Steelworks digitalize to cut costs, boost services -...

Putting Steel In Context

www.platts.com/SBB Copyright © 2015 by Platts, McGraw-Hill Financial

Steel is a conservative sector, according to

some leading software providers, and until

recently slow to take up the challenges

and benefits offered by computerized

softwares, perhaps due to labor issues and

state involvement in companies. Uptake of

computerized technology has been more

dynamic in the non-ferrous area,

particularly aluminum, considered a

“newer” industry. But with steel and

steelmaking raw materials markets

complicated by acute competition and

world overcapacity, a rush is on to adopt

new technologies and systems. One

software supplier reports growth of up to

30% a year among steel sector customers

in some Asian markets, while another

singles out China as one of the biggest

growth markets for suppliers with Chinese-

language capability.

The mindset is changing in steel.

“Traditionally the only goal in big

steelworks was to produce as much as

possible: last century steelworks seemed

like small villages in themselves,” said

François Eijgelshoven, vice-president,

EMEA of Quintiq, a major software

supplier. Quality and service are now

Steelworks digitalize to cut costs, boost services

Welcome to Platts SBB Insight Steelmakers, metalworks and miners are adopting new digital initiatives to boost productivity, improve services and tailor inventories in an increasingly cost-conscious and consumer-oriented environment. Fierce competition between traditional technology giants including IBM and Microsoft and younger rivals including Google and Amazon to build the infrastructure for the emerging digital economy have brought down costs of services such as secure cloud computing, which are thus rapidly gaining adepts in the steel and metals sector. Despite hackers’ skills, data usage and storage systems are more secure than ever before. There are tales of eastern European steelworks even in recent times offering customers a month’s window for deliveries of certain steel products. In this digital age, such practices are unacceptable. Software systems have come into their own in sales and distribution planning, allowing large numbers of suppliers now to deliver steel on the correct day, or at least to narrow delivery windows down to a week, and to establish the true cost of customers’ orders. Downsizing is part of this game, as software suppliers promise opportunities to keep leaner inventories – which may typically be reduced by 20% via computerization - cut bureaucracy, and inevitably, trim and plan labor requirements to suit companies’ real needs. Insight speaks to some suppliers and users to assess industry trends.

The race is on to achieve leaner operations and prompter deliveries as the cloud revolution boosts data security

Issue 215

16 January 2015

© Steel Business Briefing 2015

Edited by Diana Kinch

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German steel distributor Kloeckner aims to introduce web shops in all country organizations by the end of 2015 and to achieve

more than 50% of its sales on-line by 2019. Photo courtesy of Kloeckner.



more important than volumes,

with the focus increasingly on how to

cut steel’s typically long supply chain:

up to 6-8 weeks can be needed for

production alone. “The customer is

more demanding on lead times as

keeping steel stocks is very expensive,

and even more so in aluminum…....

this has led to a rethinking of how we

plan and supply: we need to change

to become demand-driven

organizations.”

It’s around 40 years since software

started to be used in steelworks,

metals works and mines, with

Japanese companies among the

pioneers and frontrunners in the US

and Europe planning business on Excel

sheets and screens. Advances since

then have been manifold: suppliers

today maintain computerization of

steelmaking processes typically gives a

5% productivity gain and 20% costs

savings in inventory management.

Computerization helps producers and

distributors fine-tune qualities, and get

shipments out and deliver on time,

with numbers of correct-day deliveries

having doubled in some cases. It can

help reduce energy usage and even cut

pollution by batching materials for use

in furnaces in an efficient manner. In

mines, truck drivers can adjust ore

stockpile qualities and quantities via

constant monitoring of apps on their

dashboards, and some major miners

use driverless trucks for the same

tasks. Data storage systems are

becoming safer, better protected from

blackouts or hackers with the

increasing use of the cloud as a backup

to avoid loss.

Other major software suppliers to the

sector include SAP, IBM, which offers

some products jointly with JDA

Software Group, and specialist

suppliers Metalogic and Brady

Commodities. In mining, specialist

software system suppliers include

Singularity ONE and, for geological

data analysis, Pitney Bowes and

Leapfrog. Minerals Value Service

(MVS), in which Platts holds an equity

stake, collates time-sensitive market

information, with its internet-based

tool backed up by an extensive internal

database providing a data-aggregation

service to aid users purchase raw

materials, particularly iron ore, more

easily and efficiently.

Establishing the true cost of orders

Software systems have come into their

own in sales and distribution planning.

As IBM and JDA say in the run-up to

the Spring 2015 launch of a new order

fulfilment software: businesses need

“to reveal the true cost of fulfilling an

order – including inventory and labor

costs – so (they) can more responsively

adjust inventory and resource

allocations and execute decisions that

meet and exceed customer

expectations while also serving their

bottom line….. Today there is far too

much guess work, too many static

policies, and no intelligence applied to

the process”. The intention of using

these systems is not to lay people off,

although sometimes this occurs as a

side-effect: but to capture and

synthesize knowledge, which can help

in decision-making, increase efficiency

and save time. →

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The concept of fully-automated mines – which could

be safer and more productive than manned mines – is

no longer science fiction. In recent years remote-

controlled computerized technologies including driv-

erless or “autonomous” trucks have been adopted

and thousands of jobs inevitably lost, with up to 40%

of mine staff affected in some cases, according to

reports by the University of Queensland cited by The

Brisbane Times. Rio Tinto has worked together with

Japanese equipment manufacturer Komatsu and

General Electric to develop trucks which use sensors

such as radar and GPS to navigate from loading units

to dump locations. The image shows autonomous

trucks at Hope Downs 4 mine, where all haul trucks

are driverless. Rio has 54 autonomous trucks at 3 of

its 15 mines in the Pilbara, Western Australia, and

plans to boost this to 150. Rio is also investing $478

million to introduce driverless trains in Pilbara in what

will be the world’s first automated long-distance

heavy-haul rail network. BHP Billiton uses Caterpillar

793F trucks which have carried 225 mt in trials at

Jimblebar mine, WA. According to a University of

British Columbia professor cited by Mining Global

magazine, driverless technology has allowed a 15-20%

increase in output, 10-15% decrease in fuel consump-

tion, and an 8% lowering in maintenance costs among

mining sector users. Vale’s new S11D iron ore project

in Carajas, north Brazil, goes further still: this will be a

truckless mine, replacing trucks with conveyor belts up

to 9 kilometers long, to work together at the 90 mil-

lion mt/year capacity mine with diggers and mobile

crushers. A total of 37 km of conveyor belt will be

installed, linking extraction points with beneficiation

facilities. Vale says S11D’S “truckless” system will save

using 100 trucks, reducing potential diesel consump-

tion by 77% and cutting carbon emissions also by 77%,

to 33,700 mt/year from the potential 146,300 mt/year

at this mine in the ecologically sensitive Amazon re-

gion. Sweden’s LKAB, which also uses driverless trucks

at Kiruna mine, has been a pioneer in its use since

1971 of underground driverless trains to shift ore: the

trains which never actually stop have boosted produc-

tivity. A wireless on-line loading information system

(WOLIS), which automatically weighs each bucket of

ore lifted by loaders, is used to calculate the level of

ore in shafts, enabling the control system to send a

train to the shafts when there is enough ore. WOLIS

was developed by LKAB in cooperation with Kiruna

Soft Center AB, a local supplier.

Photo courtesy of Rio Tinto



“Downsizing is part of the

industry,” said Leigh Harrison, one of

the founders of Metalogic, a bespoke

supplier of software to the steel and

metals industry, founded in 2000 as a

result of a merger between Beacon

Computer Services – Metals Division,

and Planmatics PLC and expanded in

2001 with the acquisition of

Kalamazoo’s Stockholder Metals

software division. “We can save 20-30

people in some companies and have

seen no union opposition. We’re

busier than ever: having experienced

steady growth in recent years and with

turnover volumes up about 30% in

2014 compared to 2013 following the

issue of new software during the year

which brought us new orders.”

Part of Metalogic’s success is due to its

specialization in the metals sector. Its

biggest growth area is the Far East, but

the company has systems installed

throughout the world, and at

customers including Nippon Steel,

ArcelorMittal, Tata Steel and

Kloeckner. One of the systems offered

is iMetal, the Metals Industry

Management Information System,

which aims to facilitate sales

quotations, costing, stock planning,

management reporting and other

aspects of stockholder business in a

multi-language interface.

Metalogic also has the advantage of

focusing on the steel distribution sector,

which is adhering rapidly to software

solutions to boost logistics flexibility and

customer service levels in a highly

competitive environment involving

multiple product types. The higher

demand has also coincided with cost

reductions in the softwares available:

“companies are now spending

thousands of pounds, instead of

hundreds of thousands in the past

because of the number of software

houses. Some customers rent our

systems off the cloud or some buy

outright: according to the number of

modules smaller systems can cost

£25,000 or £30,000, while a larger one

could be £1 million, involving a

perpetual licence, training, maintenance,

implementation and support. A big

system could take six months to

implement but could have a 20-year

shelf life. And we roll out updates twice

a year and upgrade all customers.”

Cloud computing: an “irreversible”

revolution

Cloud computing, which centralizes

and boosts the dependability of data

processing and information storage, is

now an “irreversible” major trend in

computer systems, according to IBM.

Companies are starting to move away

from buying traditional hardware and

software products to focus

increasingly on cloud service

businesses. IBM and Microsoft have

recently had annual revenues of

around $4.4 billion from the high-

margin cloud sector, with IBM’s latest

quarterly results showing cloud

revenues soaring 80% year-on-year.

The company’s current $1.2 billion

expansion of its global cloud

computing network to 40 centers

including at 12 new locations could

even fall short of demand. IBM has

operating agreements in this field with

Microsoft, SAP, Tencent Cloud, AT&T

and Intel. Oracle’s revenue from cloud

businesses rose 45% in the three

months to the end of November to

$516 million, and is expected to top $1

billion this year. The scale of this

business is vast: each of Microsoft’s 19

cloud data center regions worldwide is

cited by The Financial Times as being

able to support 600,000 servers.

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Information Systems Conceptual Architecture for Mining. Note: ISA-95 is an international standard for developing an

automated interface between enterprise and control systems. Graphic courtesy of IBM.

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Software for hedging: stainless steel is growth area

Software is available not only for physical production, sales and delivery operations, but also for hedging, which has become a more important part of daily life for companies in the commodities sector amid the price volatility provoked by China’s growing influence on world markets over the past 20 years. While more common in the base metals area, hedging is gaining adepts among steel and iron ore companies, particularly among traders that purchase ores, and is set to become increasingly widespread as more commodities exchanges introduce contracts based on steel product prices.

Hedging is gaining prevalence in the stainless steel area, where companies are already managing the price risk of stainless’s base metals components, according to UK-based Brady Commodities, which has offered metals options trading and hedging support to commodities companies since the mid-1980s. “Volatility is a strong driver for people wishing to hedge,” says Brady’s head of risk and derivatives division, Harry Knott. “The market (for this kind of software) is pretty good. Sudden moves in prices can wipe out a month’s profit in one go.”

Brady offers a hedge manager program which calculates the market value of all hedge contracts by automatically uploading market closing and settlement prices into a computerized system at the end of each trading day. This allows validation of margin exposure with individual brokers and indicates if and where savings can be made by offsetting positions, at the same time displaying pricing risk and unhedged positions. The system also provides industry standard calculation methods for all derivatives types required for accounting standards compliance and stores a full forward curve for all commodities.

In an ever more demanding regulatory landscape, computerized systems are seen as more transparent and secure, Brady manager Alison Ellman notes.

Brady says that while the price of a bespoke risk management system for a large organization can run into the millions, the hedge manager solution can be deployed quickly at a fraction of this cost. Some software modules are priced at around £100,000. The company’s biggest competitor is still Excel spreadsheets which are “rather risky for big companies, as there’s lot of room for human error, particularly from deleting information by mistake. Spreadsheets are also often points of audit failure.” Sometimes the costs savings are big enough to cover the software costs within the first three months, Knott says. Customers include Metinvest and Xstrata.

Technology research firm Gartner,

Inc. believes nearly half of all

enterprises will have a hybrid cloud

deployed by 2017. “Chief among the

driving forces behind the adoption of

cloud computing worldwide including

hybrid cloud, are requirements for

businesses and governments to store

certain data locally to comply with data

residency regulations,” IBM says.

“About 100 nations and territories

have adopted laws that dictate how

governments and private enterprises

handle personal data.”

Digitalizing the supply chain

The race to digitalize is on. Top metals

companies worldwide — including

Deutsche Edelstahlwerke GmbH, JFE

Steel, Kaiser Aluminum Corporation and

SSAB Oxelösund — have turned to JDA

to solve problems and bottlenecks in

supply chain and demand management,

planning operations, sales and

distribution, scheduling and material

allocation, and inventory optimization.

Deutsche Edelstahlwerke, which

installed JDA’s Factory Planner program

as far back as 1999, was able after three

months to cut its product throughput

times to less than four weeks from the

previous five and reduce the amount of

work in progress by 20%. Tata Steel is

reported to have increased order

promising accuracy to 85-92% from the

previous 50%, and order booking

efficiency to more than 80% after using

a system developed by i2 Technologies,

acquired by JDA in 2010.

German steel distributor Kloeckner

intends to digitalize its entire supply

chain. This week it launched

kloeckner.i, a group center to

coordinate activities of the company’s

national subsidiaries within the

framework of digitalization. Kloeckner

aims to introduce web shops in all

country organizations by the end of

2015 and to achieve more than 50% of

its sales on-line by 2019. It is

extending its use of electronic data

interchange (EDI) accords with

suppliers – offering a digital alternative

to communication via faxes and

letters. The aim is to “make the supply

chain leaner and faster, reduce

inventory levels and allow us to better

predict customers’ ordering behavior,”

said Kloeckner spokesman Christian

Pokropp. “The sales people can then

focus on customers who need a lot of

advice, and on acquiring new

customers.”

The move was made with customer

consent: “We asked the customers

before we started our digitalization

initiative. More than 50% were

interested in ordering on-line, as they

can order 24 hours a day. This is an

advantage especially to smaller or

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midsize customers who don’t have

their own procurement departments,

who want to order in the very early

morning or very late in the evening

when the warehouse is closed. This

means they can spend more time

working on their projects,” he said.

The company last month announced

an EDI with Tata Steel, for which it is a

major product distributor, and hopes

similar accords with other

steelmakers will follow. The electronic

data accord, designed to gain speed

and efficiency in all transactions

between the two companies, has

started in the UK, and will shortly be

introduced in other major European

Union countries and in the US. “The

implementation effort is limited and

helps to prevent errors, therefore

reducing costs,” Pokropp said. New

web shops have already been

introduced in the Netherlands, the UK

and Germany. “Significant efficiency

gains” envisaged from Kloeckner’s

digitalization initiative form part of a

company target to improve its EBITDA

margins from 3.5% in Q3 2014 to

more than 5% by 2017.

IT integration is strategic target at TK

German steelmaker and technology

company ThyssenKrupp last month

announced a major IT consolidation to

reduce costs and improve the quality

and security of data transmissions.

The company signed a seven-year

“triple-digit million-euro” contract

with Deutsche Telekom subsidiary T-

Systems to transfer IT systems and

services previously accommodated in

around 700 data rooms and 11 data

centers to five global data centers

which will provide a standardized IT

platform and data networks to

ThyssenKrupp’s 160,000 employees in

nearly 80 countries. Over 80,000

computer workstations and 10,000

server systems of ThyssenKrupp

worldwide are to be moved to the

cloud, which will also be the source for

employees’ desktop services including

Microsoft Exchange, Microsoft

SharePoint and Microsoft Lync.

Around 100 employees from

ThyssenKrupp IT Services GmbH will

be transferred to the future service

provider. Earlier in 2014,

ThyssenKrupp contracted

telecommunications providers Verizon

and Vodafone to operate its global

wide area network (WAN), again in a

move to reduce costs and introduce

global standards throughout the

system.

“In the future we will work together

in a more connected way as part of an

integrated group,” said Klaus Hardy

Mühleck, Chief Information Officer at

ThyssenKrupp. “We are moving away

from our previous heterogeneous

structures and creating the platform

for a forward-looking, integrated,

business-oriented and secure IT

environment. That will make us more

efficient, more flexible and more

profitable in all areas.” The company

would not be drawn on the size of the

cost savings expected, but pointed

out that IT integration is one of its

strategic targets.

Tube and pipemaker Tenaris, with

production facilities and offices

scattered around the globe, has also

announced plans to invest in a global

data system.

Priorities include working with less

stock

Quintiq, whose sales have been

growing more than 30% a year, even

during the global financial crisis,

started off in the metals arena

supplying systems to aluminum works,

later moving into steel and mining.

Some 30-40% of its sales are from the

steel and metals area. Its products are

designed to help companies solve what

Eijgelshoven calls “the daily

optimization puzzle, which is becoming

larger and more complex,” with many

producers needing to deliver multiple

orders at the same time. “Planners

need tooling to help take decisions.

Not all are looking for productivity

gains because of overcapacity. But

companies need to produce smarter,

and that means to produce using less

stock. We typically allow customers to

reduce stock, on average between 10-

30% less than what they would

normally have, which is good if they

need to finance stock.”

Steelmakers typically “struggle” with

sales forward planning, but software

programs that not only look at a

customer’s history but collate this with

large customers’ forecasts and market

predictions from multiple sources can

make this a lot easier, Eijgelshoven

says. Large companies are typically

more receptive to the introduction of

softwares and models that stand to

boost their competitiveness, reports

Quintiq, whose customers include

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steelmakers SSAB, ThyssenKrupp,

Severstal, ArcelorMittal’s Dofasco,

Beltrame in Italy, France and

Switzerland as well as aluminum roller

Alunorf in Germany and Greek

aluminum foil producer Symetal.

Industrial customers typically buy a full

perpetual software licence. The

minimum investment for the software

licence plus installation would start at

“a few hundred thousand, stretching

up to several million euros,” the

software supplier says.

Severstal sees energy savings

Russia’s Severstal expects to save “tens

of dollars” per metric ton of steel on

energy costs with its use of Quintiq’s

optimization software, which will

support direct hot-charging and

immediate hot mill rolling at its

facilities in Russia, instead of the

previous cooling down and reheating

of slabs. Severstal thus plans to

significantly increase its hot-charging

percentage and savings are foreseen

of “several million dollars on energy

costs alone per year” on its annual

production of 11 million mt.

In the aluminum area, major German

remelter and roller Alunorf’s head of

production planning Hubert Bürgel said

the use of Quintiq software has given it

greater transparency within the

business, and the ability to analyze

material inventories, lead times and

deadlines. Results have been quite

dramatic at the works which delivers

more than 1 million metric tons/year of

products to the processing industry.

“With the knowledge we have gained

from using the software, we were able

to reduce our lead times by 50%,

increase shipments by 45% whilst

simultaneously reducing stocks by

about 12%,” Bürgel said. “We also

improved adherence to delivery times

from 40% to 91%.”

German mill suffers cyber attack

Still, mishaps will occur. In December, a

blast furnace at a German steel mill –

whose name was not released to the

press - was reported to have suffered

extensive damage following a cyber

attack on the plant's network,

according to the annual report of the

German Federal Office for Information

Security (BSI).

The BBC cited BSI as saying attackers

used booby-trapped emails, or

phishing, to steal logins that gave them

access to the mill's control systems, and

provoking failure of part of the plant.

By Diana Kinch

What is …

... Stainless Steel?

Good corrosion resistance due to a high chromium

content is the key characteristic. Opinions vary on the

level of chromium (Cr) at which a steel becomes stainless,

but it is at least 10.5%. Nickel (Ni) and molybdenum (Mo)

are often present, and manganese, copper, titanium,

silicon and other alloying elements may be added.

The principal grades are austenitic (typically 16-26%Cr, 6-

22Ni); ferritic (10.5-28%Cr with no/low Ni); martensitic

(higher carbon content than ferritic and typically 12-19%

Cr with low/no Ni); and duplex, a dual-phase austenitic/

ferritic steel (Cr>21%, Ni <8%).

Austenitics are non-magnetic, easily formed, but harden

rapidly during processing (typically used in the process

industries, heat exchangers, cutlery). Ferritics are less

corrosion resistant, easily formed and magnetic (catering,

architectural, materials handling). Martensitics are magnetic,

have higher strength and are less easily worked (surgical

instruments, shafts, fasteners). Duplex is strong with good

impact resistance (desalination, heat exchangers).

Stainless steel was discovered in 1913 by Harry Brearly, a

metallurgist from Sheffield.

For more steel terms go to: steelbb.com > steel

news > steel glossary

Enquiries: Call: UK: +44 (0) 20 7176 7646 USA: +1 (412) 431 4370 Brazil: +55 (0)11 3371 5755 Dubai: +971 4 454 8700 Singapore: +65 6227 7811 Shanghai: +86 (0)21 5110 5488 E-mail: [email protected] Website: www.sbb.com

Platts Insight Editor: Diana Kinch [email protected] © Platts 2015 Title photos: Tata Steel, ArcelorMittal.

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