U.S. Steel holding off on coke alternative, taking blast furnace offline

2014-03-22T18:42:00Z 2014-03-24T15:16:05Z U.S. Steel holding off on coke alternative, taking blast furnace offlineJoseph S. Pete joseph.pete@nwi.com, (219) 933-3316 nwitimes.com

GARY | United States Steel Corp. is taking another look at plans to switch to a coke alternative in the steelmaking process, and replacing a blast furnace at a southern mill with a lower-cost electric arc furnace.

The Pittsburgh-based steelmaker will reconsider a planned investment in a second module at Gary Works that would allow it to use a coke substitute in the blast furnaces. Since 2010, U.S. Steel had been working on the $220 million project to find a viable coke alternative using propriety technology from Texas-based Carbonyx Inc.

U.S. Steel is still tinkering with the first module, and not sure it will go forward with the second one, manager of investor relations Dan Lesnak said during the company's most recent quarterly earnings report.

"We continue to refine that process," he said. "We want to make sure we get that running exactly the way we want it and at the levels it should. So we're being deliberate about it, because frankly, we're satisfied with our position."

Once the module is up-and-running, U.S. Steel will decide whether to continue with the second phase.

"We're not sure," Lesnak said. "Once we get that running exactly as we want it, we’ll take a second look at the next module."

The decision will be driven by coke prices, and whether new infrastructure would generate a return on investment, Lesnak said.

Getting the new Carbonyx technology to work has been difficult, Executive Vice President and Chief Financial Officer Dave Burritt said.

"When we started, it certainly had its challenges both from an equipment perspective as well as process control perspective. But a lot of engineering has been put in place and I think there is a pretty good light at the end of this tunnel," Burritt said. "We really are in control of everything else to go to the next module if we ever feel that it’s going to be needed."

U.S. Steel executives outlined the new directions the company will take at its Gary and Alabama facilities during the most recent quarterly conference call, where they announced the company lost $2.1 billion last year. New CEO Mario Longhi has been leading a an effort to make the steelmaker more efficient, so it does not hemorrhage as much red ink during economic downturns.

Longhi said the steelmaker was pursuing permits to switch the blast furnace at Fairfield Works in Alabama with an electric arc furnace, commonly used by mini-mills to melt shredded scrap into a lower-grade steel than the metal that's made in Northwest Indiana for cars and appliances. Traditional blast furnaces cost more to operate because they run day and night and forge steel from raw materials, whose prices are subject to the ups and downs of the free market.

Electric arc furnaces, on the other hand, essentially recycle steel from junk cars and scrapped washers and dryers. They require fewer workers, can be turned on and off, and can be operated during off-peak hours to save money on electricity costs. U.S. Steel will save on the cost of shipping raw materials, such as coke and iron ore, to Fairfield.

The steelmaker also will duck the $100 million tab for re-lining the blast furnace, an expensive but necessary maintenance project, said New York City-based steel analyst Charles Bradford.

After the blast furnace is replaced in 2017, the Alabama plant's production capacity will be downgraded from 2.1 million tons a year to 1.1 million tons a year. U.S. Steel already has begun the engineering because it believes there is a strong business case to be made for the project.

"The move to (electric arc furnace) based steel-making at Fairfield would improve our raw materials position for both iron ore and coke and would reduce our exposure to the merchant coal market," Longhi said. "This improved raw materials position could provide more opportunities to benefit from our iron ore resources and could reduce the need to maintain our coke making infrastructure at its current level."

The switch will mean at smaller headcount at the plant, but it likely will be achieve through the attrition that will naturally take place with an aging workforce, Burritt said.

"It is too far out, but you are going to remember we have a natural attrition that it’s natural to the company, so I wouldn’t dwell on that being any issue going into the future nor our people should be concerned with it, because its just natural stuff that could eventually happen," he said. "There wouldn’t be any need for a drastic move there."

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