Shale gas leads to new investment in US steel factories

The U.S. shale-gas revolution, which has revitalized chemicals companies and prompted talk of domestic energy self-sufficiency, is attracting a wave of investment that may revive profits in the steel industry.

Austrian steelmaker Voestalpine AG (VOE) said Dec. 19 it may construct a 500 million-euro ($661 million) factory in the U.S. to benefit from cheap gas. Nucor Corp. (NUE), the most valuable U.S. steelmaker, plans to start up a $750 million Louisiana project in mid-2013. They’re among at least five U.S. plants under consideration or being built that would use gas instead of coal to purify iron ore, the main ingredient in steel.

“That technology has been around 30 years, but for 29 years gas prices in the U.S. were so high that the technology was not economical,” saidMichelle Applebaum, managing partner at consulting firm Steel Market Intelligence in Chicago. “This is how steel will be built moving forward.”

The new capacity may signal a turnaround for an industry that has suffered from overcapacity since the financial crisis and collapse in commodity prices four years ago. U.S. steelmakers have struggled to stay profitable amid sluggish domestic demand, depressed prices and competition from Chinese imports. While global steel output has grown by 14 percent since 2008, U.S. production has shrunk 3.4 percent. 
The newest group of steel projects are so-called direct- reduced iron plants, which account for the first stage of steelmaking. DRI technology produces iron for about $324 a ton, Nucor said in a November presentation. That’s $82 a ton, or 20 percent, cheaper than using a conventional blast furnace, the Charlotte, North Carolina-based steelmaker said.

Foreign competitors are now following Nucor’s lead. A joint venture between Australia’s Bluescope Steel Ltd. (BSL) and commodity trader Cargill Inc. plans to build a DRI plant in Ohio, Biliana Pehlivanova and Shiyang Wang, analysts at Barclays Plc in New York, said in a Dec. 18 report. India’s Essar Global Ltd. plans one for Minnesota, Barclays said.

Nucor may announce a second DRI plant as soon as 2013, bringing the company’s domestic iron-making capacity to 5 million tons per year, according to Aldo Mazzaferro, a steel analyst at Macquarie Capital USA Inc. in New York. Nucor agreed last month to pay Canadian energy company Encana Corp. $3 billion over two decades for a joint venture that will develop gas wells to supply its DRI capacity.
This is on top of the chemical manufacturing plants being built to take advantage of the cheap natural gas.  I suspect that gas exports will also be allowed as the supply continues to increase.   Voters need to be reminded that Democrats have been the main obstacle to US energy production over the last four decades.


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