T-Steel

T-Steel technology results in higher usability and yield strength steels with measurable energy and emissions savings


T-Steel technology involves special enhancements to the manufacturing process, including the additions of certain appropriate standard alloys where required. The technology process involves certain exactly defined parameters, micro-alloying technologies and other ancillary operations which are used during the manufacturing process. T-Steel has higher strength and significantly improved mechanical parameters compared to conventional steel products, including a higher usability strength and higher yield strength. Measurable savings in energy requirements and emissions are also available in most T-Steel types, meaning the carbon footprint produced by the worldwide steel manufacturing industry can be decreased by using the T-Steel manufacturing technology.

T-Steel is a generic code name for premium grade special steels produced in a Central European steel plant from the mid 1970’s to 2004. Some products were produced, for example, as special orders for certain clients who specified exact parameters and quality controls. The quality of the produced steel was required to be comparable or better than the comparable equivalent grade US or German manufactured steels. For the commercial applications the specifications were equal to or higher than the highest grade of standards steel types.

In very general terms, the technology involves the enhancements to the actual manufacturing process, including the additions of certain appropriate standard alloys, where required. The process relies in part on exactly defined parameters during the manufacturing process which were derived at as a result of over thirty years of testing during the actual manufacturing process rather than laboratory tests. It is important to note that the product testing and development involved continuous manufacturing runs in commercial quantities until the desired quality was reached. Research and development in this manner would be financially impossible today under the current conditions.

Incept has been conducting commercially representative test manufacturing operations during the first half of 2012, with promising results. The tests, which were carried out by the independent SGS-accredited, Metalcontrol Labs, were calculated on a number of variations under a ‘worst case’ scenario in order to simulate an extremely poor plant infrastructure. The results achieved during the test manufacturing showed that the combination of the actual physical process, and that of the metallurgical technologies as detailed in the IP, were able to produce substantially improved results in both the physical characteristics and emissions, when compared to emission data available on standard integrated steelmaking and the standard St 52-3 A (DIN 17100, EN 10025-1 2007) as manufactured by a leading steel manufacturer.

A summary of the test results are as follows, with improvements over standard integrated steelmaking and the standard St 52-3 A (DIN 17100, EN 10025-1 2007), as manufactured by a leading steel manufacturer:
• Improved yield strength: 26.6%
• Improved tensile strength (Rm): 12.3%
• Improved resistance against brittle fracture: 10.9%

Grade Identification Rp02 N/mm2 Rm N/mm2 Rp02/Rm
Reference material: St 52-3A (DIN 17100, EN 10025-1 2007) TKF 409 557 0.73
T2 (St 52 – 3KG) 494 623 0.79
Improvement compared to the reference material certification T2 (St 52 – 3KG) 23.2% 11.8% 6.8%
Average result improvement T2 (St 52 – 3KG) 26.6% 12.3% 10.9%

The test results show that an average or below average plant would be able to produce steel of a vastly improved quality. The advantages of T-Steel, even in its lower stratifications are clearly shown by the above parameters; durability and special structural properties. The report also states that ‘additional improvement can be reached’ by the application of other standard technical procedures such as injection technology and closed continuous casting methods. This translates into an improvement of at least 10-15% above test results in absolute terms, when the technology is applied in a relatively standard factory which already has the infrastructure for the above technologies. The report also notes that during the current tests, the amounts of micro-alloying components were not at their highest level, therefore extrapolated increases in the quantity of micro alloying of the magnitude ranging from 0.03 to 0.55% for specific components would result in even higher strength.


Lighter Structures

Higher tensile strength
Better machineability
Higher fatigue limits
Improved longevity

The developers have stated that in an appropriate standard manufacturing environment, the improvements over and above the test results can be in excess of 25% in absolute terms. The report concludes that the ‘product of the detailed T-2 technology (pilot manufacturing) has better mechanical characteristics such as strength, yield, stiffness and resistance against brittle fracture than the product made by traditional technologies. Therefore the mass of the structure can be reduced for the same application.
In industries such as the automotive and mining industry machinery, the above improvement in yield strength without compromising weldability as shown in the table below.

The improvements in the characteristics of T-Steel over standard steel types are substantial, with a proven commercial history, and will provide significant economic benefits for steel plants where the technology is introduced. The gains translate into cost effective manufacturing methods so that the price of the steel which is manufactured does not contribute towards increased manufacturing costs. In other words, better quality steel can be produced without significant levels of infrastructure investment.

Mission Statement

The T-Steel business aims to:
• Deliver significant economic benefits to “average” or older steel mills who currently manufacture standard, construction-oriented low profit steel products
• To bring T-Steel products to the market globally

History and Current Status

The development of the technology has spanned a period of over 30 years. In the Central European steel plant, the technology was used to manufacture various “special” orders between the late 1970’s through to 2004. The IP which has been signed over to Incept does not involve a new material or a new substance; it is merely a result of significant technical improvements in the manufacturing process for existing product groups.

Objectives

Over the first 15 years, the T-Steel business is provisionally expected to gain a market share of 1.7% of the global steel market.
Incept is able to choose if it wants to target different geographical markets at the same time. The technology can be used as a cost efficient way of entry into the EU and other steel markets. The target markets include the highly profitable automotive and rotating components manufacturing segment.
It is a priority to pursue the mini steelworks model because of certain strategic and market opportunities presently available.

Products

Features
T-Steel manufacturing methods are standard processes either using EAF or blast furnace technologies. In general, factories already producing certain steels, for example, construction and stainless steels, do not necessarily require expensive upgrades and investments in extra equipment should they wish to introduce the technology. The factories would be able to manufacture a number of T-Steel products cost effectively, and thus enter different and more profitable markets.
T-Steels types are sub divided into 9 categories and these categories actually cover a large family of steel types. The table below also summarises the stratification of products, as covered in the IP which is owned by Incept. Steel types are listed from T1 (Structural Steel) through to the premium grade high category specialised steels (T9).

These T-Steel types broadly replace existing steel categories and as such have multiple market applications for end user industries. T-Steel production is able to produce steels which can be sold on a higher category market because of their increased strength and other improved properties, which presents strong opportunities for T-Steel.
The key advantages of T-Steel can be summarised as:
• Substantial yield savings
• Significant reduction in alloys used
• Tangible and significant energy savings during the refining process
• Improved physical properties as compared to normal HSLA steels

Benefits
Based on the technical documentation and manufacturing records, T-Steel has higher usability strength and higher yield strength compared to conventional steel. T-Steel properties such as increased yield strength, weldability and machinability are superior to the properties exhibited by the standard steels of similar category and composition.
The technology is able to produce measurable savings in energy requirements and emissions, but this would depend on the particular factory and the type of steel being manufactured.
When T-Steel technologies are incorporated into the standard steel making processes, the results are much improved physical characteristics such as higher tensile strength, better machinability and higher fatigue limits. Considerable savings can be realised during the manufacturing process in terms of manufacturing costs versus energy output and reduced CO2 emissions by up to 50%.
The T-Steel technology is likely to deliver most economic benefits to standard steel mills that are currently producing construction and reinforcement steels. These manufacturers are able to thus enter a higher category and more profitable market by being able to produce premium quality steels, for example to the automotive manufacturing segment.
Emission requirements are of great concern for the steel industry. This provides a favourable environment to the introduction of T-Steel. The carbon footprint produced by worldwide steel manufacturing activities can be decreased with the contribution of T-Steel manufacturing technology. Owing to the T-Steel manufacturing process the quantity of emissions can be measurably less than the emissions produced during the standard manufacturing process.
The source of the cost savings and benefits of manufacturing T-Steels can be summarised as follows:

  • In general, factories already producing certain steels for example stainless steels, do not necessarily require expensive upgrades and investments in extra equipment
  • There is a strong market requirement for high quality steels which can be utilised in many applications. The technology aims to make it possible for “average” or older factories to manufacture a number of T-Steel products economically, and thus enter a different and more profitable market. The advantages of T-Steel which can be translated as savings, are:
    • Substantial yield savings
    • Significant reduction in Alloys used
    • Tangible energy savings during the refining process
    • Decreased CO2 emissions
  • A particular type of steel can be improved to such an extent that it can easily move up into the next premium category without a huge increase in the manufacturing cost, and can thus be sold with the premium price tag. This is simply a maximisation of profits for a premium product without having to increase internal costs of manufacturing
  • The premium and profitable markets include such components as high speed train running gear as well as highly-alloyed grades of steel made to order. High wear-resistance type manganese steels are used for making railway gearboxes and in the mining industry. The savings are realised with the T-Steel manufacturing process.
  • According to the analysis of the reference properties of various T-Steels, the specific energy consumption projected on specific mechanical property is 32% and 78% less than that of conventional steels. The characteristic weighted value is about 70%
  • The specific carbon-dioxide emission of an electro steel mill producing yearly 360,000 tonnes liquid plain structure carbon steel is 0.157 tonnes CO2/t liquid steel. This value extrapolated for various T-Steels and this means that the carbon-dioxide emission projected on specific mechanical property is estimated at 0.05 tonnes.

Proprietary Rights
The manufacturing process, methodology and the technologies are fully documented in the intellectual property held by Incept. The IP covers the manufacturing technology process which includes certain micro-alloying procedures and this technology is able to produce significant technical improvements in the physical properties of steel such as yield strength. Additionally, Incept is able to leverage the additional benefits of the technology which include reduced CO2 emissions and in some instances, reduced energy requirements.
Incept also owns the intellectual property for a premium grade, high category, high purity, high durability, ball bearing steel.
Stage of Development
The viability of the technology has been verified by independent technical experts. T-Steel is ready for commercialisation following the acquisition of a steel manufacturing plant to serve as a sales vehicle in the entry to the different segments of high end steel markets.

Market and Industry Analysis

Market Size and Growth
2010 was the year of recovery for the steel industry after the economic crisis. The upturn came earlier and significantly stronger than anticipated. The trend is expected to remain on a moderate but solid growth path in the medium term. This is an advantage for the current introduction of T-Steel into the markets.
As the economy continues to rebound from the economic downturn, the automotive industry provides significant growth opportunity for high-end steel products.



Regarding the geographical distribution of demand for steel products, a great restructuring has taken place in the last decade. Most notably, China has gained strength while Europe and North America took a smaller share of global steel use.


Trends
The largest portion of steel products have been utilised by the construction industry. Historically, the global construction industry provided stable demand for a wide range of steel products.


The steel industry followed a long-term trend of significant growth in the 6 years before the 2008 global economic downturn. As the recovery from the crisis proceeds, the positive trend is growing momentum again.
In 2010, global apparent steel use amounted to 1,284 million metric tonnes, which represents a 13.9% rise compared to 2009, and a 4.9% increase compared to the pre-crisis peak of 2007.

Construction

Before the 2008 global economic downturn, the construction industry was facing growing pressures, originating from lack of available resources and rising material costs.
According to the Global Construction Perspectives’ outlook, China will account for one fifth of the global construction industry by 2020. Growth in China is mainly driven by non-residential structures and infrastructure.
The EU construction sector showed slight recovery in 2011 as investment in construction picks up, after an overall 2.1% decline in activity in 2010. The 10 year forecast indicates that emerging markets will rapidly overtake the construction output of their developed neighbours.
Steel products are mainly used for civil engineering and construction purposes are general-purpose steel, i.e. commodity items. They include:

  • Construction Steel
  • H beams and other shapes
  • Pipes
  • Sheet piles
  • Galvanised steel sheets and other coated sheets
  • Heavy and medium plates
  • Steel sheets
  • Other secondary and tertiary wire rod products

Between 2000 and 2009, production growth was led by China, India and Brazil. The fastest growing country was China, where the volume of production became seven times higher, turning its market into the biggest in the world with 13.8 million manufactured automobiles in 2009.
Between 2000 and 2009, traditional car manufacturing countries like USA and Germany suffered a significant decline in the production of automobiles. According to provisional statistics, approximately 77.6 million vehicles were produced globally by 50 manufacturers in 2010.
Consolidation will continue in the sector in the medium term, driven by mergers especially in China. It also enables manufactures to respond with more flexibility to demand of fast growing segments of car buyers in emerging markets. Growth in emerging markets is creating entirely new classes of potential automobile customers.
An average passenger car is made of approximately one tonne of metal, of which steel represents between 60-80%. Surface treated steel sheets are the main products used for vehicle manufacturing.
To reduce the CO2 footprint of cars, the industry is supporting the development of stronger steels to reduce weight without losing stability. The use of light-weight materials is being considered, but steel is not fully substitutable. Steel is expected to continue to be the material of choice with limited substitution possibilities.
In 2010, the machinery industry amounted to approximately EUR 137 billion globally, representing a compound annual growth rate (CAGR) of 2.4% for the period spanning 2006-2010. Driven by emerging markets, the performance of the machinery sector is forecast to accelerate, with an anticipated CAGR of 9.1% between 2010-2015.
Although developed countries’ market share in high-end machinery products decreased in recent years, they still have significant advantages against China. The automotive industry is the largest customer for the machine tool industry. A significant part of machinery equipment components are produced through cutting and welding flat steel products. Bars, sheets and pipes are widely used in the machinery industry.

Industry Structure


Competitive Environment


Competition

Competition is fierce in the steel industry, as a few major global players are accompanied by a large number of small producers. There is pressure on cutting production costs and using resources more efficiently. This is expected to facilitate the introduction of T-Steel.


Opportunity

According to the Global Construction 2020 Report, prepared by Oxford Economics, emerging markets will dominate the global construction output growth. Construction in emerging markets is expected to more than double in size by 2020.
Japan’s construction growth is expected to be the lowest of the major markets, while India and China are expected to show amongst the highest growth rates in construction in the period until 2020.
Eastern Europe is expected to outstrip Western European countries, Romania and Russia are expected to be one of the 10 fastest growing markets over the next decade showing more than 6% annual growth.
In the USA, after the modest performance of the automotive industry in 2010, general revenue is estimated to grow by 9.3% annually over the five years to 2014.
Asian countries, especially China and India, are expected to account for 40% of growth in the automotive industry over the next 5 to 7 years. The European automotive industry is estimated to resume its 2007 performance by 2014.
Following double digit decline in 2009, the global machinery industry has started to recover and achieved 10% market growth in 2010.
The global machinery manufacturing market is expected to grow by approximately 12% in 2011.
Due to the long-term trend of increasing demand for steel, crude steel production also followed a strong trend of growth. Furthermore, several capacity increasing investments were made, which resulted in global steel production capacity in 2010 being 81% higher than 2000. 57 million MT of additional expansion plans have been announced for completion for the period 2012-2020.
The EAF steel-making process is gradually gaining ground on a global scale. However, especially in developing countries, the BOF process takes a large share of production.
These two steel-making processes have very different input requirements. While the BOF process requires a larger range of inputs, of which iron ore, coking coal, steel scrap are the most significant, the EAF process requires large amounts of steel scrap for production.
As a consequence, steel mills using the BOF process are prone to price changes in basic natural resources. However, EAF mills are mostly prone to changes in the availability and price of steel scrap.
The price of all of the key inputs increased significantly in the last decade. They reached their peak in 2008, before the global economic downturn impacted raw material prices.


Marketing Plan

Target Market Strategy
Phased introduction of T-Steel to key target markets is aimed to ensure the realisation of the product’s growth potential. Incept is targeting 3 main industries – Construction, Automotive and Machinery – but is committed to being a wholesaler and is likely to deal on a wholesale basis into key markets.
The advantages of T-Steel enable steel mills producing lower quality steels to enter the market of high-end steel products. It is estimated that currently up to 20% of the total steel market is occupied by premium quality steel. The target market is this segment.
The key target market for T-Steel is the automotive industry, while the global construction industry and other steel markets may also provide opportunities. The automotive industry offers significant growth opportunities for manufacturers of premium grade steels (ie. T/4 to T/8)
There is scope for commercialising the technology towards factories currently unable to produce high-end steel in an economical and less capital intensive way.
Positioning
The aim is to market T-Steel technology globally. The investor groups are able to capitalise upon the profitability based on the demand for high quality, long life steels which are used in situations such as high demand engines, turbines and the aircraft industry. These will guarantee premium pricing and hence maximum returns for investors.
In order to gain market share, there is a need to establish a number of sales centres in key targeted geographical locations. These centres will comprise of an optimal mix of sales and technical staff to allow smooth introduction of the licenced technology in the factories of each region.
Pricing Strategy
Sales activities will be directed to the high-end steel market segments, as above average margins may be achievable there.
In addition to the current price and margin difference of low grade steel production compared to Incept’s reference group of steels, there is a significant quality and cost advantage also of T-Steel technology compared to the average of each reference group. This cost efficiency and quality niche also represents additional profit expectations in Incept’s calculations.


Sales Strategy

The first phase of the marketing strategy involves the acquisition of a steel manufacturing plant to serve as a sales vehicle in the entry to the different segments of high end steel markets, with special attention to the automotive sector. In the next phase, after the initial success, sales centres will be established in key targeted geographic locations and the sale of licences of T-Steel products will start targeting steel mills producing lower quality steel products. Steel mills producing licenced T-Steel will be provided with R&D support to maintain long-term profitability.
Phase 1: It is assumed that the investor group will purchase a European steel manufacturing plant with a production capacity of 300,000 tonnes annually.
One key strategy is to introduce the T-Steel technology to the automotive sector providing an excellent long-term opportunity for the company, as there is a justified need for ultra-high strength but easily formable steel. However, due to the longer lead time of the procurement process of car producers, it is expected to take a few years until direct sales will grow to a significant level.
High-end technology markets also promise potentially higher profit contributions: the IP owned by Incept contains the production specification and manufacturing technology of premium high grade, high category, high purity, high durability, long-life, ball bearing steel, suitable for applications for aircraft and nuclear plan components and turbine manufacturing.
It is assumed that Incept will target and sell T-Steel products in various geographical regions. Following the European introduction, gradual expansion to USA, China and Brazil is scheduled. As a result of this globalisation strategy, T-Steel is expected to gain an increasing market share in the global steel market.


Operations Plan

Operations Strategy
Incept is currently in the process of assessing two imminent steel plant acquisitions to embrace T-Steel technology and enable to company to bring T-Steel to market. The proposed acquisitions will be able to cover a very broad spectrum of steel products ranging from high quality weldable construction steels to steels required for critical applications such as ball bearing steels and turbine components. It is anticipated that production will commence within 6 months following acquisition. Both steel mills are situated in the Central European region. These acquisitions will place the company in a prime position to be able to supply much sought after and extremely profitable premium quality steels to the European region, along with other world markets.
A sale and purchase agreement is intended to be negotiated in the coming months, with the final acquisition including ownership of an energy supply company on the site, along with an integrated research and development centre where T-Steel will be further developed for special, high reliability applications.
The purchase price of the steel plants is expected to be USD 40 million each (for a 51% interest). Both acquisitions would be extremely well placed in terms of marketing strategies and potential profit:

  • Acquisition 1: A factory which has the ability to produce high quality premium grade steels, including a metallurgical research centre
  • Acquisition 2: A factory which is currently producing ordinary quality reinforcement steels but has the potential to produce T1-T4 steels.

The main advantage of the acquisitions is that Incept can have a stable and pre-positioned market within the EU, with the formerly accepted older steel standards. The initial and guaranteed market will serve as a springboard for the quick introduction of the higher quality and more profitable T-Steel products.
The added attraction of the aforementioned acquisitions is that the projected acquisition cost is well below the acquisition value of an existing and working European steel manufacturing company with an annual capacity exceeding 500,000 tonnes.
During recent meetings in Budapest and in Germany, a major global steel trader has agreed in principle to fully support the proposed acquisition by Incept of the Central European steel mills. One of the world’s largest steel distributors has agreed in principle to buy a quantity in excess of 400,000 tonnes per annum. The main requirement is the ability to produce consistent high grade premium steels according to the required specifications and the introduction of the T-Steel product line.
The required specifications are as follows:

  • Agreed in principle to buy quantity in excess of 400,000 tonnes per annum
  • Yearly supply contract. This is normally determined in the last quarter of the previous year
  • Forward planning and modifying orders on an economical scale
  • Technical-marketing assistance to the marketing department of the steel works
  • “Sequential Supply” on a case-by-case basis – in the event of a requirement for a small and uneconomical quantity, the merchant will purchase and store a larger manufactured quantity. For example in the event that a 25 tonne order is required, which is much less than the capacity of the oven, a quantity equal to at least 2-3 times the capacity would be purchased. This would maximise manufacturing capacity without waste
  • The distributor has extensive markets at its disposal for premium category, high profit margin steels used in automotive manufacturing, nuclear industry and aircraft industry
  • Up-Front payment for orders prior to delivery as per contractual agreement
  • Flexible pricing structure which takes into account currency fluctuations and raw material price fluctuations as they happen. This allows for the steel works to be able to plan without having to consider the above crucial factors

The mills will be operated by an experienced labour force, headed by the company’s key staff, all of whom have decades of experience in high grade steel manufacturing.
In the initially acquired steel mills, the company will gradually increase T-Steel production to meet preliminary demand. Customers will have the option to order ready-made T-Steel products instead of their existing high-end steel procurement.
Incept is willing to establish strategic relationships with major steel wholesalers and end users.
Following the instruction of T-Steel products into the market, Incept will sell the licence of the technology to other steel companies willing to produce T-Steel themselves. Applying the T-Steel licence in an underperforming factory may provide a breakthrough by increasing the quality of steel produced without substantial investment into upgrading the facility and equipment and developing a similar technology in-house would be an impossible job for these companies both in terms of time and investment required. Incept plans to spend over EUR 700 million on R&D over 10 years.
The licence of the technology will be sold through sales centres located in different regions around the world. These centres will offer the technology together with related services that facility the successful implementation of T-Steel technology in the region’s steel mills. While maintaining the protection of know-how, T-Steel will be spread across the market in an accelerated way.
Incept is able to run an initial test production of T-Steel in the factory of a potential client to demonstrate its feasibility and the business potential based on the technology available at the client’s premises.

Scope of Operations
T-Steel operations will consist of producing T-Steels through an acquired steel-mill and potentially licensing the T-Steel technology to underperforming steel mills. Advisory services will have a lower level of contribution to the revenues. These services are in fact the main marketing channels for the T-Steel market penetration. Advisory services are also the basic requirement of successful implementation of the technologies and a key element of high-level and long-term customer satisfaction.


Development Plan

Development Strategy
Incept is in a controlling position to choose different investment vehicles and set up different channels for multiple business opportunities for present and future investor groups. Early investors would have an advantage.
In order to maintain the attractiveness of the T-Steel offering to the market, Incept aims to set up a sophisticated R&D centre to work on the refinement of the high-end steel technology owned by Incept.
The gradual upgrades resulting from the R&D activities are expected to slow down the gradual evaporation for the initially high margin of produced and licensed T-Steel production, allowing an above average lifespan for the technology. To provide an extended period of competitive market advantage, Incept considers a cost-efficient and well-focussed, controlled R&D activity a fundamental requirement.