SCRAP COMPLEMENTS: STEEL'S EVOLUTION

A number of market factors make materials such as DRI more significant feedstocks for steelmaking than ever before, and scrap processors are taking notice.

It’s been said that change is the only constant. This holds true for the recycling industry, which has benefitted from changes such as the advent of the electric arc furnace, and suffered through others such as increased regulatory pressures. Now the industry faces the increased demand for scrap alternatives like direct-reduced iron and pig iron which, although they have been used in steelmaking for many years, have only recently become significant contenders.

Some scrap processors view this trend as a market opportunity. Both the Australian Simsmetal Pty Ltd. — a large scrap metal processor and broker — and Minneapolis-based North Star Steel Co. — which owns its own scrap yards — are reportedly interested in some degree of involvement in DRI or iron carbide facilities. Another scrap veteran, Columbia Iron & Metal Co., Cleveland, has taken the lead in research and development of products from DRI by-products.

Whether the average scrap processor will have to get directly involved with materials such as DRI in order to remain competitive is debatable. But one East Coast market analyst speculates that scrap processors who are open to change and to the advent of new materials such as DRI are more likely to be successful in the future.

DRI EXPLOSION. The use of DRI is "exploding" in the U.S., says Gerald Houck, iron and steel specialist for the U.S. Bureau of Mines, Washington, because of the high price of scrap and the forays the electric furnace steel producers are making into more demanding steel products requiring lower levels of residuals. There isn’t enough suitable scrap to make all of these products, he adds.

"You have to look in total at what scrap is available to you and use it in the best way, and what mills are finding is it’s helpful to have a supply of direct-reduced iron in one form or another to make these products."

Other factors behind the steel mills’ interest in scrap complements include changes in process technology, equipment technology and environmental technology; potential scrap shortages; freight costs and world trade tariffs, adds Jim Braselton, vice president of Columbia Trading, a division of Columbia Iron & Metal, Cleveland.

"So many things drive the mills," says Braselton. "The factors just keep building."

Integrated mills are interested in these products for some of the same reasons as electric furnace operators, adds John Jacobson, president of Jacobson & Associates, a steel industry research firm in Swarthmore, Pa. "There’s lots of reasons producers of all ilk are going to be looking at and utilizing scrap supplements," he explains. "One is the reliability of the product. I think for many grades of scrap there’s been an increased concern around potential contaminants. What we’re seeing is a classic example of customers — the buyers of steel — demanding quality and the steelmakers are responding as best they can."

Jacobson defines quality broadly as the ability to deliver the type of product the customer is looking for.

"That’s one of the biggest benefits of the iron-based products (scrap complements) — the producers have a much better handle on what the metallurgical properties of the steel will be," says Jacobson. "I see more customers looking for more pure products."

The acceleration in demand for steel is another driver in the push for higher quality products, says Jacobson, as is the globally competitive nature of the steel industry. But the customer is the biggest force in this trend.

Not all steelmakers, however, are convinced that DRI and related materials are necessary for their success.

"We’re watching it carefully, obviously, as it has an impact on our scrap business," says Bob Philips, president, Schnitzer Steel, Portland, Ore. "We brought in some pig iron, but not iron carbide or DRI, and right now we don’t have any plans to invest in DRI facilities."

Schnitzer has less need for low-residual scrap than a company that is producing flat-rolled products, Philips adds. But all the mills are watching the markets carefully and considering the use of scrap complements, he says.

"They’re all looking at it in the regard that if scrap is short they need to figure out how to keep their furnaces going," he says. "For some people it might be cost effective, for us it’s not."

EVOLUTION. Although DRI has been produced for years, the market is changing rapidly. Until recently, DRI was produced using processes and facilities supplied by a very few companies. Now, new processes are emerging to compete with the established ones.

One of these is the iron carbide process, pioneered by Nucor Corp., Charlotte, N.C. Nucor recently completed the first iron carbide plant in Trinidad, which is scheduled to be fully operational early in 1995.

There was a great deal of activity in the scrap complements field until Nucor announced their Trinidad iron carbide facility, says Houck. At that point, many people backed off and are waiting to see how this plant works.

"If that is as successful as the Nucor people think it will be, then the people that are interested in building DRI plants could very easily adopt that technology rather than one of the others," says Houck. "It’s potentially cheaper for two or three reasons. First, the material doesn’t need to be briquetted. Second, it uses a cheaper form of iron ore. And it’s claimed that it offers certain advantages in the actual melting process. The other side of the coin is it takes more energy, so it’s slightly more costly from an energy point of view."

Although the majority of the iron carbide produced by the Nucor plant will be used by the company’s own facilities, Nucor has already sold some of it to other companies, according to LeRoy Pritchard, manager of new steel technology for Nucor.

"We’re going to take a small portion of it and market it, just to whet people’s appetites for the material," he says. "And if this meets the expectations we’re placing on it, we’ll probably start the next modules next year."

An iron carbide plant such as Nucor’s requires a capital investment of $60 to $75 million, says Pritchard. He speculates that a large scrap processor could conceivably make such an investment.

"If you’ve got a large scale scrap processor that’s got an asset base and credits lines and so on, there wouldn’t be any reason why he couldn’t," he says. "I haven’t seen many scrap processors investing in these technologies yet, but they keep flirting around out there. It wouldn’t surprise me if it happened one of these days. Especially with iron carbide, as the cost of getting into an iron carbide facility is less than any of the other alternatives. So if it proves to be as attractive as we think it is, you may find other people showing interest in it."

But the need for scrap is constant and will remain so, Pritchard adds, as is the need for DRI. "Scrap is not going to go away. As a consuming society, we’re going to continue to generate scrap, and there is also going to continually be a sweetener requirement if you are a scrap-based producer. I think iron carbide is going to have a place for people who want to get into the high-quality steel."

PIG IRON. Along with various forms of DRI, there has been a recent resurgence in the use of pig iron as a complement to the scrap charge in electric furnaces, according to Houck.

"It’s more pure than scrap. It has the same beneficial characteristics that the DRI has. Pig iron has traditionally been more expensive than scrap, but when scrap gets to a certain level, pig iron tends to come out and prevent scrap prices from getting too high," he says.

The quantities of pig iron being used now are actually greater than those of DRI, Houck points out. "Imports for pig iron were 1.957 million metric tons for the first nine months of 1994, whereas imports of DRI were 727,000 metric tons during the same period."

For comparison, he adds, imports of pig iron for 1993 were 828,000 tons for 1993 and 427,000 tons for 1992. DRI imports have also increased significantly over the same period. In 1991, imports of DRI totalled 365,000 metric tons. In 1992 that number increased to 542,000 tons and leaped even further to 900,000 metric tons in 1993.

"I think in terms of the substitution or complementing to scrap in electric furnace melting, pig iron is a much bigger story than DRI this year, " says Houck. "And we will see more of this if the market stays as it is. Electric furnace melters would probably prefer DRI to pig iron, as it may be a little easier to handle. But they’ll use either. There’s an availability problem with DRI — there just isn’t that much out there."