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Iron and steel remain major beneficiaries of gas boom

Apr 24, 2014 | 07:00 PM | Bill Beck

Tags  iron, steel, natural gas, manufacturing, Harold L. Sirkin, Boston Consulting Group, BCG, Nucor Vallourec

One of the oft-overlooked truisms of industrial development is that energy is a close second to labor when it comes to inputs to the manufacturing sector.

Manufacturing anything from nuts and bolts to massive pieces of heavy mining and dirt-moving equipment requires huge amounts of energy. That’s why the shale gas boom in North America is so important to the domestic iron and steel industry.

Manufacturers are already quietly bringing production back from supposed havens of cheap labor such as Central America and China because natural gas in the United States is so inexpensive. A recent study by the Boston Consulting Group (BCG) points out that nearly every U.S. manufacturer will benefit from low-cost natural gas in the next decade.

“Several major forces are aligning right now that are dramatically reversing the fortunes of a U.S. manufacturing sector that many gave up for dead just a few years ago,” said Harold L. Sirkin, a BCG senior partner and a co-author of the study. “The energy advantage and improved competitiveness are unique to the U.S. and are accelerating an American manufacturing renaissance.”

Sirkin noted that natural gas will account for only 2 percent of average U.S. manufacturing costs by 2015, with electricity accounting for just 1 percent, according to BCG estimates. By contrast, natural gas will account for between 5 and 8 percent of manufacturing costs in Japan and in Europe’s major exporting economies, where it is more expensive, while electricity will account for 2 to 5 percent in Japan and Europe.

BCG cites a surge in investment in new U.S. plants, including Charlotte, N.C.-based Nucor Corp.’s $750-million direct-reduced iron (DRI) plant in Louisiana and Boulogne-Billancourt, France-based Vallourec SA’s $1-billion tube and pipe mill in Ohio.

The report notes that wholesale prices for natural gas have fallen by 50 percent since 2005, and that U.S. prices are expected to remain in a range of $4 to $5 per thousand cubic feet for several decades.

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