Implications of the minimill era
By Eric J. Stuart
Vice President, Environment & Energy
Steel Manufacturers Association
Recycled ferrous scrap typically constitutes over 90 percent of the material input of electric arc furnace (EAF) steel producers, aka “minimills.” The recycling of steel scrap in EAFs plays an important role in the conservation of energy. On a per-ton basis, steel produced from melted scrap requires roughly one-third of the energy consumed in the production of steel from iron ore. The recycling of steel scrap also reduces the burden of disposal in landfill facilities and prevents the accumulation of otherwise abandoned steel products.
US minimills are America’s largest recyclers. Steel is recycled five times more than the sum of all other metals combined, including aluminum, copper, lead, nickel, chromium and zinc. The high rate of recyclability of steel in EAFs is one of North America’s best environmental success stories.
Steel is recycled five times more than the sum of all other metals combined, including aluminum, copper, lead, nickel, chromium and zinc.
Minimills are the major growth component of the North American steel industry. While much of the industry has shrunk over the past three decades, the minimill share of US steel production has continued to grow, from 10 percent in the 1960s, to roughly two-thirds of US production today.
US minimills achieve continuous technological improvement and are committed to work practices and an entrepreneurial spirit to deliver high quality steel quickly and at competitive prices. In minimills, decision making is pushed down to the shop floor, and production employees have the authority to make decisions and obtain the resources necessary to continuously improve operational procedures and efficiency. US minimills are characterized by lean, streamlined organizations. Average productivity in the US steel industry is slightly in excess of two man-hours per ton of steel produced. Several minimills, however, produce steel at less than one man-hour per ton, and some below 0.4 man-hours per ton. Productivity is an integral component of their competitiveness.
EAF steel producers have also pioneered the usage of various forms of iron to upgrade the quality of steel products, positioning them for expansion into critical finished market applications. These steel producers are poised to take advantage of the development of North America’s extensive energy resources. Minimills are rapidly moving up the steel mill product value chain, with product lines that have expanded to include heavy and light structurals, rail, plate, pipe and tube, sophisticated special-bar-quality products, as well as hot-rolled and cold-rolled sheet, wire rod, galvanized, and stainless sheet steel, used by the most demanding customers, including the automotive industry.
Although EAF steel production is energy-intensive, it is also a highly energy-efficient process in comparison to other forms of steel production. EAF steel production requires the consumption of approximately 4.5 to 5.5 million BTUs per ton. This is 92 percent less energy than is required to produce a similar ton of aluminum, and 75 percent less than the energy needed for a ton of ore-based steel production. The highly efficient energy consumption of EAF steel producers conserves energy in the production of new steel, and supports the nation’s energy goals.
The United States is one of the most competitive places in the world to manufacture steel. The US enjoys marked advantages in practically every aspect of steelmaking, including: access to capital, technology, and raw materials; relatively low energy costs; high labor productivity; and proximity to the US market. The competitive position of EAF steel producers is largely dependent upon an adequate domestic supply of ferrous scrap. The US owns the world’s largest ferrous scrap reservoir, due to the size and advanced nature of the nation’s economy, in addition to well-established domestic recycling networks.The US owns the world’s largest ferrous scrap reservoir, due to the size and advanced nature of the nation’s economy, in addition to well-established domestic recycling networks.
The US owns the world’s largest ferrous scrap reservoir, due to the size and advanced nature of the nation’s economy, in addition to well-established domestic recycling networks.
As global steelmaking capacity continues to expand, along with increased EAF utilization, a rising number of nations have imposed an array of mechanisms to benefit their domestic steel producers by intervening in raw material markets and restricting the flow of their own ferrous scrap supplies. Export restrictions on steel scrap have a number of negative consequences. First, these restrictions limit the amount of scrap that is available to be traded globally. The measures also increase exports from countries, such as the US, that do not have export restrictions on scrap. This makes scrap in the US more expensive, and discourages US steel production.
Export restrictions also have longer-term pernicious effects, such as driving down the price of scrap in host countries, and discouraging the expansion of recycling networks and investments in energy and material efficiency. This in turn further reduces the supply of tradable scrap, and increases scrap prices in the rest of the world.
Export restrictions have longer-term pernicious effects, such as driving down the price of scrap in host countries.
Over the past decade, annual US ferrous scrap exports have nearly tripled. The US exports more ferrous scrap than any country in the world, roughly one-third of its annual production. Despite a short-term employment boost from increased scrap processing and export, this rate of scrap exports raises economic concerns, including both the near-term impact on North American steel industry competitiveness, and the future sustainability of the domestic scrap reservoir.
If the US supply of ferrous scrap is mined out to an unacceptable level by excessive foreign demand from countries that impose policies to conserve their own scrap supplies, there are clear national economic security implications to consider. An inflationary scrap market price triggered by excessive foreign demand would negatively impact the competitive position of US EAF steel producers, and therefore the capability of the US to produce an adequate domestic supply of steel.
National economic security is a core reason for the US to have a viable, strong domestic steel industry. US EAF steel producers are an essential component of that security. That is precisely why US policy should clearly recognize the value of, and need to ensure the continued viability of, the US supply of ferrous scrap.
The United States cannot rely on offshore steel supplies to rebuild the nation’s energy sources, infrastructure, transportation network, roads, schools, water-works, bridges, airports and hospitals. The competitive capability of US EAF steel producers is unique worldwide, and is dependent upon an adequate supply of domestic ferrous scrap.
In recent years, global steelmaking capacity has grown at an unprecedented rate. The world’s steel consumption, however, has not kept pace, contributing to a large and increasing gap between global steelmaking capacity and demand. Excess global capacity is now estimated to be over 500 million metric tons, and is legitimate cause for concern.
Excess global capacity is now estimated to be over 500 million metric tons, and is legitimate cause for concern.
Global Steelmaking Capacity and Consumption
(in million metric tons)
The vast majority of capacity growth has occurred in non-OECD nations. Too often government policies and not market forces influence the building and maintenance of steelmaking capacity. Some of the same factors that impact a government’s decision to promote capacity growth—notably employment and economic development—can impair the ability to effectively respond to market conditions. This is troubling, particularly in a time of waning global economic growth. Even a relatively small amount of unfairly traded excess production has the ability to severely damage international markets.
Some foreign governments have implemented policies that include support for the development of export-oriented steelmaking capacity. In the absence of sufficient domestic demand, these nations rely upon export markets to consume their excess production, often illegally trading subsidized products.
The steel industry of the US and its foreign counterparts are highly capital-intensive. Mills that melt their own steel to produce finished steel mill products need to be high volume, continuous operations. Low operating rates are insufficient to cover high fixed costs and normal variable costs. That is why steel industries in the developed countries are pressing China and other nations to reduce government-financed excess steelmaking capacity to bring the world industry into better balance, and to strengthen the industry worldwide. Otherwise, such major excess capacity finds its way into “beggar thy neighbor” steel trade, damaging markets around the world.
Despite its comparative advantage in steelmaking, the US remains a significant net importer of steel. While US steelmaking utilization rates have not yet returned to pre-recession levels, import levels have steadily increased. With rising excess capacity and weak markets throughout much of the world, North America has become the market of last resort for a number of nations. A rising level of steel imports continues to undermine the weak US economic recovery.
While US steelmaking utilization rates have not yet returned to pre-recession levels, import levels have steadily increased.
Steel industry job growth lies in the increased melting and pouring of finished steel products. Based on competitiveness, US producers should be making more of the steel that is consumed both domestically and in markets overseas.
If the US were to expand steel production to take advantage of its supplies of scrap and comparative advantage in steelmaking, the domestic economy would realize all of the economic benefits of consuming the valuable raw material known as scrap.
Based on a recent American Scrap Coalition study, expanding US steel production to match domestic consumption would create approximately 100,000 new jobs, directly and indirectly, and would increase GDP by more than $30 billion. This would contribute significantly to raising employment in the US while reducing the US trade deficit. The US can no longer allow trading partners to directly violate the rules of international trade at the expense of the domestic economy.
The Steel Manufacturers Association (SMA) consists of 35 member companies that account for over 75 percent of North American steelmaking capacity. SMA members operate 127 steel plants across the continent, directly employ over 60,000 people, and indirectly generate an additional 300,000 jobs in supporting industries.