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The direct approach: DRI investments on track

Keywords: Tags  Nucor Corp., direct-reduced iron, DRI, hot-briquetted iron, HBI, International Metallics Corporation Inc., Voestalpine Group, U.S. Steel Corp. Republic Steel Co.

Less than three weeks after Nucor Corp. dispatched the first shipment of direct-reduced iron (DRI) from its new plant outside New Orleans, a private European consortium, International Metallics Corp. Inc. (IMC), took the first step to acquire land for a hot-briquetted iron (HBI) plant in Superior, Wis.

That brought the total number of new DRI-HBI plants in the United States, including those proposed or under consideration, to at least five with nameplate output of more than 12 million tonnes--about the volume that technical analysts suggest North America will need by 2018-20.

Nucor is first in operation, with a second U.S. plant likely to be announced this year. Analysts asked about a firm date for a twin train during the company’s earnings conference call in late January, but executives were mum. Austria’s Voestalpine Group has announced plans for a plant in Corpus Christi, Texas. U.S. Steel Corp., Pittsburgh, is studying a joint effort with Canton, Ohio-based Republic Steel Co., an operator of electric-arc furnaces (EFs), at the firms’ adjacent Lorain, Ohio, operations. Neither company would provide any details beyond confirming the project is under consideration.

Notably, the companies involved cover the spectrum from EF operators (Nucor and Republic) to blast-furnace operators (U.S. Steel and Voestalpine) to pure merchant producers (IMC). Market watchers said that is an important sign that interest is serious across the industry.

“We began production at our DRI plant on Dec. 24,” Nucor chairman, president and chief executive officer John Ferriola said. “So far, the start-up is going very well. Production is meeting planned levels and the quality of the DRI being produced has improved quickly and begun to meet and exceed the excellent quality levels achieved at our other DRI plant in Trinidad. The first shipment of DRI left our facility on Dec. 29. We have now shipped to several of our facilities and the feedback has been very positive.”

The annual capacity of the plant is 2.5 million tonnes per year, making it the largest DRI plant in the world and the first to operate in the United States since 2009.

“We are very pleased that we were able to start production before the end of the year, despite the setback that came with the storage-dome collapse,” Ferriola said. “Our teammates responded with great ingenuity and efficiency in developing a workaround for the storage issue that allowed us to proceed with the commencement of production. We are currently storing iron ore pellets in our yard and reconfigured the conveyor system to deliver the iron ore to the plant.”

Charlotte, N.C.-based Nucor is being circumspect about firm plans for the heavily anticipated twin train at St. James. “Decisions on further development will be made based on the marketplace and our long-term business strategy, a key part of which is focused on raw materials,” Ferriola said. “Our new Louisiana facility, together with our DRI plant in Trinidad, gets the company about two-thirds of the way to our goal of producing 6 million to 7 million (tonnes) of high-quality scrap substitutes. Producing more DRI gives us tremendous flexibility in using the lowest-cost iron units in steelmaking. Our cost advantage has been an important part of our history and is an important part of our future.”

IMC, a consortium of private European investors with industry experience, in mid-January signed an agreement with the Redevelopment Authority of the City of Superior, Wis., the first step toward acquiring an industrial site on which IMC plans to build an $800-million, 2.5-million-tonne-per-year DRI-HBI plant slated for service in 2017. The output would be shipped by rail and water to steel mills throughout the Midwest, the broader U.S. market and potentially to international customers.

Ore would come from the Iron Range in Minnesota and gas from the Bakken shale formation in North Dakota. No supply deals have yet been signed, but oil- and gas-producing companies note that Bakken gas is seriously stranded due to a lack of pipeline capacity out of the region. A great deal of Bakken gas is flared in the field--vexing producers, regulators and environmentalists alike--and whatever gas can get to market is sold at steep discounts.

The current phase of the Wisconsin project involves a pre-feasibility study that includes preliminary engineering and environmental analysis, according to the company. IMC declined to provide an official update on the proposal, but a source familiar with the project said that negotiations with municipal officials were going well and that company executives were hopeful of progress in the next few weeks.

In addition to site preparation, Reston, Va.-based IMC is conducting a market study on national and international customer demand focusing on HBI, which it calls “the value-added final product in the DRI operation.” IMC also has retained Minneapolis-based Barr Engineering Co. to handle environmental engineering and permitting and Krech Ojard & Associates, Eau Claire, Wis., for site engineering and design.

For technology, IMC has selected the Midrex Technologies Inc. shaft furnace, using reducing gases derived from natural gas. The hot, malleable pellets coming from the shaft furnace will be hydraulically compressed into briquettes. IMC said that HBI is the form of DRI “better suited to long-distance shipments to steel producers.”

IMC chairman Ethelbert Cooper is principal shareholder of African Iron Ore Group, a private company that develops iron ore mining and infrastructure projects in Africa in conjunction with International Mining & Infrastructure Corp. Plc, a global ore trader. He also has shares in a U.K. oil and gas exploration, production and marketing company. IMC’s project development principals also include Daubeny Cooper and Richard Allocca, both with more than 30 years’ experience in ore and DRI.

Voestalpine’s corporate strategy through 2020, which targets revenue of Û20 billion ($27.5 billion), aims to increase the company’s non-European revenue share to more than 40 percent from around 23 percent. The company has indicated a clear growth focus on North America and Asia--mainly China--and intends to triple its revenue from outside Europe to Û9 billion ($12.3 billion) from around Û3 billion ($4.1 billion).

The major ongoing North American project in Voestalpine’s plan is the Texas DRI plant, with an initial designed annual capacity of 2 million tonnes of both HBI and DRI. It will be constructed on a site just outside Corpus Christi that has direct access to the Gulf of Mexico. With an investment of Û550 million ($755.6 million), it is the largest direct foreign investment in the group’s history.

Voestalpine declined to detail a specific timeline for development of the Texas DRI project, other than the plant is due to begin operating in early 2016, saying that it is “currently in the process of submitting its air permit applications. The process is estimated to take around 15 months.”

The company noted that, “locally, cooperation between all the parties has been exemplary. This is impressive evidence of the United States’ efforts to rapidly and sustainably reindustrialize (its) economy. It would have been impossible to build a comparable plant in the European Union, not least because of a lack of competitiveness in terms of operating costs.”

Importantly, Voestalpine will use DRI-HBI in blast furnaces, rather than EFs. “Using natural gas instead of coke in the reduction process plays an important part in improving the (carbon dioxide) balance and is a fundamental step in achieving our own extremely challenging internal energy and climate goal,” the company said.

For technology and construction, Voestalpine signed an agreement in July with Siemens Industry Inc. and Midrex Technologies Inc. The Siemens-Midrex consortium will provide engineering, the mechanical and electrical equipment, and consulting services for the plant.

Enthusiasm for DRI is broad and deep, but by no means universal. “For ArcelorMittal, with the exception of where we already produce DRI, scrap continues to dominate as an input as it’s a market commodity and generally more cost-effective than DRI,” a company representative said. “DRI is often attractive to steelmakers with limited access to high-quality scrap because DRI plays an important role in driving down residual element levels in molten steel and is produced through a process that uses natural gas, which is currently very affordable in the North American market.”

The ArcelorMittal representative said that in an effort to remain flexible and control input costs, “we rely on the most cost-effective material that meets production needs. To the extent where DRI supplants scrap, primarily in EF steelmaking operations, the additional DRI availability could increase the supply of raw steel if current EF operations are scrap constrained. ArcelorMittal has no immediate plans to increase DRI production in North America. Most DRI produced in North America is used for making wire rod or EF flat products. Generally, ArcelorMittal’s integrated operations in North America do not use DRI.”

In North America, the company operates DRI facilities in Canada, Mexico and Trinidad with an approximate total annual capacity of 7 million tonnes, according to the company. Globally, ArcelorMittal has 16 DRI facilities with an approximate capacity of 12.6 million tonnes per year. ArcelorMittal produced about 8.2 million tonnes at an operating rate of around 65 percent in 2012.

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