NEW YORK — 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 said Dec. 19 it may construct a $661 million factory in the United States to benefit from cheap gas. Nucor Corp., 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,” said Michelle 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, N.C.-based steelmaker said.
Foreign competitors are now following Nucor’s lead. A joint venture between Australia’s Bluescope Steel and commodity trader Cargill plans to build a DRI plant in Ohio, Biliana Pehlivanova and Shiyang Wang.
Hydraulic fracturing of shale rock formations from Texas to West Virginia has boosted supplies of gas and sent prices plunging by as much as half in the past two years. Gas futures reached a decade low of $1.91 per million British thermal units in April in New York trading.
Iron is the largest component of steel. While it’s the fourth most abundant element in the earth’s crust, iron is rarely found in its elemental form and must instead be separated from other minerals, or “reduced” in steel industry terminology.
For steelmakers, the process typically occurs in a blast furnace, in which coal heats and reduces iron ore. That method accounts for 94 percent of global iron output, according to the World Steel Association.
The DRI iron doesn’t just provide a cost advantage: It also helps to make smoother, blemish-free steel that’s stronger and more ductile.