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The global steel industry is sluggish The steel equipment business is shrinking

Date:2008-06-15 00:00:00

The global steel industry is in a slump The steel equipment business shrinks

    "That is the No. 6 continuous casting production line. In 2008, Siemens VAI's technical personnel had upgraded it. This year it will be the No. 7 continuous casting production line."

    On May 20, Russia's NLMK Steel Company is located in the steel plant in Lipetsk, the dark red giant high-temperature steel belt roars on the conveyor belt, factory No. 2 Andrey Jaroshenko, manager of the steelmaking shop, had to raise his voice to explain to this reporter.

     In 2005, Siemens acquired Austria's VAI Engineering Technologies and formed it as a steel equipment manufacturer, Siemens VAI. The Russian NLMK Steel Company is one of its customers.

    At a time when the global metal market is at a low ebb and investment in mining and metallurgy industry is declining, Siemens VAI hopes that the focus of its transactions with steel companies will be from selling equipment. One-hit sales", turning to "focusing on service upgrades throughout the product life cycle."

    On May 19, at the third global media summit in Moscow, Siemens Industry Solutions Group CEO Jens Michael Wegmann told this reporter: “ After the financial crisis, the steel equipment market has been completely different. The only few major projects, all of them are desperate to fight. We can only seize the market in the crisis by focusing on service and modernization upgrades."

    At present, Siemens Industry Solutions Group consists of three core business units: Siemens VAI, Siemens Water Treatment Technology and Industrial Technology. The number of employees worldwide exceeds 31,000. Orders for the fiscal year amounted to 8.415 billion euros.

Difficulties at Steel Mills

    Wegmann's judgment was verified by Russia's NLMK Steel Company. The global financial crisis that swept across the globe has poured cold water on the overheated global steel industry in 2008.

    "The situation is much better now, and the factory's total production capacity has recovered to over 80%." Prior to the largest No. 6 blast furnace at Lipetsk Steel Plant, the plant's technical deputy Director Evgeny Berestyukov told the reporter: Beginning in November 2008, with the exception of large blast furnaces with capacities of nearly 3 million tons per year on the 6th and 7th, the remaining smaller blast furnaces of the plant were discontinued until 20094. Only gradually returned to work.

    And, in Lipetsk, almost all the huge equipment has been covered with a layer of refractory dust, and the uniform of the workshop manager Andrey Jaroshenko is no exception. Although the steel mill that was built in 1974 has experienced the glory of the Soviet era, it has now become old.

    But just behind Andrey Jaroshenko, the spotless blue uniforms of two technicians from Siemens VAI appear so pleasing.

    Overcapacity in global steel companies, Siemens VAI's customers are generally in trouble. When it became harder and harder to obtain new equipment orders from steel companies, Siemens sent a large number of “blue shirts” to customers including Lipetsk Steel.

    According to Jens Michael Wegmann, CEO of Siemens Industry Solutions Group, the work of the two “blue people” is the key to Siemens’ success and failure in the next competition. Among Wegmann's business, Siemens VAI Metallurgical Technologies (hereinafter referred to as VAI) is one of the three most important departments.

Siemens turns

    AndreasLemp, general manager of Siemens VAI Russia, is facing such a drastically shrinking market – Russia's steel output has fallen by 5% in 2008, October 2008 Since then, more than 29% of steel mills have temporarily stopped production. In 2009, Russia’s steel production is also expected to decline by 30% year-on-year, and the price of some steel products has fallen by more than 50%.

    The slump in the Russian steel equipment market is just the tip of the iceberg in the global metal industry. According to data provided to this newspaper by Siemens VAI CFO Werner Auer, the global mining equipment market may decline by 37% in 2009. The order volume of VAI will also shrink by 30% year-on-year. He stressed: "After the financial crisis, many steel companies began to re-examine the necessity of some new projects and focused their efforts on the improvement of equipment productivity and efficiency optimization."

    Siemens VAI CEO Richard Pfeiffer said that the current situation has led to changes and challenges. In his opinion, equipment suppliers must make adjustments to the current rapid decline in demand for new equipment. Correspondingly, Siemens VAI will reduce new equipment manufacturing, increase services and modernize and improve the business.

    In the Russian market, Lemp also placed his hopes on service upgrades. He hoped that through the main push of the Technology Solutions Toolkit, Russia's steel companies could help reduce raw material and material inputs and energy consumption while improving production quality and flexibility.

    Wegmann clearly stated the goal of strategic transformation - from the role of equipment supplier to the customer's partner throughout the equipment life cycle.

Focus on Emerging Markets

    In the Siemens service upgrade strategy, emerging market economies headed by the BRIC countries are seen as the most critical target markets.

    This is also determined by the recent changes in the "order structure" of Siemens VAI. In the first half of 2009 (as of March 31st), orders from China already accounted for 19% of the total orders, only 20% after Europe, and India's orders also reached 16%.

    Siemens VAI CEO Richard Pfeiffer said that in the long run, China, India and Russia have good growth prospects. Mining and metallurgical companies in emerging markets are European and American companies initiate challenges.

    In this situation, Siemens VAI clearly stated that future competition will come from the low-end market, and it is only wise to closely follow emerging markets. In the “war” of this new mining and metallurgy enterprise to traditional European and American companies, Siemens VAI, as an equipment manufacturer, is an “arms dealer” that provides both parties with arms and ammunition.

    CFO Auer stressed: "After the financial crisis, many steel companies have focused their efforts on improving equipment productivity and optimizing efficiency." In his view, emerging markets The mining and metallurgy enterprises must further improve their energy consumption and environmental protection indicators before they become competitive.

    "Improve energy efficiency" and other equipment upgrade services, is the most important main push business of Siemens. Andreas Flick, head of the Siemens VAI continuous casting technology division, said that as a traditional industry, the profitability of the steel industry is generally lower than 10%, so the smelter must learn to be careful.

    Siemens provided data showing that energy expenditure, including reducing agents, is the main cost of steel production. Taking the production cost of HRC in 2006 as an example, energy costs accounted for 36% of the total cost, second only to 40% of metal raw materials. With global metal prices falling and mining and metallurgical industries pursuing cost control, Siemens is actively promoting their “modular energy-saving” technologies to steel companies in emerging markets.

    and as the CEO of Siemens VAI, Pfeiffer has set himself a "military order."

    In fiscal year 2006, orders from Siemens VAI mainly came from the demand for equipment generated by the new plant, accounting for 59% of the total orders. Pfeiffer hopes that by the end of fiscal year 2011, orders for plant equipment will drop to 45%, while the two businesses “accelerate the development of modernization” and “service” should increase to 55%.

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