"Many thermoprocessing companies must reinvent their business model"
“Many thermoprocessing companies must reinvent their business model”
René Branders President of CECOF (European Committee of Industrial Furnace and Heating Equipment Associations)
What are currently the biggest challenges for companies in thermoprocess technology?
René Branders: With the Ukrainian war, the pressure on delivering solutions that integrate the energy transition has risen a lot. We notice that the topic is especially sensitive in Europe and the Middle East where the dependency on fossil fuel has become an issue. Both regions have reorientated their energy supply system; hydrogen and electrification are the pillars of the future. The question for the European thermoprocess sector is how to operate with an economically sustainable model without the guarantee to have gas all the time and with energy prices that reach seldomly seen summits. The pre-alert of gas shortage especially in Germany has pushed the awareness of the branch. All this has occurred in a period where the inflation and its impact on salaries and materials was already difficult to master. Furthermore, the Covid crisis has shown the industry’s dependence on qualified people and on the rapid support of suppliers in case of troubleshooting operations.
Decarbonization is the central issue for energy-intensive industries. How can CO2 emissions in heat treatment be reduced and brought down to net zero by 2050?
Many member states have different policies on this question. This doesn’t make the job easy for global suppliers. It is surprising that after seeing the tendency to use hydrogen, many customers today consider turning back to electricity. Each company’s individual choice depends heavily on the country it’s based in: Netherlands, Czech Republic or Romania for instance are focusing on electricity while Germany or Luxemburg still focus on the production of hydrogen. We don’t have a united technical answer amongst the member states. Hybrid systems combining both electricity and gas combustion are a trend today for some types of equipment. They combine the advantages of using gas and the guarantee to have electricity. However, the question related to the level cost of KW (electricity and gas) is still driving the choice of the market. It’s certain that if we stick to the EU 2050 Commitment, we need to have much electricity or gas to produce hydrogen. It’s a long way to establish the required infrastructure, and it will consume large investments.
Will decarbonization lead to a surge in investment in the industry?
Yes, it certainly will! Regarding electricity, we speak about a fundamentally different infrastructure. Just think about the management of the power station for an industrial thermoprocessing plant. On top of a very different equipment itself, the heating transfer by electricity is based on the principle of radiation, induction or eventually conduction. It fundamentally changes the size of the equipment compared to a direct firing equipment and the way to operate it. Also, it means a different approach to the atmosphere control and the metallurgy itself!
What impact do the exponentially increased energy and raw material prices have on the industry?
Many thermoprocessing companies must reinvent a part of their business model as the increasing energy prices have an impact on the whole value chain of products. Yearly contracts with a fixed price we used to have in the past make no sense anymore. Meanwhile, we experience a regrowth of interest optimizing energy consumption, which was often neglected by maintenance teams more focusing on a “fix & repair” approach. We see that prices of refractories, stainless steels and electrical components are almost impossible to predict on top of their delivery time. We have activated a policy to buffer
storage of critical components and reinforced some pro-predictive needs to stick with our usual delivery spans as much as possible. On the commercial side, since the equipment needs to be supplied within six to eight months, a pro-active liaison with the customer must be built on fair and open basis regarding the prices.
What role will hydrogen or other green gases play in the future for heating industrial furnaces?
Hydrogen will be an important combustible gas within more than a decade. However, the roadmap to a large scale-availability is unclear. Most heat processing plants won’t have instant access to pure hydrogen. The approach of using blended gas, probably up to 25%, to avoid too high NOX formations, is for them the most realistic solution to fulfill a step towards decarbonization. The use of pure hydrogen as combustible is raising real processing questions when the flue gases coming from the combustion are used as a reducing atmosphere in contact with steel products. Indeed, to achieve the equivalent reducing atmospheres with the flue gas products, we are close to explosive atmospheres and on top of this, hydrogen embrittlement of the steel may be an issue for some applications. Validation tests to clarify those questions must be considered before it is safe to implement these solutions.
There is a trend toward de-globalization. What impact can this have on export-strong companies?
The turmoil of uncertain shipping dates due to the recurring closing of ports, especially in China, has shown the weakness of global supply chains. More recently, the sanctions regarding steel products from Russia and Belarus have pointed out that the reliability of a supply chain depends on the proximity of the supplier. Consequently, we indeed see the reinforcing of small “pockets” of markets as transport costs of both raw material and finished products become very expensive. For instance, regions like East Africa are starting to work on their independence from China and operate locally with raw material that comes from much closer areas. The same is true for Central America. For exporters, transport costs have become an issue more than ever. Now a sharper focus must be put on key elements while the manufacturing of simple structures needs to be provided locally. However, if the product you sell reduces maintenance costs and increases the performance, end users will often choose it even if your company resides far off. Thanks to the remote maintenance systems we have today, distances often don’t pose an obstacle to high-quality service.
How do you rate Europe as a business location compared to other economic areas?
European economical partners are considered as most reliable: that’s a good thing! However, as the European market cannot be driven by a growing number of consumers due to low birth rates, the continent suffers from not having a transnational investment-program in large infrastructures that could boost its domestical market. I think the Green Deal will help here. Nevertheless, it is often
stated that the EU tends to develop too many regulations and directives to which the economical stakeholders don’t have the time to adjust or to build a sustainable business model. For example, I notice that in the thermprocess branch even our EN746-X standards are still unknown to some mandatory bodies or subject to a lot of confusion of interpretation. We see, however, that more and more European companies reinvest in Europe. Steel is a sustainable material and having our own “green steel production” makes sense. Meanwhile, the non-ferrous industry has is place in green electrification. But how to make such an approach economically sustainable is a difficult question. Therefore, the European Commission must be vigilant.
What role will the Chinese market play in the future?
The Chinese economy is in full transition as well. We observe the first economical decreases. But we’ve also recently seen the decision to stop coal-based electricity production. China remains the largest investor in green energy production, but the awareness of environmental disasters caused by companies is still missing. I’m sure that the Chinese government will tackle this topic soon. A new phase of investments will come, and it will be beneficial for their domestic economy. It would certainly be an opportunity for our companies to answer this ecological demand. Yet, we must wait and see how the Chinese Government’s policy on importing technologies will develop.
What were your first thoughts as the Russian attack against Ukraine began?
I never thought that such an event would take place, even though I know both countries well. Both share family in the other country, and Russian investments in Ukraine are important. I knew immediately that this situation would create a mess for Europe since Russia was a close commercial partner as a seller of gas but also as a buyer on several markets. Many European companies have invested in this country. It was obvious that energy would become the priority on the agenda of the European economy. Furthermore, Russia is a market that has invested for many years in the modernization of its steel industry. Ukraine as well was investing in this field -in fact, three days before the attack, our technicians were just returning form there. I believe that those markets will remain closed now for at least three years.
So what does the war mean for the industry?
War means uncertainties in all matters and requests to pilot much more “at sight” and being creative with your businessmodel. In this matter, the sanctions taken both by the US and Europe are not helping the industry, and some are suffering a lot. War also means the necessity to focus on markets that are safe of the direct economic consequence or to reshape your offer to customers In order to support them during this period. We see a very different point of view on the American continent where there’s “business as usual” while in Europe, investments decided much slower. But they are in maturation regarding the future perspectives to consider.
How can Europe accelerate the ramp-up of the hydrogen economy and renewable energies to be independent from Russian gas?
The hydrogen transition will start as soon as we have low and stable electricity prices. I believe that we must begin with a local approach, form nuclei, and from there on enlarge the network. Boosting investments on spot green electricity productions “by community” (e.g., by an industrial parc) is a good start, especially when combining the systems with plants for green hydrogen-production. Projects like the Port of Antwerpen develop this kind of a “hydrogen ecosystem”. The use of hydrogen must also be supported by incentives on paying less taxes. Furthermore, an approach of Public – Private partnership investments has enabled the adoption by users and lowers the investment costs which are considerable. One thing is sure: The path of generalizing the production and the use of hydrogen will be a very long winding road.