Shanghai Heat Treatment
This wide ranging interview with Mr. Kent Zuo, President of Owner of Shanghai Heat Treatment covers far more than just commercial heat treating. Kent’s thoughts on which technologies are growing, the effects of COVID both over the past two years and where the overall market is going are open and candid. If you have an interest in the Chinese heat treatment market this interview will be of a great deal of interest.
We are very pleased today to be able to offer you, our readers an interview with Mr. Kent Zou, one of the most influential individuals in the commercial heat-treating industry in China. Kent you and I go back many years now and while I am very familiar with your history in the industry perhaps you could tell us about your background and how you ended up where you are now.
Dear colleagues, happy new year to all of you. After receiving my master’s degree from Fudan University in Shanghai in 2000, I worked in the Shanghai government department for several years. As part of China’s reform and opening-up generation, I always had a strong desire to start my own business. In 2003 I quit my job and started my own business, and in 2006 I acquired Shanghai Heat Treatment Co., Ltd and have taken the heat treatment industry as my lifelong career.
Originally, I stated that you were with Shanghai Heat Treatment Company, but I know that is not 100% correct as you involved in with several commercial heat treats. Please give us some background on your various companies and their capabilities. If possible, could you please tell us what your annual sales are and the number of employees?
Sure, I have been working in Shanghai Heat Treatment Co. Ltd., which is one of the oldest commercial heat-treating companies in China with a history going back more than 70 years. Shanghai Heat Treatment Co. Ltd was a private company until 1956, a government enterprise from 1956 to 2006, and then became private again when I bought it. During that whole time, it has been a commercial heat-treating company and that will never change.
We have all types of heat-treating processes, such as Carburizing, carbonitriding, all kinds of induction and flame hardening, laser hardening, vacuum hardening, vacuum brazing, vacuum nitriding, gas nitriding, ion nitriding and aluminum solution treatment. In 2023 we will be adding low pressure carburizing. We are a certified heat treater for companies such as GE, CAT, Schlumberger, Baker Hughes, Halliburton and so on.
Our commercial heat-treating services have annual sales of over $20 million USD and currently we have over 150 employees.
How large is the commercial heat-treating market in China on a % basis? To give some perspective it is estimated that commercial heat treating in Canada and the US is approximately 10% of the total heat-treating industry. Europe tends to be higher while Mexico and India are lower than 10% largely because of logistics problems. What would you guess it is in China?
China’s commercial heat treatment capacity was roughly 20% over the years. However, in recent years, more and more Chinese enterprises, especially larger enterprises, have been investing in their own heat treat departments which means outsourcing has dropped, currently it would be about 15%.
The last question leads us to this one, how do your companies rank out of all the commercial heat treaters in the country in terms of sales?
There is currently no ranking of commercial heat treatment sales in China, but we are certainly not the largest. We can only estimate that we should be within the top 10. That is to say, there are at least 10 commercial heat treatment sales of more than 100 million RMB in China.
What changes have you seen in the market over the years in terms of equipment, business trends or attitudes?
There have been many developments in the heat treatment industry in China over the years and a large one has been the drop in energy consumption. The average energy consumption of commercial heat treaters will drop to below 350kW-h/t, and the electricity consumption of RMB 10,000 output value will drop to less than 2300kW-h.
In the next 5 years or so, we expect the percentage of vacuum carburizing will reach 20% and the percentage of vacuum nitriding will reach 10% of the market. Vacuum cleaning is another technology which is expected to see very significant growth. It is expected that Greenhouse gas emissions will be reduced by 50%, and zero emissions of pollutants from heat treatment production will be achieved.
The Chinese government will increase investment in the defense industry, so in the field of spacecraft, launch vehicles, navigation satellites, space laboratories, strategic missiles and tactical weapons, etc., very advanced heat-treating processes will be required which will require a great deal of innovation by heat treaters. New materials such as aluminum-lithium alloy, magnesium alloy, titanium alloy and other non-ferrous metals, high-temperature alloys, precision alloys, precious metals, etc. will pose challenges to all heat treaters.
In the field of nuclear power, the heat treatment of large forgings for the main equipment of AP1000 nuclear island, large forgings for the main equipment of high-temperature gas-cooled reactor nuclear island, and the heat treatment of thick-walled seamless steel tubes with high temperature and pressure resistance for thermal power generation equipment above 60MW have achieved the effect of small deformation of the overall heat treatment of ultra-long workpieces and consistent microstructure and hardness of all parts, which is essential to ensure the high reliability and long life of nuclear power units.
In the field of wind power, especially offshore wind turbine high precision gear quenching also has a very big change.
In the high-speed railway gears application induction hardening has been extensively used preceded by process simulation software. Scanning and quenching tooth by tooth has achieved the ideal effect of full tooth profile hardening, which has solved the problem of pressure quenching deformation control of large gear ring of high-speed railway locomotives.
In the field of electric vehicle auto parts, China is the world’s largest production base. Most of the supply chains of Tesla and BYD are manufactured in China, which is also one of the biggest highlights of China’s heat treatment industry over the past three years.
Let’s talk COVID and its effects on manufacturing and consequently heat treating. First question-what measures did you have to put into effect at your plants and how did it effect productivity?
Since the pandemic in 2020, China’s manufacturing industry, including the heat treatment industry, has experienced two years of ice and fire. In the first two years, the impact on China’s manufacturing industry was very small, possibly it even boosted production because of our domestic growth and are very hot export market. But since 2022, more than 100 cities in China have been in quarantine and lock down. I believe you all know that Shanghai’s has been closed for more than 2 months, during which our factories were closed. Despite the recent opening up of Shanghai, our production, including that of our customers, has often been disrupted. In 2022, the Chinese market will suffer damage.
Next question, are things back to normal yet? We are certainly hearing that a COVID wave is sweeping the country these days.
As you know on December 7, 2022, the Chinese government decided to abandon control of theCOVID-19 epidemic, and it can be said that the country is facing a very chaotic situation with a full-blown outbreak of positive infections, and most of the reports you see are objective. The proportion of positive infections in our company has exceeded 70%, and at the lowest point less than half of our personnel were working in the company. We are currently just at the peak of the first wave. It is expected that such a situation will continue for about six months before it is possible to reach North American and European levels.
Is this going to have a long term effect on your business? Perhaps we should ask what you are expecting business to be like for the next 2 or 3 years.
The current impact is very significant and is having a large impact on our business. But we expect China to gradually return to normal in 2023. And I’m still very optimistic about the next three years. Although China’s economy can hardly grow as fast as it did in the past 30 years, it is optimistically estimated to stay at about 5% growth per year. However, for high quality heat treatment services, the market is expected to maintain a growth rate of more than 10%.
We are going to switch gears and talk about technology. The first time I visited China was over 20 years ago and at that time most furnace builders were western based-is this still the case or have local builders been gaining market share?
The Chinese heat-treating industrial furnace market has changed a lot in the last 5 years, and this change will become more obvious. At present, more and more Chinese local industrial furnace companies are developed and recognized, whether it is atmosphere furnace, or vacuum furnace, or even vacuum carburizing furnace, the market share is growing rapidly.
My personal estimate is that at least 90% of the atmosphere furnace market and at least 60% of the vacuum furnace market are provided by local furnace companies. In the next 5 years, Chinese companies are expected to provide more than 50% of all vacuum carburizing systems in the county.
And what technology are heat treaters investing in? What would you estimate is the top selling heat treatment technology in China these days?
Heat treatment companies in China are heavily investing in digital and intelligent technologies to ensure product quality and improve production efficiency. All companies whether they are captive or commercial are looking at systems to automate the entire process. As an example, process simulation technology is being employed more and more often especially in areas such as bearings, and auto parts.
Kent what does the future hold for you and your companies? Do you have plans to expand into other geographic areas or perhaps into other areas associated with heat treating such as coatings?
After a painful 2022, we are still very optimistic about the future growth of the Chinese economy. High quality heat treatment in particular will continue to grow so we plan to upgrade each of our facilities over the next 5 years. This will include an increasing use of automation technologies and increasing production capacity.
We have a co operation agreement with a US company, Interpower Induction which means we will be working with them to provide induction systems in China. So far, we have orders from Caterpillar and Schaeffler in China.
Kent, I appreciate the time and look forward to seeing you again in person one of these days.
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Andy Chen, PowerMax, Gord Montgomery, Kent Zuo, Shanghai Heat Treat