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Are alternate irons finally turning the corner in North America?

Aug 31, 2017 | 08:00 PM | Bill Beck

The alternate iron business in North America has suddenly turned hot with one project at the Port of Toldeo on Lake Erie already announced and two others anticipated in the near future.

With ferrous scrap prices beginning to show strength and prime grades of scrap in increasingly short supply, steelmakers are looking to alternate irons to supplement scrap to feed their electric arc furnaces.

Continuing stability in natural gas futures—fueled by an exponential increase in the volume of North American shale gas—makes production of alternate iron facilities more attractive. Natural gas makes up the lion’s share of the fuel used to reduce iron pellets into such products as pig iron, direct reduced iron (DRI) and hot-briquetted iron (HBI).

Few alternate iron facilities were built in North America due to concerns about domestic natural gas supply until the discoveries early this century that North American shale gas could be easily and expensively recovered by hydraulic fracturing and horizontal drilling. Nucor’s construction of a DRI facility in St. James Parish, La., in 2011 was the first such facility built in the United States in a generation.

North America is still fertile ground for the expansion of alternate iron production, partly because of the continent’s abundant iron ore resources and the fact that the United States still exports more than 12-million tons of ferrous scrap each year. Midrex Technologies Inc., which provides processes for the production of nearly two-thirds of global DRI tonnage, reported recently that world DRI production in 2016 reached nearly 73 million tons, up slightly from the 72.64 million tons reported in 2015.

Midrex reported that the greatest increases in DRI production during 2016 were seen in Iran, India and the United States, which produced a combined three-million tons more than in 2015. “Growth in the United States direct reduction industry was due to the increase toward nameplate capacity by the Nucor Louisiana plant and the startup of the new voestalpine Texas LLC HBI plant late in the year,” Midrex noted in its annual report on direct reduction statistics. “U.S. production was up by more than 700,000 tons over 2015.”

The $1-billion voestalpine HBI plant in Corpus Christi, Texas went fully operational in April 2017 after passing its performance test in February. Calling the Texas plant “the most advanced and largest plant of its kind in the world,” voestalpine said the two-million tonnes of annual production was earmarked for the company’s mills in Austria. “Ultimately, the state-of-the-art plant in Texas paves the way for voestalpine to secure steel production at its Austrian sites, and to reduce CO2 emissions in the steel production process,” voestalpine said.

A major step forward

The metallics industry’s future took its biggest step forward since Nucor’s announcement of its intention to build the St. James Parish, La. plant in 2013 when Cliffs Natural Resources Inc. unveiled plans June 15 to develop a site at the Ironville Terminal at the Port of Toledo on Lake Erie for its first, hot-briquetted iron (HBI) production facility.

“Today’s announcement marks a very important strategic milestone for Cliffs as we begin to implement our plans to be the sole producer of high-quality HBI for the EAF steel market in the Great Lakes region,” Lourenco Goncalves, chairman, president and chief executive officer of Cliffs, said. “We look forward to the strong margin and earnings potential this new product will generate for Cliffs shareholders.”

Goncalves told business reporters the new plant would have the nominal capacity to produce 1.6-million tons of HBI annually and would represent an estimated investment in the entire project of approximately $700 million. Cliffs anticipates breaking ground for the construction of the HBI production plant in early 2018 with the production of commercial tonnage of HBI beginning in mid-2020.

Midrex Technologies has been selected to design, engineer and procure the core equipment of the new plant.

The selection of the Ironville Terminal site at the Toledo-Lucas County Port Authority was somewhat of a surprise to observers of the nation’s iron ore industry, many of whom expected Cliffs to locate the new plant in northern Minnesota, close to the taconite pelletizing plants it owns and blast furnace-based mills of domestic integrated steelmakers. But Goncalves assured Minnesotans that Cliffs would source the two-million tons of pellets to be reduced each year at the Toledo plant from the Minnesota iron ranges.

Cliffs also said it considered the brownfield site at the Port of Toledo a premier location for development due to its relative proximity to several future customers, as well as its logistics advantages, including affordable gas availability and access by multiple rail carriers. The company said electric arc furnace steelmakers in Ohio, Michigan and Indiana will receive the bulk of the output from the greenfield Toledo facility.

“I’m kind of excited about the Cliffs announcement,” said Peter Kakela, emeritus professor of natural resources at Michigan State University in East Lansing who has studied the Great Lakes iron ore industry for more than 40 years. “This is something that would definitely help Toledo and will definitely help Cliffs in the marketplace. It’s something that really makes sense.”

Cliffs’ Goncalves recognized state and municipal government for their efforts to help advance this project, including an offer of approximately $30 million in grants and other financial incentives. The incentive package includes an offer by the City of Toledo to build a pipeline to the new HBI plant to provide low-cost backwash water from the municipal water treatment plant for use as cooling water. Cliffs will use up to 2,500 gallons of water per minute in the reduction process.

In addition to attractive utility rates, the City of Toledo agreed to provide a Toledo Expansion Incentive of 30 percent for ten years, with an estimated value of $1,046,654 and an estimated annual income tax to the city of $315,000.

For the state of Ohio, the incentives for the Cliffs Natural Resources plant will be dwarfed by the commitment the state of Wisconsin made a month later to lure Taiwan-based Foxconn and its proposed U.S. electronics plant to the southeastern portion of the Badger State. For its investment in the Cliffs facility, Ohio re-establishes itself as the Heartland of the nation’s domestic iron and steel industry.

JobsOhio President and Chief Investment Officer John Minor said he was thrilled Cliffs chose Ohio for this investment. “The Toledo Ironville Terminal site is a great location for this first direct-reduced iron project in the Great Lakes Region,” Minor said. “JobsOhio, along with our regional partner RGP, the Toledo-Lucas County Port Authority and the City of Toledo are looking forward to supporting Cliffs as they construct this landmark facility that will create 130 permanent jobs and more than 1,200 construction jobs over the next two years.”

The new facility will also create as many as 50 new vessel calls each year for the Port of Toledo. Finished product will likely ship from the facility via truck and rail.

Paul Toth, president and chief executive officer of the Toledo-Lucas County Port Authority, said the Cliffs project was tailor-made for the port. “We acquired Ironville with the intention of locating a large-scale industrial user on the site who required marine and rail capabilities, and we truly feel this project is the perfect match for the remaining portion of the site,” Toth said.

More projects on drawing board

News of Cliffs’ decision to locate its new HBI facility at the Port of Toledo was greet ed with some measure of disappointment in northeastern Minnesota, where Cliffs has a major presence in the mining and pelletizing of iron ore for the domestic steel industry.

In his perceptive blog, “Minnesota Brown,” Aaron J. Brown noted that Cliff’s Toledo facility will be “the company’s first entrance into the electric arc furnace market. That means Cliffs will finally produce the value-added iron products modern steelmakers require. They will no longer be limited to varieties of taconite to feed old blast furnaces.”

Mesabi Range and Michigan iron ore will feed the new plant in Ohio, Brown noted, “so on one hand not much will change. Nevertheless, some disappointment accompanies the news. Cliffs’ Goncalves had said he wanted to build the first direct-reduced iron plant here in Minnesota. He sought to acquire the former Essar Steel Minnesota site near Nashwauk in bankruptcy.”

That property on Minnesota’s Mesabi Iron Range was originally designed as an iron mine and pelletizing facility with a direct reduction plant on the back end and a possible electric arc furnace rolling mill downstream from the iron facilities. When Essar Steel Minnesota filed bankruptcy, the property was acquired by coal-mining entrepreneur Tom Clarke and his holding company, Chippewa Capital Partners.

Roanoke, Va.-based Clarke and his backers, British steelmaker GFG Alliance, told the state of Minnesota they intend to go ahead with adding a hot-briquetted iron module to the proposed Essar Steel Nashwauk, Minnesota site that would turn iron concentrate into HBI for the Midwest’s electric arc furnace steelmakers.

Late last year, Clarke purchased substantially all of the assets of Minnesota-based Magnetation, which produced iron concentrates at facilities in northeastern Minn. and Reynolds, Ind. that could be made into value-added iron products like DRI and HBI.

Clarke has reportedly been highly successful in recent years purchasing shuttered coking coal operations for pennies on the dollar and reopening them as the steel industry has recovered from its 2014-2015 slump. Clarke’s company is now the second largest producer of metallurgical coal in North America, and he has indicated that he intends to take the same path in the nation’s iron ore business.

Meanwhile, Larry and Matt Lehtinen, the Minnesotan’s who built Magnetation only to have it run into the sharp steel industry slowdown of 2014-2015, have formed another Minnesota company that recently acquired all of the assets of a bankrupt iron mine on the Wabush range in eastern Canada. Tacora Resources of Grand Rapids, Minn. purchased the mine from Wabush Iron Co. and affiliated associates and plans to reopen the mine in the near future.

Larry Lehtinen pioneered the innovative magnetic separation technology originally used to capture weakly magnetic iron ore particles from waste materials left behind from historical iron mining operations. He told reporters in June that Tacora Resources had signed a labor agreement with the United Steelworkers of Canada to re-open the mine and has signed a five-year contract with Cargill to provide the Minnesota natural resources giant with high-grade iron ore concentrate through 2022.

ERP Iron Ore’s Tom Clarke also recently announced the company is involved with Canton, Ohio-based Republic Steel in a joint venture project to develop a pig iron facility at the steel company’s Lorain, Ohio mill.

Republic, which is a subsidiary of Mexican steelmaker Grupo Simec, has a blast furnace and an electric arc furnace at the rolling mill in Lorain, both of which are idled. The joint venture would produce one-million tons of pig iron a year beginning in the summer of 2018. ERP would source iron ore from Minnesota and produce pellets at the former Magnetation production facility in Reynolds, Indiana. ERP would ship the pellets by railcar from Reynolds to Lorain, where they would be reduced to pig iron.

The Reynolds plant is capable of producing 3.5-million tons of pellets annually and Clarke had said pellet production could be up and running in as little as 60 days. He told AMM in July that both ERP and Republic are essentially debt-free and able to act very quickly to add capacity.
“This is not something we’re going to assign to a committee and get a report back in six months,” Clarke said in July. “We’ll work together very diligently and get this done as quickly as possible.”

Michigan State’s Kakela said he is optimistic about the future of the iron ore pelletizing industry in northeastern Minnesota and the nearby Upper Peninsula of Michigan. “Three or four years down the road,” he said, “the industry could have four- or five-million tons of pellets each year consigned to electric arc furnace feed in the region.”


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