World history of the Steel Industry

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Steel, the most common metal alloy in the world, consists of iron and varying amounts of carbon. The evidences of iron and carbon since ancient times, is followed by that of steel.

Ancient Steel and Crucible Steels

The earliest evidence of the production of steel comes from the Indian Subcontinent in 300 BC. Later in the 5th century Chinese prepared Wootz steel, the first crucible steels, and widely exported and traded throughout ancient Europe, China, the Arab world, and it was popularly known as Damascus steel in the Middle East.

The Cementation Process

The next step in steel production was the cementation process, wherein highly valued Swedish iron bars, with low natural impurity content, were packed into stone boxes in layers with charcoal in between them and heated in a furnace for a week. The product was called blister steel. A number of blister rods were then wrapped into a larger bundle and re-heated and hammer-forged to mix together and even out the carbon content, resulting in the final product, shear steel. Germany well invested in this process and became a major steel exporter in the 18th century.

In England, Benjamin Huntsman, perfected the Huntsman's process. This discovery enabled Sheffield, where Mr. Huntsman operated, to develop from a small township into one of Europe's leading industrial cities.

Another form of crucible steel was developed in 1837 by the Russian engineer, Pavel Anosov. His technique relied less on the quenching process of rapidly cooling the molten steel when the right crystal structure had formed within. He called his steel bulat. However, the technique remains unknown.

The history of worldwide steel making activity through the ages can be summed up by the trend line:

Modern Processes

The Bessemer process, patented in 1855, was the first inexpensive industrial process for the mass-production of steel from molten pig iron. The key principle in the Bessemer process is the removal of impurities from the iron by oxidation with air being blown through the molten iron. The oxidation also raises the temperature of the iron mass and keeps it molten.

The major contributions of Bessemer process were:

Decrement in cost of production, labor requirements.

Increment in speed and scale of production.

Manufacturers turned to steel

Construction of railroads, skyscrapers, and large ships took a leap and production of steel products and powerful guns & carriages were also promoted.

However, Bessemer process had some limitations :

The heating time of 10-20 minutes allowed little time for chemical analysis or adjustment of the alloying elements in the steel.

Bessemer converters did not remove phosphorus efficiently from the molten steel; as low-phosphorus ores became more expensive, conversion costs increased.

The process only permitted a limited amount of scrap steel to be charged, further increasing costs, especially when scrap was inexpensive.

Certain grades of steel were sensitive to the nitrogen which was part of the air blast passing through the steel.

After this, improvements such as the Gilchrist-Thomas process, which lined the converter with a basic material to remove phosphorus, and the Siemens-Martin process (open hearth process) which complemented the Bessemer process, were merely stop gap measures before the next major innovation came along.

Such an innovation was Basic oxygen steelmaking, developed in 1952. Modern furnaces , using this method, take a charge of iron of up to 350 tons and convert it into steel in less than 40 minutes. Blowing oxygen through molten pig iron lowers the carbon content of the alloy and changes it into low-carbon steel.

Another major process used today is the electric arc furnace method , started in 1907 in United States.

Another good way is production of steel by directly reducing the iron ore powder through heating and chemical reduction by natural gas, popularly known as Direct Reduced Iron.

Comparison of the production methods

While DRI is in general a more expensive process than reducing the ore in a blast furnace, there are several factors which can make it economical:

Direct reduced iron is richer in iron than pig iron, 97% pure iron as opposed to about 93% for molten pig iron, and an excellent feedstock for the electric furnaces used by mini mills, allowing them to use lower grades of scrap for the rest of the charge.

The direct reduction process uses powdered ore, avoiding the sintering process otherwise necessary to use this ore in a blast furnace.

The direct reduction process can use natural gas contaminated with inert gases, avoiding the need to remove these gases for other use.

Supplies of powdered ore and raw natural gas are both available in areas such as Northern Australia, avoiding transport costs for the gas.

Steel Industry in India

The roots of the Indian Steel industry in modern times can be traced to the year 1874, when a company called Bengal Iron works at Kulti near Asansol in West Bengal produced iron. One of the most important landmarks in the history of Indian steel industry was the commencement of the Tata Iron and Steel Company at Jamshedpur in the state of Bihar, now Jharkhand, in 1907.The other prominent steel manufacturers before independence were Indian Iron and Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel Corporation of Bengal (1937).

After independence, to overcome the hindrance of high cost of developing technology in steel sector, the government decided to go in for synergies with other countries for transfer of technology. Some of the prominent steel plant set up then was in Rourkela in collaboration with West Germany and in Bokaro in collaboration with Russia. They were under the purview of public sector enterprises, employing both skilled and unskilled labour. Regulation by the government market forces, obsolete technology, capacity regulation, price regulation and lacked customer orientation resulted in low productivity compared to international standards. The private players were in downstream production, which was mainly producing finished steel using crude steel products , till 1990s.

However, after liberalization in 1990s-a large number of controls were abolished, like some immediately and others gradually-the steel industry has been experiencing new era of development. Major developments that occurred at the time of liberalization and henceforth were:

Large plant capacities that were reserved for public sector were removed;

Export restrictions were eliminated;

Import tariffs were reduced from 100 percent to 5 percent;

Decontrol of domestic steel prices;

Foreign investment was encouraged, and the steel industry was part of the high priority industries for foreign investments and implying automatic approval for foreign equity participation up to 100 percent; and

System of freight ceiling was introduced in place of freight equalization scheme.

As a result, the domestic steel industry has since then, become market oriented and integrated with the global steel industry. Development of private sector has caused high growth in all aspects of steel industry that is capacity, production, export and imports. Also, the steel industry is receiving significant foreign investments such as POSCO-South Korean steel producer-and Arcelor-Mittal Group-UK/Europe based steel producer-announcing plans for establishing about 12 million tonnes (mt) production units each in India. The Indian steel industry, with a production of about 1 mt at the time of independence, has come long way to reach the production of about 57 mt in 2006-07.

Value Chain Analysis

Inbound Logistics:

It involves receiving and warehousing of raw materials from the suppliers, and their distribution to manufacturing units as per the requirement. The main raw materials in production of steel are Coke and Iron Ore. Raw material costs forms roughly about 62% of the total cost of production. The other major concern would be price of the materials.


As it suggests it consists of the processes of transforming inputs into finished products and services. Blast Oxygen Furnace (BOF) method and Electric Air Furnace (EAF) are the two major routes of production in modern times. The former one accounts for nearly 57% of total production, suitable for volume production, but the cost of production is high. On the other hand, EAF is rapidly gaining popularity and uses sponge iron/scrap and coke to produce steel. It provides the scope of producing different grades of steel, but is constrained by power and scrap supply constraints in India. COREX, an upcoming smelting technology, does not require coke in producing steel. It has a better prospect in Indian steel majors. The steel industry is an energy intensive industry with power and fuel contributing as much as 10.1% of total production costs.

Outbound Logistics:

It focuses on warehousing and distribution of finished goods. Indian steel player follow multi-national distribution strategy. Apart from exporting steel to foreign companies, they have expanded and acquired steel plants in other countries through business ventures as well as abiding by government policies. Today, Indian steel industry has a global presence and it very well caters the needs of customers across the globe. The steel market has been amazed by the sub-prime mortgage loan situation and the decline in the domestic auto industry.

Marketing & Sales:

Though this industry being an industrial goods one doesn't include or involve much of marketing and sale, the current marketing pitch is environmental friendliness and worker safety while maintaining competitive prices. Expanding in the small towns , establishing permanent contact with the local marketing officers are the strategies being used by big players to put across their message and reach out to consumers on the grass root level.


Steel Industry offers several services to its customers. In the domestic markets the customers usually relocate around Steel plants as the transportation costs involved are too high. Customers doing this achieve substantial reductions in cost and can work with companies to sync production schedules and use JIT.

For instance, Tisco has significantly reduced its costs by implementing the Total Operating Performance (TOP) concept across all processes. Tisco plans to achieve additional cost savings in the areas of strategic sourcing, inbound and outbound logistics, manpower and administrative costs.