Just a few years ago, the most widely used scrap substitute in North America was pig iron, imported primarily from Brazil and Russia. Direct-reduced iron (DRI) also was a viable substitute, but its use in the United States was somewhat limited because the product is best reduced in natural gas furnaces.
But then came rapid growth in natural gas from shale deposits that revolutionized gas production in the United States. Horizontal drilling and hydraulic fracturing of shale deposits have unleashed a flood of oil and gas. They also have unleashed a potential for booming domestic DRI production, a trend that many say will revolutionize steelmaking and its relationship to the raw materials that drive its processes and costs. In fact, low-priced natural gas is already spurring the expansion of DRI output, which could result in the installation of an additional 5 million tons of annual capacity beyond whats already being planned by companies that have gotten in on the ground floor of the boom.
Interest in DRI is growing in North America thanks to fracking and low-cost natural gas, Tenova HYL president and chief executive officer Carlos Garza said.
The subsidiary of Milan-based Tenova SpA has been fielding queries related to many potential projects, he said. Building DRI plants in the U.S., either captive or for merchant supply, is now an attractive proposition both for economic as well as environmental reasons.
That trend comes as steelmakers look for high-quality metallics to dilute residuals in scrap so they can produce more-demanding grades of steel, Garza said, noting that previous supplies from Venezuela and occasionally Russia are no longer as reliable as in the past.
That means there is still room for additional DRI capacity in the United States, Garza said, adding that the new capacity could come in the form of a steelmaker making DRI to feed its own operations or from a merchant supplier looking to supply domestic and international markets.
That forecast comes as Nucor Corp. and Linz, Austria-based Voestalpine AG have already made inroads in the United States. Charlotte, N.C.-based Nucor started up its 2.5-million-ton-per-year facility in St. James Parish, La., late last year, and Voestalpine is building a 2-million-tonne-per-year DRI and hot-briquetted iron (HBI) facility near Corpus Christi, Texas.
Other market sources said recently that they think there is room for at least one or two more DRI plants in the United States.
Everybody is trying to figure out what the chessboard looks like and what are the right moves, said P. Kelly Tompkins, executive vice president of external affairs and president of global commercial at Cleveland-based Cliffs Natural Resources Inc.
Charlotte-based Midrex Technologies Inc. expects DRI output in the United States to surpass 10 million tons annually sometime near the end of the decade, director of marketing Henry P. Gaines said, up from just 1.3 million tons last year.
Global DRI production totaled 75.2 million tons last year, up 2.8 percent from 2012, but the proliferation of DRI production technologies will see global output reach between 110 million and 120 million tons annually by 2020, Gaines said. Midrexs technology accounted for 63.2 percent of the DRI produced worldwide last year, up from 61.2 percent of global production in 2012.
The market for DRI and HBI continues to grow with the advancement of technologies facilitating the use of the product in steel output, Gaines said, noting that electric-arc furnaces (EFs) are capable of producing grades of steel that 10 years ago no one would have considered.
Global steel scrap usage increased 1.8 percent in 2013, according to a report from the Bureau of International Recycling (BIR), but U.S. ferrous scrap consumption was unchanged compared with 2012. China, the worlds largest steelmaking nation, used more domestically supplied steel scrap and reduced its imports last year, the BIR said, while the United States used more DRI as a substitute for steel scrap.
None of this comes as news to executives at Nucor, which has been leading the pack on DRI output and usage. The company, which already operated a DRI facility in Trinidad and Tobago, has moved quickly in the 21st Century to take advantage of new shale gas production by building a greenfield DRI facility in coastal Louisiana. Nucor broke ground on the $750-million St. James Parish plant in 2011 and made its first shipment of DRI from the 2.5-million-ton-per-year facility late last year.
The new facility, which will allow the company to replace pig iron and prime grades of ferrous scrap in its EFs, has been described by Nucor chairman, president and chief executive officer John Ferriola as a game changer. The benefits to Nucor are expected to be numerous. For example, the company is producing exposed automotive steels thanks in part to its DRI facility, Ferriola said. Its steel on vehicles on the roads today. It seems that were having trouble getting that point across because I think people are shocked that an EF can actually do that.
Citing confidentiality agreements, Ferriola declined to say which vehicles might use Nucors exposed automotive steels. But I can tell you, youll pass them every day, he said in May at the Steel Market Development Institutes Great Designs in Steel conference in Livonia, Mich.
Nucors move into exposed automotive parts comes as part of a wider push to expand the companys participation in all aspects of the automotive industry, Ferriola said. That includes special bar quality steels, where Nucor is making great strides and moving up the value chain into automotive applications, including gear trains, powertrains and transmissions.
High-quality iron units from the Louisiana DRI plant have helped Nucor boost its role in the automotive sector as well as in other high-end marketsÑincluding energy, appliances and tank carsÑthanks in part to the facilitys reliability, Ferriola said. The DRI operation makes Nucor less susceptible to forces out of our control, like weather, that can disrupt the supply chain and negatively impact our ability to produce the products our customers need on time.
The DRI plant also makes the company less susceptible to shortages of prime scrap, which could become more pronounced in coming years as scrap is repeatedly recycled, a process that introduces residuals and makes the material less pure, Ferriola said. As time goes on over the yearsÑfive, 10, 20 years from nowÑits going to be harder and harder to find prime scrap that is truly prime scrap.
Denting Nucors early results was a second-quarter operating loss at the St. James facility. The DRI plant underwent a three-week outage in June to implement adjustments intended to improve yield and conversion costs. We expect significant improvements in the performance of the Louisiana DRI facility in the third quarter, with profitable performance anticipated by the end of the year, Nucor said in June.
Nucor does not plan to build a new sheet mill in the United States but may be weighing a second DRI unit in Louisiana, Ferriola suggested. Given that Nucor has already installed the necessary infrastructure for a second unit at St. James Parish, it would cost less money and it would be quicker to put a second DRI facility in Louisiana, he said. A second unit likely would cost $100 million to $150 million less than the first unit, and Ferriola estimated that it would take about 18 to 24 months from the date the project was announced until it was completed.
Nucor also might consider Midrex technology for its second unit even though it went with Tenova HYL for its first unit, Ferriola said. We would take a hard look at which way we would go for the second unit. Just because the first unit happens to be HYL does not necessitate the second unit being an HYL unit.
Nucor also may be considering changes to its plate and coil mill in Tuscaloosa, Ala., according to documents filed with state officials and an environmental engineer. The steelmaker is looking to boost DRI usage at the plant as well as add a second meltshop baghouse and two emergency generators, a public notice from the Alabama Department of Environmental Management (ADEM) indicated. I think they are going to increase their usage limit of DRI. ... And they are going to add a new heat-treating line, Ryan Cowart, an ADEM environmental engineer, told AMM, adding that he had worked on the air permit documentation for Nucors Tuscaloosa operations.
Nucor also has proposed a 23.1-percent decrease in annual steel production to 2 million tons per year from 2.6 million tons, ADEM records indicate. That proposal comes as the company looks to change annual average DRI usage at Tuscaloosa to 49 percent of production capacity, or 980,000 tons per year, the documents show.
While Nucor may be out in front, it is not alone in the race to reap the advantages of domestic DRI output. In addition to Voestalpines $759-million investment in Texas, International Metallics Corp. reportedly is considering an $800-million, 2.5-million-ton-per-year DRI facility in Superior, Wis., while U.S. Steel Corp., Pittsburgh, is studying a joint effort for DRI production with Canton, Ohio-based Republic Steel Co.
Cliffs Natural Resources also is exploring the possibility of selling DRI-grade pellets to EF-based steelmakers in the Great Lakes region or potentially entering into a joint venture to build a DRI plantÑor even pursue both opportunities, Tompkins, said. We know we can produce technically ... further to that is, do we move down the value chain to participate in a DRI plant? Cliffs doesnt have a specific time frame for a decision, but were not talking several years; were talking sometime in the next year or two, give or take. Its a dynamic process thats going to be driven by market forces.
Cliffs strategy to form a DRI joint venture or to supply an EF-based steelmaker with a DRI plant comes after the company last year produced 30,000 tons of high-iron, low-silica pellets that could serve as feedstock for a gas-based DRI plant, Tompkins said. Its now more of a commercial question. And that is: When will a customer emerge, preferably in the Great Lakes region?
The iron ore and metallurgical coal producer has watched Voestalpines DRI/HBI project in Texas with interest, as well as Nucors work on DRI in Louisiana, Tompkins said. But neither project is within Cliffs sweet spot in terms of logistics, given that material for the DRI-grade pellets likely would come from the companys Northshore Mining operations in Minnesota. Its physically possible for Cliffs to ship DRI-grade pellets to Texas or Louisiana, he said, but the economics wouldnt make sense.
In the meantime, Cliffs is talking with a number of potential customers or joint-venture partners closer to home, Tompkins said. These discussions organically develop as youre discussing your traditional business. The core business for Cliffs for more than 100 years has involved integrated steelmakers in the Midwest, almost all of which do business with the company, he said. But clearly the EFs are emerging and theyre slowly but definitely taking share from the blast furnaces. And at the end of the day its also about looking at the margin profile of a DRI product vs. a flux pellet or acid-based pellet that would go into your traditional integrated blast furnace.
The United States could be a prime location to build pellet plants for iron ore producers, given low natural gas prices and assuming DRI production keeps ramping up, according to Jose Carlos Martins, executive director of ferrous and strategy for Rio de Janeiro-based resources company Vale SA. We would consider building a pellet plant in the United States, particularly if DRI facilities start being constructed further inland, he said in June.
Others in the market have outline developments in technology meant to facilitate DRI production in regions without readily available or affordable natural gas.
Pravin C. Mathur, global market director of metals, metal processing and combustion markets at Danbury, Conn.-based Praxair Inc., said his companys thermal reactor system allows DRI production using coke-oven gas with a hot oxygen burner, while Philippe Blostein, metals marketing director at Paris-based Air Liquide SA, said his companys coal gasification method for DRI production relies on coal to facilitate production while also offering cost reductions.