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Cheap Gas Draws New Iron-Making Process to the U.S.

In the soft drink world, Coke's nemesis is Pepsi. But in the steel industry coke risks being undone by low-cost natural gas.

A process used abroad to create direct reduced iron (DRI) is emerging in the United States. DRI uses natural gas as a reducing agent in the iron-making process instead of relying on coke-based blast furnaces. Natural gas and iron ore are currently being used to make DRI in more than a dozen countries, but not yet in the United States.

However, Steelmaker Nucor Corp. is nearing completion of construction of a 2.5 million metric ton annual capacity DRI facility in Louisiana. Startup of the plant is expected around the end of the year, following a delay caused by a collapsed iron ore storage dome at the facility site.

"Startup of our Louisiana DRI plant will be a huge step forward in the implementation of our raw material strategy," CEO John Ferriola said during a third quarter earnings conference call. "Combining Louisiana's 2.5 million ton capacity with the 2 million tons annual capacity of our existing Trinidad DRI plant will bring us to two-thirds of our long-term goal of controlling 6 million to 7 million tons of annual capacity in high-quality scrap substitutes."

One year ago, U.S.-based Nucor took a half-stake in some of Encana Corp.'s U.S. natural gas wells (see Daily GPI,Nov. 7, 2012).

In May, European steelmaker Voestalpine AG said it would site a new plant outside of Corpus Christi, TX, to produce DRI as well as hot briquetted iron (see Shale Daily,May 28). The products will supply the company's Austrian steel production facilities, it said. One of the benefits of the location is cheap natural gas from the Eagle Ford Shale, the company said.

While cheap U.S. gas from shale plays makes the DRI process attractive in the United States, DRI plants also require less capital to build.

US Steel Corp. is pursuing a "longer-term objective of using our own iron ore resources to benefit from the low-cost natural gas market in North America by incorporating direct reduced iron, or DRI, into our operations and cost structure," CEO Mario Longhi said during a third quarter earnings conference call late last month.

An analyst on the call remarked that DRI "is something we've been hearing about for a while..." and asked whether US Steel had lined up natural gas supply or permits for facilities to use the process.

"No, that's all still in the works," Longhi said. US Steel is reportedly considering a joint venture with Republic Steel to produce DRE to serve its tubular products operations in Ohio.

Fourteen countries accounted for 82% of world DRI production in 2012, according to worldsteel, a trade association formerly known as the International Iron and Steel Institute. They are Canada, Mexico, Trinidad and Tobago, Argentina, Peru, Venezuela, Egypt, Libya, South Africa, Iran, Qatar, Saudi Arabia, United Arab Emirates and India. Monthly DRI production from these countries has averaged about 5.3 million metric tons so far this year.

According to the website of Japanese steelmaker Kobe Steel Ltd., "Direct reduction is an iron-making process for the new era...As direct reduction plants are not built on the same, enormous scale as blast furnaces, their investment costs are lower, and they have been mainly constructed in developing countries where natural gas is relatively inexpensive.

"Recently, however, even in developed countries, such as the United States, direct reduction plants are drawing more and more attention as a way to provide a stable supply source of pure iron, substituting steel scrap."

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