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SDI eyes premium rail as demand expected to rise

Keywords: Tags  Steel Dynamics, SDI, steel rails, premium head-hardened rail, standard strength rail, mill upgrade, Mark Millett, Richard Teets rail imports

CHICAGO — Steel Dynamics Inc. (SDI) executives expect a long-awaited improvement in steel rail demand to happen in the near term.

"Based on recent investment plans announced by major North American rail consumers, we believe the domestic rail market could grow meaningfully in the coming years," president and chief executive officer Mark D. Millett said during an earnings conference call.

Fort Wayne, Ind.-based SDI will commission new premium rail production equipment by year-end, with product testing through the first quarter of 2014. Previously tested material "has been enthusiastically received by several domestic (Class I) railroads," he said.

By the end of 2015, the company’s Structural and Rail division in Columbia City, Ind., will have an annual capacity of more than 300,000 tons of standard strength and premium head-hardened rail. SDI invested $26 million in equipment to roll and harden the product through heat treating. Class I railroads typically specify head-hardened rail.

SDI’s domestic competitors for rail production are Evraz Inc. North America’s Pueblo, Colo., facility and ArcelorMittal USA LLC’s Steelton, Pa., location. Railroads also purchase significant amounts of steel rail from Japan, the Czech Republic, Italy, China and Canada. U.S. imports of steel rail through for the first nine months of the year, including preliminary August data and September licenses issued through Sept. 25, totaled 265,789 tonnes, according to the U.S. Commerce Department’s Import Administration.

Premium product has grown to half of SDI’s output from 25 percent initially, according to Richard Teets, president and chief operating officer for steel, noting that this will continue to be the case because replacing and maintaining standard strength material takes more time and costs more.

Premium rail "is some of the most critical product SDI will supply to any market (and carries) high liability," he said, so trials and thorough tests by railroads and third parties are crucial.

Annual U.S. rail shipments range from 800,000 to 1.3 million tons, but that figure should increase to 1.5 million to 1.6 million tons by 2016 or 2017 considering announced rail infrastructure projects and growth in U.S. shale gas and oil production, Millett said.

North American railroads have earmarked billions of dollars for infrastructure maintenance and expansions so far this year (, Oct. 10).

"We’re in a great position to leverage that expansion of the market," Millett said.

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