Steel micro mills: When less is more
First there was the Bessemer Process, supplanted by open-hearth furnaces, followed by integrated mills, and then there were mini mills. And now there are micro mills. Some US steelmakers are getting bigger by getting smaller.
The US is scheduled to have four micro mills operating by the end of this decade. Commercial Metals Company built the US’ first micro mill in Mesa, Arizona, a 280,000 st/year facility that began operations in 2009. Others were slow to catch on, but the growth of micro mills has ramped up recently, and it all began before any Section 232 measures were implemented in the US. CMC plans to commission a 350,000 st/year micro mill in Durant, Oklahoma in 2018. In November 2017 Nucor chose Sedalia, Missouri for a $250 million micro mill. Four months later in March, Nucor announced a second rebar micro mill, to be built in Frostproof, Florida, with a $240 million investment. Both Nucor micro mills will have an estimated annual capacity of 350,000 st/year.
The Missouri facility is expected to start producing in 2019 and the Florida mill in 2020. “We are building this rebar micro mill in a great and growing market where demand is strong and there is currently an abundant supply of scrap, a good portion of which is handled by our scrap business, The David J. Joseph Company,” Nucor CEO John Ferriola said. Ferriola laid out the essential ingredients needed for a micro-mill, local scrap and local rebar demand.
The other piece of the micro-mill puzzle is technology. Improvements in technology and efficiencies have allowed micro-mills to be competitive without moving a large tonnage of steel product out the door. Danieli, the Italian-based steel technology giant, calls a micro-mill “a mini-mill based on ultra-compact design and extremely low transformation costs.” According to Danieli, it is now possible to produce 250,000-300,000 mt/year of long products with an overall cost per ton typical of those of a much larger 1.0-1.5 million mt/ year mini-mill. A micro mill typically has a nameplate capacity of around 350,000 st/year compared with mini mills that generally are only as small as 600,000 st/year. Once Nucor’s first micro-mill begins operations in 2019, it will be one of 10 Danieli micro-mills operating, or in the works, around the world. “I spot a trend,” one Midwest scrap supplier said. “Freight and shipping costs are obviously at play here. Those costs will never get any cheaper. It all makes sense. Maybe one day we’ll look at the mini mills like we look at the old integrateds.”
Nobody seems willing to write off mini mills, especially light flat-rolled producing operations that have a capacity of over 1 million st/year, but the micro-mill technology could be a fit for the future in certain markets that generate scrap, but source their rebar from outside of the region.
Micro-mill technology not entirely new
“The success of other [micro-mill] facilities makes it easier to make an investment in something relatively new,” Dave Sumoski, Executive Vice President of Merchant and Rebar Products for Nucor told S&P Global Platts. “We feel a lot better about the technology having some success already out there.”
In 2008, the late John Correnti proposed an ambitious plan under Steel Development Co to build four micro mills in the US. The logistics that Correnti had envisioned were for a mill that could source scrap from a 200-mile radius and ship finished product to a 300-mile radius. The plans ultimately fell through. “An EAF’s biggest cost is scrap,” said Chuck Bradford of Bradford Research. “It is very expensive to move raw materials. You do not want to move scrap from thousands of miles away.” Nucor has the scrap supply around Missouri and Florida through DJJ and one of its wholly-owned ventures, Advantage Metals Recycling. AMR is the largest recycler in the region with 11 locations in Kansas and Missouri. Currently, a significant amount of scrap around Kansas City is springboarded out of the region with mills paying extra freight for it and it is a similar situation in Central Florida where some of the scrap even moves to export markets. “If you have a micro mill in your region, the word springboard goes out the window,” another scrap dealer said. “If you locate it in an area where there is no other mill and plenty of scrap, you don’t have to reach for scrap.” Freight considerations could benefit the micro mill concept on both legs, bringing in scrap and shipping out rebar. “Trucking is currently operating at approximately 98% capacity; in less than two years it will be over capacity,” another scrap dealer said. “Between rules and regulations drivers are not available. Micro mills are not a new business model. However, I see it being incorporated more in the future.”
Bradford noted the success of mini mills was the result of improvements in technology and electric furnace transformers allowing mini mills to grow from 600,000 st/year to over 1 million st/year. “There are a lot of markets in the US that are a lot smaller than that. Micro mill technology allows mills to target those markets.” Nucor’s first micro mill commitment in the Kansas City region is an area that checks all the boxes when it comes to making a micro mill make sense. “That is very important for us,” Sumoski said of the scrap assets in the region. “Some of our scrap locations are not aligned with our steelmaking locations. This micro mill technology gives us the ability to align our assets.” He added, “We have a lot of scrap under control, and we think that the Florida/Georgia market is big and growing. We have a lot of scrap in Florida and we don’t typically ship it overseas.” The Kansas City market provided Nucor with an area that lacked an existing mill, but has local scrap that can be melted and processed into rebar for the local market. “We identified that Kansas City region as a place that is being serviced from outside of the region with rebar and there is a lot of scrap in the Kansas City market,” Sumoski said. “And we have a lot of that scrap under control.”
While the Missouri micro mill will have a capacity around 350,000 st/year, Sumoski said the market would dictate how much the mill would produce. The Sedalia, Missouri micro mill will be the third in the US market after Commercial Metals Company’s two micro mills in Arizona and Oklahoma with annualized capacities of 280,000 st and 350,000 st respectively. And Nucor’s Frostfree, Florida, micro mill will be the fourth. When Correnti was laying out his plans for four micro mills, he was prepared to commit to the first two and noted that “the third and fourth depend on the success of the first two. Nothing sells better than a winning track record.” So, while four micro mills are set to be operating in the US by the end of this decade, it appears any potential planning for a fifth or sixth will depend on the success of the first four.