Development of an integrated cost model for steel production planning

Abstract

The international steel-manufacturing industry has been referred to as a driving force for industrial development, which is critical to a country's development. This industry is experiencing several challenges due to a reported surplus in production that is flooding the market. An excess supply coupled with high production costs affect the profitability of the steel manufacturing industry. Research indicates that 20% to 40% of steel production costs originate from energy expenses. Energy cost reduction measures can be used to reduce production costs in steel manufacturing. Cost reduction measures can improve the profitability of the industry and also stimulate the economy. Multiple existing production planning and energy management approaches aimed at cost reduction were evaluated. It was found that existing approaches lack an integrated solution. A need was identified to develop a new cost model for considering different plant sections, energy sources, and existing solutions and initiatives using an integrated approach. A new methodology was developed by focusing on the identification, evaluation, comparison, prioritisation, implementation and integration of steel production planning initiatives. The integration aimed to determine the effect that individual initiatives have on one another to prioritise solutions dynamically based on the most beneficial conditions. Theoretically quantified benefits were combined with practical constraints to realise this. The methodology was verified by the theoretical application thereof on a marginally profitable steelmaking facility. Historical data for a full year was applied to the methodology to evaluate the effect of five identified initiatives, which resulted in an annual potential cost benefit of R11.9 million. This is significantly more than the theoretical benefit of R3.4 million that was obtained using a non-integrated approach. The methodology was validated with a practical application on the same facility. Two of the initiatives were implemented with an estimated annual cost benefit of R13.3 million. A comparison between the theoretical and practical applications provided a valuable platform for evaluating the methodology. Additionally, extrapolation to the South African steel industry indicated a potential impact of R60 million per annum. The use of the integrated cost model thus addresses the need to reduce energy costs in steel manufacturing.