quickly building or designing for Chery what it can't build itself: top-quality assembly lines, low-pollution engines and many other essentials.

* The central government in Beijing is supporting the company with bank loans and export credits.

While Chery has many strengths, pulling off the ambitious plan depends on strengthening its weakest link - mid-level management and workers at Chery and its suppliers.

They must banish ingrained bad habits left over from decades of a planned economy that emphasized high volume instead of high quality. If the first models fail to meet Western consumers' expectations, it could set Chery's export plans back by years.

"We still have a big challenge," said a Chery manager who has a decade of experience working in the US.

History of problems

Chery has a short history of turning out cars. Founded in 1997 by the local government, Chery's early models were problem-plagued, said a manager at a local interior trim supplier.

"They just wanted to start making cars. They weren't too concerned with quality," he said.

The cars couldn't be sold nationwide because the central government wouldn't grant Chery a license. A Wuhu government order to make Chery the city's official supplier of taxis saved the company from bankruptcy.

In 2001, Shanghai Automotive Industry Corp., partner of both General Motors and Volkswagen, became a part owner of Chery. This allowed Chery to piggyback on Shanghai Automotive's license to sell cars nationally. That breathed life into the small local automaker, said a trim supplier manager.

"Around 2002, Chery started to believe it could succeed as a bigger company," he said. "They started to buy better equipment and develop their own engines."

Last year, Chery sold only 86,567 cars, nearly all in China.

The company founded an r&d institute in 2003 that boasts 800 engineers. It has developed three- and four-cylinder engines on its own.

Intellectual property questions nonetheless dog Chery. GM charges that the QQ small car, Chery's best-selling model, is a copy of its Chevrolet Spark, also built in China. The case is pending.

Chery's strengths

A trio of Chery engineers with doctorates from US universities and more than 30 years of cumulative experience in the US auto industry are cautious about meeting Bricklin's 2007 deadline.

"We will play it by ear," said one engineer over coffee in a Wuhu hotel.

Chinese engineers returning from Europe and the US are one of Chery's strengths. About two dozen work at the company, and more are coming.

Chery started advertising for them in 2003 in the newsletter of the Association of North American Chinese Engineers. Nobody took the ad seriously at that time, said one of the returnees. Now they do.

Industry people who have met Chery President Yin Tongyao and Chery's other top managers have been impressed.

"Management overall is quite professional," said Paul Gao, a principal with McKinsey & Associates in Shanghai. "They have a strong can-do mentality."

Yin turned down repeated requests for an interview.

"The level of intent is absolutely clear," said an executive at one of the European engine design firms hired by the automaker. "Chery has its sights set on export."

Money flows to Wuhu

Money isn't a problem. The company is owned by the local government and favored by the national government. In March, Chery received an export credit of 5 billion yuan (€469 million) for overseas expansion from China's Export and Import Bank. The company also received a €225 million loan for r&d from the China Development Bank.

Many world-class partsmakers are supplying parts to Chery. Tower Automotive, Siemens VDO Auto-motive and TRW Automotive, among others, have plants in Wuhu. Delphi also is a Chery supplier.

Chery has purchased state-of-the-art production equipment for cars and engines, visitors say.

"The assembly line is brand new," said a Western supplier executive who has visited the plant.

"Manufacturing experts who have seen the plant say Chery must have spent $1 billion [about €774 million] on it."

The engine plant uses equipment from Heller Machine Tools of Germany among others.

Chery suppliers also use imported equipment. A manager at a local engine parts maker proudly showed off his Fata Group machine tooling equipment from Italy. Other machinery was imported from Switzerland, he said. The company also supplies Cummins Inc. in the US.

"I'm pretty optimistic about Chery's future in terms of exports," the engine parts manager said.

But his optimism faded as he examined the fit and finish on his new Chery Son of the East sedan.

"Look at this ugly welding," he said, pointing to a rough spot on the inside of the rear trunk.

At the top of the trunk door, the wiring leading to the light is exposed. "This looks really sloppy," he said.

Attention to those kinds of details - which can make the difference between success or failure in more mature markets - is where Chery slips up, said the engine parts manager, who worked in Europe for more than a decade.

He attributes the problem to the mentality left over from the days when lifetime employment was guaranteed and quality was not a concern. Workers still think that as long as something works, little things don't matter.

"It's not easy to change the thinking," he said. "Just meeting customers' needs is not enough. Chery has to surpass their expectations."

Another general manager, whose company supplies seats to Chery, figures that 80 percent of Chery's suppliers can meet international standards.

For the other 20 percent, Chery has hired Western professionals such as the US-based Harbour Consulting to raise their quality, he said.

"One of our important missions is to develop our [Chinese] suppliers," said one engineer.

For example, many critical powertrain components still are imported from Europe, he said.

Chery needs to be able to buy the same quality parts in China to meet its low-price goals.