The metallurgical industry is shaking off the effects of the economic downturn. Companies operating in the Moravian-Silesian Region enjoy the significant competitive advantage of their proximity to hard coal deposits, facilitating efficient production.
The history of hard coal mining in the Moravian-Silesian Region is closely linked with a high concentration of heavy industry. ArcelorMittal Ostrava, Třinecké železárny and Evraz Vítkovice Steel are among the larger local steelmakers whose mills enjoy the clear strategic advantage of being close to deposits of quality coking coal, an essential input in steel production.
“When you ask foreign investors in our sector why they chose to come to Ostrava, they reply that the proximity of the hard coal mines is a clear competitive advantage over locations which would require complicated imports of coal with the associated increase in costs, or the use of alternative production technologies,” explained Jan Rafaj, Human Resources Director at ArcelorMittal, the largest steel producer in the Czech Republic.
Proximity to coal: a comparative advantage for steelmakers
Compared to steelmakers in the Moravian-Silesian Region, peers in Western Europe must import coal over long distances, driving up the costs of production.
In addition, the closeness of coal deposits enables companies to produce steel the traditional way, in blast furnaces using a combination of iron ore, coke and other raw materials. “This process is considered to be economically more efficient than the technologies usually used to produce steel in western countries. Since Western European companies do not enjoy hard coal deposits in their vicinity, they substitute what would be costly coal from remote locations with the production of steel from scrap metal using electric arc furnaces,” said Rafaj.
ArcelorMittal mainly uses coal mined at nearby OKD. In addition to the proximity of the mines, OKD coal has the advantage of a particularly low sulphur content. This is important in the conversion of coal into coke for use in blast furnaces. The company purchases only minor supplementary quantities in Poland and Russia. According to Rafaj, the collaboration between the largest steel mill in the Czech Republic and OKD is broadening and deepening: OKD supplements the standard deliveries of the input material with other services, such as the transport of coal to a specific destination, and its unloading.
Metallurgical industry was hit by the economic downturn
The metallurgical sector has borne the brunt of the global economic downturn in recent years. Czech businesses did not escape. While 6.4 million tonnes of steel were produced in the Czech Republic in 2007, the figure was a mere 4.6 million tonnes in 2009. In 2010, industry began to recover from the crisis and annual steel production rose to 5.2 million tonnes. And forecasts for the coming years are optimistic.
Global production of steel stood at 1,414 million tonnes in 2010, of which nearly half was produced in China. Of the EU countries, which contributed 12 percent of the overall steel production in that period, Germany was the world’s second largest global producer of steel, with 44 million tonnes.
“Prior to the downturn, we produced approximately three million tonnes of steel annually. Then came a significant slump and we only managed to utilise approximately 40 percent of our production capacity at the lowest point during the recession. Production amounted to two million tonnes in 2010, when the revival became noticeable in the sector. However, the market still has some untapped potential and we believe that we will return to pre-crisis levels in 2013–2014,” said Rafaj.
The general decrease in steel production led to lower demand for coal. However, the tide is turning. Businesses are upbeat in their outlook for the coming years. The most tangible proof of this development is in their recent, and in particular their planned, investments.
Investments will benefit production and the environment
Steel companies in the region in which NWR subsidiaries such as OKD operate look to the future with optimism and expectations of further growth. This optimism is in large part founded on the coal reserves of NWR, which are sufficient for several decades. “We reflect upon the good prospects for coal production for several decades to come at OKD, and in relation to that we can look at securing decades of profitable business for ourselves,” said Rafaj.
The most demonstrative evidence of such a positive outlook are the investments planned by steel companies. In May, ArcelorMittal announced its intention to modernise its Ostrava plant with an investment of CZK 10 million. “We want to focus on the modernisation of our steel mill, blast furnace and energy operations,” said Rafaj. The planned investment will also benefit the environment. It should lead to a marked decrease in dust levels and in emissions of sulphur and nitrogen oxides. Steel mill dust will fall by half, and there will be a pronounced decrease in environmental stresses stemming from the blast furnaces and energy operations.
Other companies have been and are investing in their production plants as well. Another local steel giant, Třinecké železárny, modernised, and in early 2011 commissioned, a coking battery at a cost of some CZK 2 billion.
A future perspective
Investment projects by local companies can be complicated by two factors: a lack of skilled employees, and the demanding bureaucratic and administrative requirements associated with modernisation projects. “Politicians must realise that our economy and GDP are supported by industry. It is therefore essential to seek growth-promoting strategies to support industry. One such initiative is the support given to vocational education. There is a future for those attending technical schools,” explained Rafaj.
Mr Rafaj believes that the industrial tradition of the region exerts a positive influence over infrastructure development. Traditional industrial enterprises are capable of offering better rewards to their employees than assembly plants offer to their workers, with an immediate knock-on effect in the development of the region and in the services sector. This applies to ArcelorMittal, whose employees, like those of NWR subsidiaries, enjoy the highest average salaries in their sector. For example, the 2010 average salary of OKD miners was in excess of CZK 32,500, surpassing the regional average by nearly half.
Pig iron production in the Czech Republic
- 2007 – 6.4 million tonnes
- 2008 – 4.9 million tonnes
- 2009 – 4.6 million tonnes
- 2010 – 5.2 million tonnes
“As industry representatives, we have to keep patiently explaining the contributions we make to the region and subsequently the whole country. We want to open a perspective for the future. Politicians, on the other hand, should muster the courage to come out and present to the public substantiated arguments demonstrating the importance and indispensability of industry to the competitive future of our country,” concluded Rafaj.