Eastern Railroad Discussion > OT: Steel business may be changing, fast

CNBC has a report about a Merrill Lynch analyst's belief the US steel making business is about to go through more wrenching changes.  The import restrictions have created a rebirth and reopening of older steel plants, but the higher prices of finished steel are creating a lot more competition.  Steel mills benefit from rail hauled iron ore, rail hauled coal, rail hauled limestone, and rail hauled output.  Much of which is cooked in an old fashioned blast furnace.

The gist of the report is the blast furnace model is doomed, and will be gone in a few years. The higher price of US made steel has made it cost effective to build / expand the use of electric arc furnaces, which typically recycle scrap metal, hauled by railroads, etc into new steel.  But, the arc furnaces often use natural gas produced electricity to melt the scrap.  Electric arc furnaces will eventually crowd out the older blast furnaces and their greater dependence on rail. In this viewpoint. There's also an environmental issue, and the recycling opportunity.

The argument rests on several supports.  Among them: One is the 25% tariffs on imported steel remain in place. Two is that the current oversupply of mills, new and older, causes a crash in prices and a glut of steel. Three is the demand for steel remains at at least current levels.

Merrill coins the name Steelmagaddon to describe the deluge of supply.

https://www.cnbc.com/2019/03/19/steel-stock-investors-beware-price-crushing-steelmaggedon-is-coming.html
 

This shift in production in favor of minimills has been going on for a while. Twenty years ago U.S. steel production was evenly split between integrated mills (think blast furnace, coal, iron ore, and limestone) and minimills. Now minimills account for two thirds of U.S. steel production, which means less traffic for the railroads to haul.

Nucor anyone?

Out

Electric furnace steel has much higher levels of residual elements. When steel with low levels of residual elements is needed, like for drawing quality cold rolled sheet, you have to go the iron ore route via blast furnace and basic oxygen furnace. As long as automobile bodies and appliance shells continue to be made from steel, the blast furnaces will remain.

callum_out Wrote:
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> Nucor anyone?
>
> Out

Mentioned by name in the article, as is Steel Dynamics.

Posted from Android

Lackawanna484 Wrote:
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> The gist of the report is the blast furnace model
> is doomed, and will be gone in a few years.

Will there always be enough supply of scrap steel to satisfy steel demands via the electric arc furnaces or will there still be a need to actually make steel from raw ingredients to supply the market (I suppose the imported steel can fulfill this need)?

MThopper Wrote:
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> Electric furnace steel has much higher levels of
> residual elements. When steel with low levels of
> residual elements is needed, like for drawing
> quality cold rolled sheet, you have to go the iron
> ore route via blast furnace and basic oxygen
> furnace. As long as automobile bodies and
> appliance shells continue to be made from steel,
> the blast furnaces will remain.

Yes, thanks. Beat me to the punch but a necessary observation for getting a complete picture. Just due to their smaller size and capacity, minimills could never supply the amounts of steel needed in the automotive industry even if the steel were the same, esp. compared to the giant waterside integrated mills left in the US. Then there is the steel chemistry, something the minimills have been trying for decades to get right at an ecomomical level to match the big producers, but it hasn't happened and maybe never will. Using HBI or other pure-iron imputs can make the EAF steel better but it comes with a higher price. The oversupply is a concern, since there currently is a good market producers are looking to expand, with several new billion-plus dollar greenfield mills planned in the US (all minimills). These will face strong competition for scrap, which will naturally raise the price and tend to balance certain product lines with integrated pricing. US integrated mills now have several advantages over foreign competition like very high worker efficiency and owning/producing raw material inputs, so I don't see this part of the industry going down much if the overall market goes down; minimills have more exposure to this danger. As long as the US economy stays strong, which is no guarantee, the steel industry like all industries should keep doing well as long as they don't overplay their hand and build too much capacity now, which is probably the biggest threat. Rails will always transport steel locally-made or foreign-made, so sourcing isn't so much of a problem as long as market consumption is good. But isn't this like any market segment, when times are good there's always too many people looking to make a buck? More good reading is here:


https://www.autonews.com/suppliers/steel-suppliers-plan-big-projects


https://www.barrons.com/articles/steel-stock-picks-51552679973

JG



Edited 1 time(s). Last edit at 03/19/19 18:45 by jgilmore.