Can natural gas and DRI propel the US steel industry into the future?

Wednesday, 19 June 2013 00:48:36 (GMT+3)   |   San Diego
       

While most speakers on the North America panel at AMM's Steel Success Strategies conference in New York on June 18 spent their time at the podium discussing how their individual companies planned to succeed in the near future (as opposed to the previous panel's plans to merely survive), it was the lone "outsider"-i.e., the only panelist who didn't run a major US steel mill--who presented the freshest ideas.  Nicholas J. Sowar, Partner, Global Steel Leader, Deloitte & Touche LLP, discussed what is, in his opinion, one of the most influential industry shifts in history: the rise of natural gas and its potential to drive DRI use in the US.

Natural gas's low-cost energy possibilities for all industrial applications are exciting, according to Sowar, but the long-term implications on the steel industry could be groundbreaking. "For such an established industry," he said, "it's rare that any new development can have such an impact."  DRI has long been sidelined to the "alternative" bin in steelmaking, mostly due to the high cost of energy to produce it.  But inexpensive natural gas will give steel mills the ability to make a purer steel product than scrap-derived steel at much more competitive prices.

In addition to the purity factor, the lower processing temperature for DRI production means lower maintenance costs for mills (less wear and tear on parts); more capacity planning flexibility; and a streamlines front-end process.  Also, steel made from DRI costs far less than traditional blast furnace production in terms of both production costs and capital expenditures.

According to Sowar, traditional energy prices have increased 163 percent in the last four decades.  "Never before has it been so important for mills to manage their energy needs," said Sowar, pointing out that the US steel industry has already reduced energy intensity in steel production by 30 percent.  Natural gas-fueled DRI production in the US, he continued, has the potential to remake the global steel market--China might have more natural gas reserves, he said, but the US already has significant infrastructure in place to take advantage of the trend now.  Additionally, increased DRI production in the US could lead to lower-priced scrap in the domestic market, once it has a genuine competitor.

While Sowar was clearly excited about natural gas's potential to transform the US steel industry, others on the panel were not sold.  Mark Millet, President and CEO of Steel Dynamics, Inc., said that DRI is "company-specific and site-specific."  He emphasized that his company is "happy with our particular scrap situation," but agreed that increased DRI use will be good in the long run for the pressure it will put on the spot market.


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