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Natural gas prices to impact DRI profitability

Keywords: Tags  DRI, direct-reduced iron, ArcelorMittal, Sujit Sanyal, steelmaking, AMM DRI & Mini-mills Conference, Daniel Fitzgerald

NEW ORLEANS — The profitability of direct-reduced iron (DRI) in steelmaking will be affected more by natural gas prices than iron ore prices, according to ArcelorMittal SA.

DRI has the potential to be 20-percent cheaper than using pig iron for steelmakers, ArcelorMittal Montreal vice president of operations Sujit Sanyal told delegates at AMM’s DRI & Mini-mills Conference in New Orleans. However, stability in energy costs will be needed to make DRI production sustainable over the long term, even though natural gas accounts for roughly 20 percent of DRI production costs while iron ore accounts for 70 percent, he said.

"If we look at our own facilities, it is not the iron ore which has driven the operation of our DRI plants, it is the natural gas," Sanyal said. "The decision to close a DRI plant can happen when the natural gas price goes up, while the iron ore price keeps dancing all year, up and down, as does the scrap price. But iron ore is an international commodity, so it affects everyone."

Sanyal noted that his company had been forced to idle several of its DRI production facilities in 2000 when natural gas prices reached $11 per thousand cubic feet, while today’s price is $3 to $4.

Companies looking to set up DRI production facilities in North America also will have to weigh several components when choosing a location, considering factors such as proximity to customers and iron ore mines, regional natural gas costs and the availability of skilled labor.

"If the DRI facility is for captive consumption, it should be located close to the steelmaking side to minimize transportation of the DRI, which is hazardous and costly," Sanyal said.

"The shortage of skilled labor is by far the biggest challenge in the North American economy today and for the foreseeable future, and that will affect the DRI sector as it is process-intensive and labor-intensive."

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