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Market mulls benefits of DRI use in steelmaking

Keywords: Tags  direct-reduced iron, DRI, natural gas, natural gas prices, steel scrap, Sara Hornby, Global Strategic Solutions, Lynn Lupori Hatch Associates

NEW ORLEANS — The future looks bright for direct-reduced iron (DRI) use in the North American steelmaking industry, although some players remain wary about whether the technology can retain its advantages.

Several speakers at AMM’s DRI & Mini-mills Conference in New Orleans outlined the North American market’s distinct suitability in housing DRI production facilities, most notably through access to cheap natural gas.

Sara Hornby, principal at Global Strategic Solutions Inc., Charlotte, N.C., estimated that as many as seven DRI production plants are being considered in the United States.

Natural gas prices in Louisiana average around $3.29 per British thermal unit (mmBtu) compared with $15 per mmBtu in China, according to data presented by Kenny Rocker, assistant vice president of industrial products marketing at Omaha, Neb.-based Union Pacific Railroad.

While this has given DRI producers incentive to set up shop in the United States, it may also give natural gas producers impetus to ship more product overseas, some sources suggested.

"I don’t believe that exporters won’t be tempted by the higher prices overseas. They can always liquefy it; if all they have to do is spend a few dollars to sell it for another $10, they’re going to do it," one source said.

It’s an option natural gas producers would like to have, Erica Bowman, vice president and chief economist at America’s Natural Gas Alliance, said at the conference.

"Our position is that we should be supporting exports. Our primary reason—other than it’s a free market and we should be able to export our product—is that we have so much supply that our system is demand-constrained right now. It’s hard to have enough outlets to supply the demand we can supply. Liquefied natural gas is a way where we can have a different outlet for our product and help stabilize prices. The prices of today—around $3.60—it’s not sustainable, whereas prices between $4 and $5 are very sustainable for us," she said.

Nevertheless, the Energy Information Administration forecasts natural gas prices will drop in the coming years despite a greater rate of consumption. This is attributed to improvements in natural gas production technology, Bowman said.

Meanwhile, Hornby and Lynn Lupori, managing consultant in Hatch Associates Pty. Ltd.’s North American Strategy Consulting Practice, said that much of the DRI demand was driven by concerns over a perceived deterioration in steel scrap quality in the U.S. market.

"A number of operators have told us that the main reason they’re looking at DRI is not just from a cost standpoint but from a scrap quality standpoint, that they’re having difficulties keeping those residuals down," she said.

But others disagreed. "We’ve done a study on it and found it hasn’t declined at all," one steelmaking source said.

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