2008 Scrap Metals Supplement - Image Overhaul

The markets for steel have always been driven by the laws of supply and demand. The availability and prices of resources, such as iron ore, scrap and natural gas, play a role in the profitability of steel mills.

Lately, the rising price of raw materials has pushed steelmakers like ArecelorMittal to increase its steel prices. In November the company announced an increase of $40 per ton for shipments of flat steel products in North America beginning Jan.1, 2008. This is in addition to a $20-per-ton increase the company announced in October.

One way electric arc furnace (EAF) steelmakers have tried to balance out the high prices of materials is by using scrap substitutes. They were once thought of as a material that could be used in place of scrap, but as the industry has evolved, so has the role of scrap substitutes in the steelmaking process.

Direct reduced iron (DRI) got its start in areas where scrap was in short supply. DRI is manufactured through either natural gas or coal-based technology and contains as much as 97 percent pure iron. It is considered an excellent blending feedstock for EAFs because it allows mini-mills to use a lower grade of scrap, according to steelmakers.

Hyl Technologies S.A. de C.V. pioneered the technology for DRI production in Mexico in 1958, but Midrex built the first full-scale DRI plant in the U.S. in 1971 in Georgetown, S.C., to supply an adjacent steel mill. Both companies have sold technology and DRI products in the marketplace.

When companies started shipping DRI, especially to users overseas, it was realized other forms of DRI were needed, says Frank Griscom, executive director of the HBI Association Ltd. (HBIA), Matthews, N.C.

During the DRI process, the oxygen is stripped out of the iron oxide fines, lumps and pellets, resulting in a porous, low-density metallic product. Hot briquetted iron (HBI) is a compacted form of DRI that is made using the same process, but it is removed from the furnace hot and placed into a machine that molds it into pillow-shaped forms.

Advantages touted by HBI producers are the material’s known, consistent chemistry, which is certified by the producer; minimal trace amounts of undesirable chemical elements; low reoxidation; and its resistance to degradation, Griscom says.

Pig iron is a substitute produced in a blast furnace where the gangue elements are slagged off and the iron is cast into bricks to be shipped to steel mills. A difference between pig iron and HBI is that gangue elements are slagged off of pig iron during its production, while the gangue elements in HBI are removed when it’s melted in the steel furnace. Pig iron also contains more carbon, which adds energy to the steel melting furnace, allowing the furnace to use less electric energy.

Some steelmakers are actively seeking to increase their use of scrap substitutes, but Robert Hunter, product applications manger (iron) of Midrex Technologies, says this is not universally true. "What [some] need to do is continue using as much as they are now so they can make their spec," Hunter says.

Which steelmakers need scrap substitutes depends on the products they make, since different steel has different qualifications, steelmakers say. Mini-mils that produce structural, plate or beam products are less likely to need scrap substitutes because the copper found in the obsolete scrap doesn’t need to be removed during the melting process. Copper makes steel stronger, but it also makes steel harder to shape, which causes problems for the flat-roll mini-mills.

"As more flat-roll mini-mill producers strive to improve quality and move into higher steel markets with more demanding applications, scrap substitutes are becoming a necessity," says Rich Brady, VP of ferrous resources, Steel Dynamics Inc., Fort Wayne, Ind.

The specifications for flat-roll steel tend to be more demanding than other steels, as it requires lower residual levels, which are difficult to get when using only scrap metal that contains tramp metals, such as copper, nickel and aluminum, Hunter says.

Several EAF steelmakers have added scrap substitutes to their mixes as a way to produce higher quality steel.

Steel Dynamics Inc. (SDI), a producer of carbon steel products and an operator of five electric-arc-furnace mini-mills, has taken this to the next level by expanding its business to include its own nugget production plant. SDI has a joint venture with Kobe Steel to build a nugget plant in Hoyt Lakes City, Minn., expected to become operational in mid-2009.

Other flat-roll EAF steelmakers are looking to build DRI and other scrap substitute plants overseas where the cost of natural gas is lower and the supplies are plentiful, but SDI says there is a tremendous economic advantage to producing nuggets using domestic iron ore rather than importing pig iron from overseas.

"The purity and quality expected in the Mesabi nugget product exceeds anything we can obtain from the outside," Brady says of the joint-venture project. He adds, "In today’s environment, where the cost of ocean freights are at record highs, the dollar remains weak and increasing global steel demand is adding pressure to iron ore prices, we think there’s a great opportunity for us here in the U.S."

The nugget plant will use iron-ore concentrate, coal and natural gas to produce iron nuggets that meet the requirements of EAF operators.

Historically, mini-mills would use scrap substitutes during periods when scrap availability was tight and pricing was high and unstable. That is generally not the case today, where there’s less of a difference in price between the materials, and the price of pig iron and DRI/HBI often exceeds the price of scrap.

In the past, resource price fluctuations have caused DRI plants, such as one Midrex built in Georgetown, S.C., to close and led Nucor Corp. to build a scrap alternative plant overseas where the price for natural gas is lower.

And because of these closing gaps in pricing, Brady says the phrase "scrap substitute" today doesn’t have the same connotation it did formally. Instead, he agrees with HBIA’s Griscom that the material should be referred to as "scrap supplements" instead.

"In either case, we’re no longer seeing these items used exclusively as a direct replacement for low-residual prime scrap," Brady says. "Increasingly, they’re becoming necessary charge components for the dilution of residual elements in the production of low residual steel in EAF steelmaking."

According to Griscom, in the late 1990s scrap buyers viewed scrap substitutes as a "price spoiler" and were often times used as a bargaining tool when it came time to talk about pricing.

"It doesn’t make sense for the scrap industry and the DRI/HBI industry to be adversarial toward one another because together they can provide a better overall metallic mix depending on what steelmakers want to do in their steel operations," Griscom says.

Hunter says if one runs through the math, substitutes actually cause more scrap to be used.

"If the specification for the steel requires no more than, say, 50 percent of alternate iron in order to get the residual metals down within required limits, the EAF will consume 50 percent scrap," Hunter says. Steel produced in oxygen furnaces is only capable of using 25 percent scrap. Therefore, Hunter says, the use of alternate irons is actually allowing the consumption of scrap to increase by 25 percent in the EAF steelmaking process.

Using scrap substitutes allow mini-mills to produce high-end steel products, and ultimately buy more scrap. When it comes to scrap substitutes, it seems everybody wins.