Zhang Longqiang: Discussion on the Path of Cost Reduction for Steel Enterprises during the 14th Five-Year Plan

Exploration of Cost Reduction Paths for Steel Enterprises during the 14th Five-Year Plan Period

Zhang Longqiang, Deputy Secretary-General of the China Iron and Steel Industry Association, Party Secretary and President of the Metallurgical Industry Information and Standards Research Institute

After years of development, China's steel industry has seen its enterprises grow in scale, with an increasing variety and specifications of steel products and significant improvements in quality. The industry has evolved from simply focusing on "existence" to now emphasizing "quality," "environmental friendliness," and "intelligence." Cost reduction and efficiency improvement, as a consistent theme, are the prerequisites and foundation for high-quality development.

With changes in the stage of national economic development, industrial structure adjustments, upgrading of consumption structure, and changes in the international situation, the contradiction between continuously decreasing steel demand and a highly abundant supply has become increasingly apparent. Facing the 14th Five-Year Plan period, steel enterprises must seize the ultimate cost or low-cost strategy to survive and develop in an increasingly competitive environment. However, this is not about engaging in vicious competition of low cost and low price at the expense of quality. Instead, it requires both cost reduction through efficiency improvement and maintaining quality, and cost restructuring through new productivity empowerment, achieving a closed-loop development of cost reduction and efficiency improvement.

I. Exploring Potential for Cost Reduction through Efficiency Improvement, Promoting Ultimate Cost Reduction

Iron ore, scrap steel, coke, and coal are the main raw materials for steel production. The value transferred by their consumption accounts for more than 70% of the production cost of steel enterprises, making it a core aspect of cost control. Therefore, reducing raw material procurement costs, scientific material structure ratio and consumption, and lower logistics and transportation costs are crucial for steel enterprises to reduce costs and increase efficiency. In addition, lean management of the production process, improvement of product added value, service upgrades and expansion, and brand strengthening will also offset increased costs and increase profits from downstream value-added.

(1) Raw Material Optimization

1. Intelligent upgrading and management of material input. Construct an intelligent decision support system for management processes, using machines to replace or assist humans in intelligent management of raw material supplier selection, procurement prices and models, and key indicator detection of material entry, reducing human intervention and achieving compliant cost reduction.

2. Digital leadership and optimization of coal and ore blending structure. Establish a mineral blending database, create and dynamically optimize calculation models, obtain the benefits of iron ore grade reduction and coke ratio increase, and the emission balance point, achieving reasonable matching of low-grade ore, non-mainstream ore, and various types of coke and coal powder under stable blast furnace operation, ensuring quality while preventing "excess" quality.

3. Resource-based strategy and strengthening scrap steel resource security. Accelerate the layout of standardized scrap steel bases, especially for pure scrap steel-electric arc furnace short-process enterprises, to achieve independent control of scrap steel resources. In the short term, this can mitigate the uncontrollable risks of cost fluctuations caused by raw material price fluctuations, and in the long term, it can also reduce environmental protection expenditures. Steel enterprises with the conditions can cooperate with automobile manufacturers to establish a "producer responsibility system" for steel products based on automotive steel-automakers-automobile scrap recycling, giving automotive steel a MA mark to achieve high-quality and efficient recycling and utilization of scrap steel resources.

4. Potential reduction and optimization of logistics and transportation networks. Coastal and river enterprises reduce the transportation costs of iron ore, coke, and steel through "river-sea combined transportation"; inland enterprises promote "road-to-rail" and multimodal transportation to reduce the proportion of logistics costs. At the same time, enterprises should also pay close attention to and strengthen the optimization and exploration of internal logistics, especially the connection and rebalancing of equipment, energy, and products in the context of reduced production.

(2) Production Restructuring

1. Comprehensive exploration of cost reduction potential in ironmaking. Using digital means to integrate data from all key cost reduction nodes, conducting comprehensive diagnostic, analytical, and optimization from the overall to the local level to explore cost reduction potential. For example, optimizing blast furnace oxygen enrichment and injection, using AI algorithms to adjust the coal injection ratio in real time to reduce the fuel ratio; collaboratively controlling uniform charging, ignition effect, mixed material temperature, and screen replacement, exploring the possibility of further reducing the internal return ore rate; achieving a further reduction in the fuel ratio under stable blast furnace operation through optimization of the blast system, thermal system, and slag-making system.

2. Intelligent steelmaking system management for cost reduction. Precise control of scrap steel, developing a dynamic scrap steel ratio model, optimizing the scrap steel addition ratio in real time based on molten iron temperature and composition to reduce molten iron consumption; precise oxygen injection, deploying a converter dynamic control system, using spectral analysis + AI algorithms to strengthen the linkage control of multiple parameters such as molten pool carbon content, temperature, and slag basicity, dynamically adjusting the oxygen lance height and oxygen supply intensity to reduce the overblowing rate; deploying a digital twin platform to simulate the blowing process and predict the endpoint carbon and temperature, reducing fluctuations in oxygen consumption caused by manual intervention.

3. Integrated and coordinated interface connection for cost reduction. Promoting the application of one-pot technology to reduce the number of intermediate pouring times and reduce steel material consumption; implementing integrated continuous casting and rolling, appropriately deploying direct rolling, headless rolling, and thin strip casting and rolling processes to achieve efficiency improvement and consumption reduction; promoting post-rolling heat treatment upgrades to achieve product upgrading and efficiency improvement to offset costs; comprehensively addressing issues such as increased idle rolling mill power consumption and product performance losses that may be caused by high efficiency, avoiding neglecting one aspect while focusing on another.

4. Joint optimization of energy performance and carbon structure for cost reduction. Continuously promoting ultimate energy efficiency work as the main line, promoting in-depth recovery of residual heat and energy in all processes, and further improving the proportion of self-generated electricity; deploying an integrated energy, carbon, and intelligent control platform to connect energy and carbon data streams, continuously exploring the potential for energy saving and cost reduction, accurately calculating carbon assets, scientifically predicting carbon quotas, achieving value preservation and appreciation of carbon assets, and reducing carbon and energy costs.

(3) Product Upgrades

1. Development of high value-added products to indirectly reduce the cost per ton of steel. Adhering to innovation-driven development, continuously promoting upgrades in variety, quality, type, and specifications to enhance product added value. For example, Baowu's development of low-noise oriented silicon steel products, Ansteel's development of corrosion-resistant steel plates for marine construction structures, and Shougang's development of 0.07mm cicada-wing steel are high value-added products that have made significant contributions to the company's profitability.

2. Development of high cost-performance products for synergistic efficiency improvement of quality and cost. With equipment upgrades and technological advancements, the phenomenon of "excess" quality has to some extent eroded the space for cost reduction. By strengthening in-depth communication and cooperation with downstream customers, building an EVI (Early Vendor Involvement) model, such as deploying teams to work with customers in the automotive, equipment, and parts industries to jointly develop high cost-performance materials, achieving collaborative innovation in materials, design, and manufacturing, meeting customer quality requirements while reducing production costs, achieving a win-win situation.

3. Creation of new business models, transforming from manufacturing to service. Building an integrated industrial chain digital ecosystem to provide personalized services such as on-demand material selection, on-demand production, on-demand customization, and on-demand delivery, achieving real-time sharing of data on demand, production, and transportation. A large domestic enterprise has built a "steel material solution library" to provide customers with one-stop service for material selection, processing, and failure analysis, achieving value-added and profit creation.

II. Empowerment of New Productivity, Promoting Cost Restructuring

During the 14th Five-Year Plan period, reduction in production is a major characteristic of the steel industry's development, and market competition is becoming increasingly fierce. Steel enterprises must actively embrace new productivity to promote cost restructuring.

(1) Digital Empowerment

Promoting digital management throughout the entire process, covering automatic identification and management of raw material entry, raw material proportioning for blast furnaces and converters, intelligent production scheduling, online monitoring of quality defects, and sales strategy formulation. Achieving lean and efficient management of personnel, finances, and materials, and achieving cost reduction and value enhancement through digital intelligence and compliance.

First, full-process digital intelligence transformation. On the procurement end, building a digital management system to achieve unmanned procurement and entry inspection, resulting in reduced personnel, increased efficiency, and digital compliance. On the production end, applying digital twin technology to build a 3D model on blast furnaces to reduce the fuel ratio; applying process optimization models in steelmaking to achieve collaborative control of process quality and energy consumption; deploying AI visual inspection systems in rolling mills to improve the detection rate of surface defects. On the product end, developing a quality influence factor library to quickly and accurately identify quality defects and further improve product quality.

Second, flexible production organization. Promoting intelligent scheduling and plan optimization to optimize production rhythm and energy consumption in real-time, compressing order response cycles; configuring intelligent logistics systems to connect upstream and downstream supply chains and internal logistics links, optimizing multimodal transport of bulk raw materials, shortening process connection times, etc. A domestic company implemented a "T+3" order management model, reducing the delivery cycle by 50% and increasing the inventory turnover rate by 1.8 times.

Third, prediction of equipment failure rates. Building an equipment failure prediction system, implementing equipment lifecycle management, equipping equipment with sensors and AI monitoring systems, monitoring equipment operation data in real-time, proactively identifying equipment anomalies and promptly feeding back to management personnel, optimizing equipment maintenance cycles, and reducing the rate of non-compliant operations and accidents.

Fourth, robot job replacement. In high-temperature, high-risk jobs such as blast furnace front operations, high-load scenarios such as overhead cranes, and toxic environments such as gas leak inspections, 3D robot replacements are being implemented to improve safety levels and working conditions. In some repetitive and routine office scenarios, Robotic Process Automation (RPA) robots are deployed to accurately process data and reduce human error.

(II) Green Empowerment

Green and low-carbon development has become a global consensus. Relevant industrial policies in China are becoming increasingly clear, and greening has become a "hard constraint" for the development of steel enterprises. How to turn pressure into motivation and cost into benefit requires the following work.

First, "offsetting" environmental protection costs. Leveraging the positive effect of increased efficiency from environmental protection facility investment to offset increased operating costs to a certain extent. Strengthening the enclosure of material yards and material recovery management to minimize material loss, improving the secondary utilization of dust removal ash to achieve value creation and efficiency improvement, such as Tata Steel in India developing a technology for zinc extraction from blast furnace dust, annually recovering 12,000 tons of zinc metal. Leveraging the advantages of ultra-low emission transformation and environmental protection performance to achieve A-level rating, being selected as a benchmark demonstration plant for ultimate energy efficiency, and a leading standard enterprise, to gain environmental benefits.

Second, ultimate energy and carbon synergy. Taking ultimate energy efficiency as the main line, promoting the transformation and upgrading of raw material structure, production line equipment, and process flows towards energy saving, emission reduction, and carbon reduction synergy. Building a collaborative management mechanism, refining key control links and points, and comprehensively promoting energy saving, emission reduction, and carbon reduction in various processes, production lines, and equipment. Constructing an energy and carbon intelligent control management platform, connecting energy and carbon data streams, optimizing energy and carbon management online in real-time, and gradually realizing the transition from energy consumption control to carbon management.

Third, support from "carbon infrastructure." Systematically promoting the construction of capabilities such as "carbon systems, carbon platforms, carbon labels, and carbon stewards," focusing on building three core functions: "platform + mechanism + ecosystem," to build a low-carbon infrastructure system covering the entire industrial chain. Forming a full-chain service capability covering carbon data management, carbon asset operation, and carbon technology transformation, providing one-stop solutions from carbon compliance to carbon profitability, and promoting the transformation of industrial green transformation from cost burden to value creation.

(III) Innovation Empowerment

Under the current market conditions, innovation is the key to cost reduction in the steel industry. Innovation is not easy, but only continuous innovation can break through the ceiling of cost and quality. Steel enterprises should attach importance to and strengthen innovation-driven development, doing the following work to help reduce costs and increase efficiency.

First, benchmarking to promote process technology innovation. Strengthening benchmarking with leading international and domestic enterprises to identify problems, find gaps, and promote process optimization, quality improvement, cost reduction, and efficiency improvement in enterprises. Strengthening the research and analysis of high-quality patents, using the experience of others, obtaining innovative inspiration, promoting process technology innovation, and helping to reduce costs and increase efficiency.

Second, collaborative driving of product research and development innovation. Strengthening cooperation and coordination with research institutions and downstream enterprises to accurately and efficiently identify downstream needs and requirements, taking the main line of solving performance defects, reducing costs, providing cost-effective materials, and achieving win-win results in the industrial chain, jointly carrying out product development, continuously developing and launching new products, and forming innovative competitiveness.

Third, standard-leading management model innovation. Formulating and optimizing standardized operational specifications for posts, equipment operation, inspection, and maintenance standards, improving the efficiency of work processes and resource allocation; promoting the standardization of sales order receiving, production manufacturing, logistics transportation, product delivery, and service models, controlling costs and quality from the source, continuously improving brand influence, and achieving brand premium.

Fourth, mechanism to stimulate grassroots innovation and cost reduction. Establishing an innovation mechanism to stimulate the enthusiasm of all employees to reduce costs and increase efficiency, encouraging grassroots employees to participate in innovation projects to reduce costs and ensure quality, creating an innovative ecosystem of "small innovations, large cost reductions," and forming a joint force for innovative cost reduction.

Fifth, industrial chain co-construction to enhance competitiveness. Carrying out industrial chain co-construction with upstream and downstream enterprises, through resource integration and sharing, technological innovation and supply and demand coordination, risk sharing and benefit binding, to build a more resilient and competitive industrial ecosystem, and to achieve a shift from single-enterprise competition to collaborative development of the industrial chain.

III. Conclusion and Suggestions

Since the "14th Five-Year Plan," sustained reduction in demand has exacerbated the imbalance between supply and demand, and cost reduction and efficiency improvement are important levers for the survival and development of enterprises in the current period and the "15th Five-Year Plan" period. Traditional cost reduction paths have approached the efficiency boundary, and digital cost reconstruction throughout the entire process has become the key to breaking the deadlock.

In addition, capacity governance is the core path to resolving the cyclical predicament of the steel industry and achieving sustainable development. It is suggested that the steel industry comprehensively implement "three reductions" control, namely reducing production capacity equipment, reducing output, and reducing the number of enterprises, to break through the bottleneck of high-quality development. First, adhere to capacity exit as the main approach, study and formulate clear standards for steel capacity exit, including environmental protection, technology, and economic benefits indicators, to guide enterprises and capacity to exit the market. Second, promote the reduction and restructuring of steel enterprises. Third, study and promote a new mechanism for quarterly (time-based) control of crude steel output, implementing precise policies based on time and location to arrange production rhythms, and achieving high efficiency and high efficiency of smelting equipment and facilities. Before the substantial exit of production capacity equipment, output control remains a key policy lever.