Blast from the past

Traditional belief holds that early adopters of technology reap the greatest benefits. So a new steel-making technology, which international steel experts declare will outstrip the traditional blast furnace in the next 20-odd years, would appear a shoo-in.

But that's not quite how it has worked out for the Jindal group. Back in 1995, group company Jindal Vijayanagar Steel Ltd (JVSL) set up its plant at Toranagallu, Karnataka, with the revolutionary Corex technology.

In end-2004, when the group decided to set up a new plant at West Bengal, it announced that it would go back to the blast furnace technology. Why?

In 1995, when JVSL set up the Toranagallu plant, it opted for Corex, a new, coal-based smelting process. Like with the100-year-old blast furnace, Corex technology also produces the basic hot rolled coils, which can be then used to make cold rolled coils and hence many forms of steels.

"We felt Corex would be a better option as it brought down our running costs considerably," recalls Seshagiri Rao, director, finance, Jindal Iron & Steel Company (Jisco).

(Incidentally, steel-making company JVSL and Jisco, which was a cold rolling mill, were merged recently; the new entity is called Jisco.)

Corex technology was developed by Austrian company Voest Alpine in 1989. It was put to commercial use first by Saldanha Steel in its plant at South Africa.

JVSL is only one of three companies across the world to use Corex "" the third is Korean steel major Posco.

Why was the Jindal group so quick to throw open its doors to Corex? The biggest attraction was power "" corex gas, a by-product of the Corex process, can be used to generate power.

If Jisco used Corex to produce 1.6 million tonnes (MT) of steel, it could also produce 260 mega watts of power. In power-starved Karnataka this was a godsend.

Buying from the state grid would have meant paying Rs 4.32 per unit, but generating power from a Corex unit cost only Rs 2.60 per unit. This meant power costs reduced by almost 40 per cent.

Then, Corex used a cheaper raw material "" non-coking coal. Non-coking coal has a lower carbon content compared to coking coal, but the latter is in short supply and is, therefore, 15 to 20 per cent more expensive.

Also, if JVSL had opted for the blast furnace, it would have had to fork out an additional Rs 200 crore for setting up a hydro power unit.

Granted, a Corex plant was more expensive than a blast furnace "" JVSL invested Rs 450 crore to set up a 0.8 MT Corex plant, compared to the Rs 300 crore a similar capacity blast furnace would have cost. Even the running costs favoured the blast furnace "" the Corex plant gobbles up 850 kg of non-coking coal to produce one tonne of steel, compared to the 600 kg of coking coal used by the blast furnace.

But taking into account the saving on power (and the installation of a power unit), the economics seemed to work out.

Riding on the back of Corex, the company achieved its production target of 1.6 MT in 1999 itself (The first phase of the project construction commenced in 1994 but commercial production began only in 1998).

All was well until the demand for steel doubled. From a sluggish 3 to 4 per cent in the late 1990s, demand started growing by 7 per cent in 2002. To match the increasing demand, JVSL started looking at increasing production to 2.5 MT in 2003.

But scale was an issue the company had not anticipated as early as the mid-1990s. "When we set up the plant in 1994, the steel industry was at the bottom of its recession and for JVSL, the immediate priority at that time was to sustain itself and not think about future growth," says Rao.

The seams started showing when JVSL tried to keep up with the demand. A single Corex unit could produce a maximum of 0.8 MT of steel in a year; JVSL already had two units "" and that wasn't nearly enough. In contrast, a single blast furnace unit (with an average capacity of 2.5 MT) could be scaled up to 3 MT.

Ironically, where it was struggling with Corex to keep up with the demand for steel, the technology had created a problem of plenty when it came to power.

To produce 1.6 MT, Jisco needed only 150 MW of power. But the technology produced an extra 110 MW, which until then had been diverted to the Karnataka State Grid. But if JVSL were to expand Corex capacity, it would again produce too much power "" and this time there would be no buyer, since by 2001 Karnataka had already started exploring hydro power as a viable alternative.

"Setting up a plant using Corex involves an assumption that there's an assured buyer for the excess power produced," says B N Singh, CEO and joint MD, Jisco.

Meanwhile, changes in blast furnace technology meant that it was emerging as a viable option. Instead of using 600 kg of coking coal to produce a tonne of steel, now just 450 kg would do the trick, an immediate saving of 25 per cent.

Innovations in coal technology, too, had been taking place. In just a few short years, technology had leapfrogged so that it was possible to produce coking coal from a variety of coals; previously, only high-carbon-content coal could be used to produce coking coal.

That's when JVSL decided to return to more familiar territory. In 2003, it set up a 0.9 MT blast furnace at Vijayanagar. That helped in two ways: not only did it help JVSL meet the surge in demand, it also used up the excess 110 MW generated by the two Corex units. Importantly, it also helped in better utilisation of raw material.

Previously coal, which forms 60 to 65 per cent of the raw material in the steel-making process, was not being utilised efficiently. The reason lay in the type of coal "" both fine and coarse "" used at the plant.

In the Corex unit, fine coal particles (below 8 mm in diametre) get stuck in the funnels, clogging them. Previously, therefore, finer coal particles were sifted manually and discarded.

Now, with a blast furnace in place, the finer particles also could be used (blast furnaces have a 20 per cent requirement for non-coking coal).

The blast furnace-Corex plant combination seems to have worked. In fiscal 2004, Jisco's profit after tax crossed Rs 242 crore, up from Rs 120 crore in the previous year.

In the same period operating expenses remained more or less stable, at Rs 103-odd crore up from around Rs 100 crore in FY 2003.

Of course, Jisco is not the only company to have kept faith with blast furnaces. Steel major Ispat, too, experimented briefly with a new technology (directly reduced iron) that produced 1.25 MT of iron ore that was processed into steel in an arc furnace.

But when the demand for the metal firmed, Ispat found that it was easier to scale up by integrating a 2 MT blast furnace, which upped its production capacity to 3.25 MT of iron ore.

Now, Jisco's new plant, which has a proposed capacity of 5 MT, in West Bengal will also use the blast furnace. So, is this the end of the road for Corex? Not really. Analysts believe it was probably a case of too much, too soon.

Echoes Singh, "Corex as a choice was not wrong. But when the situation demanded, we had to adapt. The marriage of Corex and blast furnace has proved to be more advantageous."

Says an analyst, "The steel-making process is like understanding a woman. The blast furnace is a woman you've known for 100 years, while Corex is relatively newer. That's why it's difficult to understand." Could Freud help?