Times Have Changed’: New Plan For a Century-Old U.S. Steel Mill (US)

US Steel

U. S. Steel’s sprawling Fairfield Works west of Birmingham, Ala., includes both flat-rolled and tubular steelmaking and finishing facilities. Fairfield Tubular Operations, the facility’s seamless pipe mill, can produce more than 750,000 tons of seamless tubular products every year, primarily for OCTG markets. Pipe produced at the facility ranges in size from 4-1/2” to 9-7/8” outside diameter. (Credit Photo @ US Steel)

U.S. Steel Corp.X -0.44% CEO Mario Longhi, who is under the gun after having to announce Monday that his Pittsburgh-based firm lost $2.1 billion in 2013, is starting to make real moves. On Tuesday — the day before he welcomes President Obama at a plant in Pittsburgh — Mr. Longhi said that the company would apply for permits to replace its blast furnace at a plant in Fairfield, AL with an electric arc furnace. The new furnace will be in operation by 2017.

What does that mean?

A quick primer on steelmaking: The blast furnace is the way U.S. Steel has made metal since the days of Andrew Carnegie. Inside the massive cylindrical structure, iron ore is melted down, part of a process that generates batches of steel from raw materials. It’s a lumbering piece of equipment that is expensive to maintain, and turn on and off. It usually produces a slightly higher quality and more exact form of steel that can be used for high-grade applications such as the automotive industry.

In an electric furnace, steel is made by melting shredded up automobiles, refrigerators and other forms of scrap. “The EAF (electric arc furnace) can be started and stopped at will without exposing the mill to excessive costs associated with the shutdown or start-up process,” says John Packard, publisher of Steel Market Update. It’s also generally the less expensive option, especially with the higher iron ore and coal prices of recent years.

With the U.S. generating more scrap and requiring less steel, EAFs have been in fashion. No new blast furnace has been built in this country since the 1960s. In the last decade, more nimble EAF steelmakers like Nucor Corp. and Steel Dynamics Inc. have easily outperformed so-called integrated producers like U.S. Steel and ArcelorMittal.

U.S. Steel, significantly, does not have any EAFs, says a spokeswoman.

Mr. Longhi said the switchover would make the company more “flexible” and “efficient”, code for lower costs and, most probably, fewer man-hours. The new EAF in Alabama will have a capacity of only 1.1 million tons per year, compared to 2.1 million tons a year for the blast furnace.

Steel insiders immediately cheered Tuesday’s announcement. “This has been my argument for the last couple of years, they can’t afford to reline the blast furnace,” said Charles Bradford of Bradford Research Inc. Relining the blast furnace, a piece of routine maintenance, would have cost $100 million, Mr. Longhi said.

The plant, which employs around 2,000, is over a century old and was one of U.S. Steel’s big hubs during its 1960s glory days, when it employed over 15,000. It had been rumored as a candidate for closure as Mr. Longhi looks for fat to cut.

Analysts said the move was a sign Mr. Longhi is optimistic about steel demand — after all, the alternative was probably to shut down Fairfield — but less so about U.S. Steel’s current business model.

Making a move toward EAFs “is a corporate shift in philosophy, a recognition that times have changed,” says Mr. Packard.

Update: Blast furnaces, of course, are not entirely a technology of the past. Although no new blast furnace steel mills have been built in decades in the U.S., steel companies say they have more recently rebuilt individual old furnaces at existing mills. For example, in 2007 Severstal North America, a unit of Russia’s OAO Severstal, launched a rebuilt blast furnace at its plant in Dearborn, Mich, as part of a $1.7 billion modernization project. The state-of-the-art technology means it should not require any major repairs or overhauls for over 20 years, says spokeswoman Katya Pruett. The company also has an electric arc furnace in Columbus, Miss. “It’s been our approach all along to use both technologies – blast furnace and EAF,” says Mrs. Pruett.

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