NEW YORK - A need
to lower costs and secure raw material supply in an
increasingly competitive global steel environment is the
driving force behind Nucor Corp.s decision to expand its
direct-reduced iron (DRI) capacity, president and chief
executive officer John Ferriola said in an interview.
part of this big picture. We recognize that with the way the
world is going and the way steel capacity in the world is
growing and the way that demand is flat or decreasing in the
world, weve got to be the low-cost producer,
Ferriola told AMM in New York. We recognize that
in the grand scheme of things, weve lost or reduced that
raw material competitive advantage and we need to get it back.
And the way were going to get it back is through
Nucor, which already operates a DRI facility in Trinidad,
during the third quarter is expected to bring online a
2.5-million-ton-per-year DRI unit in Louisiana and is permitted
to build a second facility of the same size at the St. James
Parish, La., site. If it builds the second facility, it will
ultimately have about 7 million tons of captive DRI capacity in
its portfolio of assets.
The decision to expand
Nucors DRI capacity stemmed in large part from a need to
secure iron units for the long term, according to Ferriola. A
major scrap consumer, Nucor in 2008 bought ferrous scrap broker
David J. Joseph Co. (DJJ) in an effort to better secure its
scrap supply. But with more and more secondary material now
slated for export, Nucor decided it was time to also secure
input material in the form of DRI, he said.
Scrap is leaving
the country, and worldwide there are more (electric-arc
furnaces) being built and theres more and more need for
scrap by these producers. At the same time, more and more
countries are declaring scrap as a national resource and are
either taxing it or placing tariffs on it, or in some cases
banning the export of scrap. So the amount of scrap that we
would call ocean-going scrap (is vastly reduced), he
said. Bottom line is we wanted to have more of our own
control on raw materials.
DRI has always been on
the companys radar, but because of high natural gas
prices and the low quality of DRI material previously available
worldwide, it wasnt initially an option for the
steelmaker, Ferriola said.
We had to find a
way to have a long-term supply of natural gas at a reasonable
price and locked in for 20 to 25 years to cover the investment,
and we had to get the DRI quality up to levels where it never
existed before, he said.
However, as natural
gas prices have come down dramatically due to the recent shale
boom, the technology has become much more viable, he said.
For Nucor, the ability
to capture those lower energy prices came in the form of a
two-part agreement with Calgary, Alberta-based Encana Oil &
Gas (USA) Inc. The first deal between the companies secured for
Nucor a long-term reasonable cost of natural gas, while the
second agreement vastly expanded that partnership in terms of
volume (amm.com, Nov. 6).
We had sort of a
marriage made in heaven. They had a need for capital so that
they could continue to invest and drill wells before the leases
expired and we had a need for gas. So we were able to work out
this arrangement, which I cannot give you the details of other
than it gives us a long-term reasonable cost of natural
gas, Ferriola said.
In addition to a
low-cost power supply, Nucor also needed a higher quality of
DRI to make the expansion plan feasible, Ferriola said.
Initially, the material coming out of Trinidad was of such low
quality that the company could only put 8 to 10 percent into
We went to
Trinidad, we challenged our team in Trinidad, we told them what
we needed to get to, we told them we needed to get to
95-percent metallization and we needed to get to 2.5- to
3-percent carbon and that would allow us to increase
significantly the amount were able to put into our
furnace. A year later, they called and said come on down and
see what we got ... and today theyre producing DRI at a
level of 96- to 96.5-percent metallization and 3- to
3.5-percent carbon, he said.
With material of that
higher purity level, the company can fill its furnaces with up
to 40 percent DRI without it adversely affecting the
We believe we
could have put more in, but the feed system that we had
wasnt fast enough, Ferriola added, noting that
Nucor has since upgraded the feed mechanisms for all its sheet
and special bar quality (SBQ) mills to allow for more DRI
But while he said
Nucors mills could eventually take up to 50 or 60 percent
DRI from a metallurgical perspective down the road, scrap will
still play a major role in the companys raw material
strategy as well.
It is another
raw material, another arrow in our quiver, Ferriola said,
adding that Keith Grass, who is now chief executive officer of
DJJ, also runs the natural gas project and will be in charge of
the commercial side of all of the companys DRI
activities. So hell be out there and hell
juggle iron units. At the end of the day, all we care about is
iron units. An iron unit is an iron unit is an iron unit.
É And it comes down to what do we pay for that iron
unit, whether its HBI (hot-briquetted iron), pig iron,
DRI that we make or we buy on the merchant market or scrap. So
hell look at all of those things on a regular basis,
balance it all out and decide what we do.
Nucor might sell some of that DRI rather than consuming it
internally, but time will tell, Ferriola said.
Do we consume it
(all ourselves)? Logistics will play a role in it. Were
hearing that other people are going to build DRI facilities.
Were hearing of one in Texas--maybe, maybe not. If it
(happens), we wouldnt supply our Texas mill out of
Louisiana, he said.
know how thats going to play out very well yet. But we
know that it gives us another arrow in the quiver of getting
our costs lowest. And in a world where you have excess global
capacity and a tsunami of imports heading to you, the name of
the game is to be the lowest-cost producer domestically because
youve got to fight imports. And if theres only one
steel company left standing after this tsunami hits ...
well be the one standing.