Replace and replenish

Economic development officials who consider groundbreaking ceremonies a symbol of accomplishment likely have been pleased with America’s electric arc furnace (EAF) steel sector recently.

A steady stream of investments in new or additional EAF capacity has been announced in the U.S. and Canada in the past five years, with the 2020s looking particularly lively.

Despite encouraging levels of investment, steel production in the U.S. has not deviated from the range of 80 million to 89 million metric tons per year (tpy) in the past 12 years, pointing to a notion that, along with the economic development winners, there will be some losers unless overall steel output can be lifted.

Blast from the past

According to the Washington-based Steel Manufacturers Association (SMA), EAFs now account for 70 percent of steel production in the U.S. The gains the often scrap-fed EAF sector has made largely have come at the expense of the blast furnace/basic oxygen furnace (BOF) steelmaking method.

The story of North American BOF steel capacity has been one of decline in the last 40 years, with large-tonnage locations in places such as Bethlehem, Pennsylvania; Sparrows Point, Maryland; and Geneva, Utah, all fading into memory.

In Recycling Today’s January 2021 list of North America’s large-tonnage steel mills, 10 BOF locations are listed in the U.S. and three are in Canada.

However, two of the three Canadian BOF locations have embarked on major capital investment projects to retire their blast furnaces and convert to EAF production. ArcelorMittal has committed to installing a 2.4-million-tpy EAF system in Hamilton, Ontario, and Algoma Steel, also in Ontario, is getting ready to idle its blast furnaces so it can produce 3.7 million tpy of EAF steel.

The situation in Canada mimics one that has been underway in the U.S. for a long time, where EAF steelmakers including Nucor Corp., Steel Dynamics Inc. (SDI) and Commercial Metals Co. (CMC) steadily have been nabbing market share from BOF producers until reaching the current 70 percent level.

In its most recent earnings report, U.S. Steel—one of two remaining blast furnace operators in the U.S.—does not list its Great Lakes Works blast furnaces in Michigan as part of its operating footprint. That indicates the Pittsburgh-based producer now has just eight blast furnaces remaining in three locations. One of those, in Granite City, Illinois, is marked as permanently idled.

The other U.S.-based BOF operator, Cleveland-Cliffs, announced last year it planned to permanently idle one of its two blast furnaces in East Chicago, Indiana, in part to reduce CO2 emissions, according to CEO Lourenco Goncalves.

While continuing to scale back its BOF footprint, U.S. Steel also has invested in increasing its EAF production. The company’s “Best for All” capital investment plan does not center on using ferrous scrap as feedstock but presents one more indication that the EAF method is front and center in the steel industry’s sector to reduce its carbon footprint.

Lower emissions, higher returns

Recent reports portray an Indonesian bauxite mining and aluminum smelting project as struggling to gain financial support. Such incidents could mean that when bankers say, “If your investment is nonsustainable, you can’t even raise any money” (as Pang Yee Ean of Singapore-based Surbana Jurong Capital did at a 2022 waste and recycling conference), they mean it.

U.S. EAF steelmakers frequently have begun to tout their well-below-global-average greenhouse gas (GHG) emissions track records, including North Carolina-based Nucor, Indiana-based SDI and Cleveland-Cliffs. The latter company, headquartered in Cleveland, still operates several blast furnaces but also has purchased a scrap company to help feed them.

For public relations and financing reasons, steelmakers likely will not only talk about their efforts to lower their GHG emissions but also will make investments to back up that talk.

Nearly every recent EAF project announcement has included references to recycling and the circular economy. Beyond that, companies tend to mention using scrap or metallics such as direct-reduced iron (DRI) offers a lower emissions route to steelmaking compared with using coal, coke, sintering plants and blast furnaces.

Texas-based CMC has been investing to make scrap-fed EAF “micromills,” with its first unit in Arizona. The company has added another scrap-fed EAF facility in Oklahoma, and work is nearly complete on a second micromill system adjacent to the current one in Mesa, Arizona.

“This is a smart growth initiative that feeds the large underlying West Coast demand for rebar and merchant bar, replacing inefficient existing rebar capacity with environmentally friendly technology,” CEO Barbara R. Smith said when announcing the second Arizona plant.

The CMC investments in Arizona indicate that unless that 80-million-tpy U.S. steel production figure begins to change, added capacity likely will be replacement capacity. In the wake of building its Arizona mills, CMC shut down a Rancho Cucamonga, California, EAF mill toward the end of 2019.

That mill had a history dating back to 1957 that traversed several owners. By the time CMC bought the approximately 500,000-tpy mill in 2018, it was more than 50 years old. CMC cited high operating costs and burdensome regulatory requirements when exiting California.

Determining which mills might be phased out as new EAF capacity comes online is a more difficult task when it comes to one company taking market share from another. What is clear, however, is that new EAF capacity is starting to arrive, and more is on the way.

A busy decade just three years in

Analysts at Los Angeles-based investment bank B. Riley Securities issued a report in October 2020 listing announced EAF capacity expansion projects in the U.S. and predicting increased demand for hot briquetted iron (HBI), DRI and prime scrap grades.

While it is unclear whether three of the projects on that list are proceeding, the majority has, and the amount of announced added EAF capacity has grown in the subsequent two and a half years.

Questions that remain include the full extent of investment involving a projected 2.5 million tpy of EAF capacity planned in Ohio and Texas by the JSW Steel USA business unit of India-based JSW Steel and the status of a reported U.S. Steel/Big River Steel 1.6-million-tpy mill in Brownsville, Texas.

On the plus side, already this decade, Nucor has started operations at a 1.2-million-tpy mill in Kentucky and SDI has ramped up operations at its 3-million-tpy mill in Sinton, Texas. A 900,000-tpy EAF furnace at the U.S. Steel Tubular business unit in Fairfield, Alabama, also is operating.

Since that report was issued, the 3.7-million-tpy Algoma Steel EAF conversion was announced as well as the 2.4-million-tpy ArcelorMittal conversion project in Canada. In the U.S., Nucor has selected a site for a 3-million-tpy EAF steel sheet mill in West Virginia near the Ohio border.

The Big River Steel business unit of U.S. Steel, while not active in Texas, is investing to increase output at its home base in Osceola, Arkansas. The Big River Steel 2 project includes adding 3 million tpy of capacity by 2024, creating a 6.3-million-tpy “mega mill.”

CMC is not the only company increasing its footprint with relatively smaller mills. Nucor is preparing a 430,000-tpy micromill in Lexington, North Carolina, which joins similar Nucor facilities that started operating in 2020 in Florida and Missouri.

A new name in the EAF sector is Highbar LLC. Late last year, former Big River Steel executive Dave Stickler announced the company’s intention to build an EAF steel rebar mill not far from Big River’s complex in Osceola. Subsequently, Highbar indicated it is in the process of selecting sites to potentially operate another two rebar mills in the U.S.

Existing steelmakers seem unlikely to welcome a new competitor in a sector where total industry output has been relatively flat since 2010. However, at least one company has expressed hope that a combination of pent-up infrastructure spending requirements and the potential for manufacturing reshoring could raise demand for steel in the U.S.

In a January presentation to investors, Nucor said the 2021 federal infrastructure spending act is “expected to increase steel demand by 3 million to 5 million tons” per year in the next several years.

Regarding reshoring, the federal Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act is helping fund 27 projects this decade, including 10 semiconductor plants with an average cost of about $11 billion. These “advanced manufacturing facilities are highly steel intensive,” Nucor says.

A larger EAF steel sector in the U.S. and Canada almost certainly would be good for scrap processors in North America. To what extent major shifts in the U.S. and global economies will make new EAF capacity additional (rather than replacement) capacity will play out over the course of several years.

The author is senior editor of the Recycling Today Media Group and can be reached at btaylor@gie.net.