Critical role of independent heat treatment industry in supporting industry decarbonisation

Heat treatment is a critical process, especially in the ferrous industry, that aims to strengthen and modify mechanical properties to meet specific service requirements of the component in the operating environment. Heat treatment broadly may be broadly segmented into those processes employed to enable forming of the metal product and those that are employed to impart specific mechanical properties to enhance strength, durability, surface hardening etc. The focus in a heat treatment industry is typically at the component level a product that is produced after some degree of cutting and machining.

The heat treatment process may be in-line or off-line depending on whether it is a component level heat treatment or substrate level. The substrate  may include flat rolled steel product  – plate, hot rolled coil, cold rolled and  others – and long products such as wire  rod, bar and others. The substrate heat  treatment is carried out in-line in the  form of annealing, quenching, normalising and others employing furnaces in-line. The component level heat  treatment involves specific components  such as blanks for fabricating automotive structural components, crank  shafts and others. These are generally  off-line heat treatment processes.  Both in-line and off-line heat treatment  processes require significant amounts  of energy and majority of the energy is  fossil fuel based such as natural gas, in  case of off-line heat treatment. Whereas, in case of in-line heat treatment a  mix of natural gas and off gases such  as blast furnace/ coke oven gas may be  used. As a result, the process is quite  carbon intensive irrespective of where  it is carried out. The steel decarbonisation initiatives  particularly in the EU is transitioning  from fossil fuel based to renewable  hydrogen DRI in the long-term resulting  in significant reduction in the availability of off-gases to support in-line heat  treatment furnaces. As a result, the heat  treatment facilities may have to develop alternative sources such as electricity-based heat treatment furnaces,  which is still to be employed at scale.  However, being part of the steel mill  production landscape, a feasible alternative will be developed in due course.  Moreover, with the steel mills already  funelling large amounts of capital into  the transition from BF-BOF to Hydrogen  DRI processes, it is not unreasonable to  expect capital support decarbonisation  to enable heat treatment furnaces in  the long term. However, off-line heat treatment facilities do not have the same advantage  and especially given the scale of operations may not be able to access capital  and other resources easily. The global  market for heat treatment was estimated to be $80-100bn and the growth is  mainly driven by China, India and others. Automotive sector is a key driver of  the growth especially with the development of sophisticated high strength  to weight structural components that  requires differential heat treatment.  This enables enormous weight savings and ultimately enhance the fuel  efficiency in IC/ Hybrid or range of the  vehicle in case of EV. Heat treatment, particularly off-line,  has a global presence and the nature of  the industry is broadly similar catering  to multiple sectors consistently all over  the world. Heat treatment industry is a  critical link in the global supply chain  across the sectors. The companies  operate on job order basis responding  to specific heat treatment requests from  larger companies. Although individually  they may be smaller in number and revenues, collectively they are extremely  critical in supplementing the strength  of the larger product manufacturer be  it an automobile production, turbine production, large industrial structure manufacture and others.

Although majority of the heat treatment  companies are small scale in nature, it  may vary with the sophistication of the  industry landscape. For example, the  heat treatment industry in Germany, is  estimated to produce ~4.5 mtpa of ferrous products which may include forged  and other components that require  heat treatment. There are ~900 installations in the country delivering a unit  scale of 5 ktpa per installations. This  underscores the small-scale nature of  the industry has a high concentration  of SMEs with 50 % of the installations  producing 26 ktpa. The scale of operations varies quite widely ranging from  1.6 kt/ installation to 47 kt/ installation.  The larger scale may be attributed to  some of the tier1 / 2 suppliers to automotive and other industries. The off-line heat treatment industry  consumes about 9 PJ/yr in energy and  majority of this energy is likely to be in  the form of fossil fuel leading to enormous carbon load. Similar such industries and perhaps on an even smaller  scale exist around the world, especially  in India, and others. With limited access  to capital and resources managing a  transition to decarbonised heat treatment facility may be a significant challenge. Moreover, several companies are  struggling under stressed economic  conditions and not to mention the high  cost of energy and electricity.  Heat treatment industry is a vital  aspect of the manufacturing industry  since it transcends every sector and is  extremely critical in enabling the sector  to meet their decarbonisation goals at  a product and corporate level. Hence  it is imperative to study the heat treatment sector in greater granularity to  understand and segment the issues  faced across the sector. Although, the  industry players are of smaller scale,  the specific requirements be it capital/ resources and competitive differentiators are hardly uniform.  To decarbonise the sector, it is important to establish linkages between the  companies and larger OEMs that they  serve to enable optimal technology transfer. Government incentives and  policy level interventions play a critical  role in supporting and developing these  crucial linkages. Although there may  be some incentives at a local/ regional government level, they may not be  adequate to address the deep-rooted  challenges in this sector. Heat treatment sector is linked to global supply  chain across the sectors and in particular automotive sector. Hence it is important to establish international  standards that may be either articulated at a process level or component level  based on the complexity. The emissions  standards thus set is important in preventing any carbon leakage. Standardisation enables better understanding  of the industry and plays a key role in developing financial instruments that  support the sector and ultimately enable the transition to low carbon processes cost effectively.