Steel Dynamics Plans Expansion

Steel Dynamics Inc., along with a group of partners, could invest about $100 million in a new plant at Butler that would employ up to 50 and produce a less expensive substitute primarily for pig iron.

The Fort Wayne-based steelmaker - along with Cleveland Cliffs, an iron-ore mining company, and Kobe Steel, a Japanese steelmaker who developed the technology - is testing the substitute at a pilot plant in Silver Bay, Minn.

Steel Dynamics hopes the low-cost substitute will bring relief from rising raw material costs, such as steel scrap, President and Chief Executive Officer Keith Busse said Tuesday. Scrap costs have doubled in the past four to five months to about $300 per ton for premium grades, he said.

Steel Dynamics and its partners are considering building two plants - one in Indiana and one in Minnesota - to make the pellet-sized iron nuggets.

The Butler plant could be the first to get off the ground because it might be faster to get environmental permits in Indiana, Busse said.

The partners have tentatively reached an agreement on most terms and conditions regarding the Minnesota plant, but no deal has been inked, Busse said. The parties are in negotiations regarding the Indiana plant.

Steel Dynamics, which operates mini-mills in Columbia City and Butler, currently makes a pig iron substitute at its Iron Dynamics operation in Butler. That product is slightly more expensive, however, than the proposed nugget technology. Steel Dynamics doesn't plan to halt its Iron Dynamics operation even if the new plants are built.

Steel Dynamics could have an estimated 50 percent ownership stake in the proposed Indiana plant and a roughly 20 percent stake in the planned Minnesota operation, Busse said.

The group expects to invest about $80 million to build and equip the Indiana plant, but startup and working capital costs are expected to boost the investment to about $100 million, Busse said.

The technology being tested at the pilot plant binds iron fines - a sand-like material - with coal and sends it through a rotary hearth gas furnace where the iron and the coal react with oxygen to create iron nuggets.

The nuggets will be about half as expensive as the current cost of pig iron ingots typically used by steelmakers, Busse said.

Currently, pig iron ingots sell for about $350 a ton. The nuggets, which consist of 98 percent iron, could sell for about $180 a ton, Busse said.

The smaller nuggets melt faster than the ingots, speeding up the steelmaking process.

Developing low-cost substitutes make sense because they would lower the cost of producing steel, said James Halloran, analyst with National City Wealth Management in Cleveland.

Whether building new plants makes sense depends on one's opinion of how the economy will do going forward, Halloran said.

Some think the current surge in steel demand - propped up by China's burgeoning economy - may be a bubble and aggressively building plants today could result in overcapacity down the road, Halloran said.

The analyst believes, however, demand for steel will be strong in the long term, though there will be pockets of lower demand which will express themselves through price volatility. Fort Wayne (Indiana) Journal Gazette