Indeed, so attractive is the opportunity that shale gas and natural gas prices bring to direct reduced iron (DRI) and steelmaking – which we began outlining in the first part of this article – that Nucor will not be alone.
Voestalpine of Austria has already announced plans to invest about $740 million in a new DRI plant on the coast of Texas. It will produce 2 million tons of product per year, half of which is to be shipped to Austria to be made into steel there.
However, not all steel producers will benefit from low prices of natural gas to the same extent.
Integrated steel producers such as US Steel have benefitted from lower energy costs.
US Steel has increased the use of natural gas over coal in its blast furnaces and is said to be looking at a possible joint venture with Ohio-based Republic Steel to produce DRI, hoping it will improve the cost structure for the firm’s tubular products operations in Ohio. But for the group as a whole, shale gas isn’t the game-changer it could be for the mini mills.
Tubular steel products producers everywhere are hoping shale gas will continue to drive 8-percent-per-year growth in demand as the tracking industry continues to consume oil country tubular goods (OCTG) on an ever-increasing scale.
While the OCTG sector only accounts for about 5 percent of the total steel market, it has been a profitable sector, in spite of rising imports from Asian producers (particularly South Korea now that Chinese imports have been tempered by anti-dumping duties since 2010).
Indeed, over-investment in new tubular steel product production capacity may reach bubble proportions if all of the announced $7 billion of investment in the sector, mentioned in another FT article, actually takes place.
But for firms like Nucor Corp., the benefits of natural gas and direct reduced iron production are clear: increased demand for goods, the incentive for manufacturers to relocate back to the US, and a reduction in raw material cost inputs.
There should be a few smiles on faces down in North Carolina.