A Look into the Iron and Steel Industry

8/7/2019 A Look into the Iron and Steel Industry

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A Look into the Iron and Steel Industry

Iron and Steel Industry Overview

The iron and steel industry is defined to include iron and steel mills; electrometallurgical ferroalloy product manufacturer

and iron, steel, and steel investment foundries (NAICS codes 33111 and 33151). Iron and steel mills comprise integrate

producers and mini-mills. Integrated steel producers generally begin the process by reducing iron ore to molten pig iron in

blast furnace, although some buy slabs and coke on the open market to reduce costs. The pig iron is then combined wit

scrap in a basic oxygen furnace to make molten steel. Mini-mills convert scrap metal into molten steel in an electric a

(EAF) furnace. Output from either type of mill is solidified into semifinished shapes and rolled, drawn, cast, or extruded

make flat-rolled, structural, and tubular products. EAF producers have a cost advantage, leaving integrated producers

focus on higher quality, more complex products. Foundries make metal mold or die castings from molten metal which a

then subject to further manufacturing, such as machining, assembling, and finishing.

Demand for steel is highly dependent on both global and national economies. Development of sophisticated technology ha

improved both product quality and worker productivity. Capital requirements are very high in the integrated mills and a

mills are greatly affected by commodity prices. Environmental regulations are also a major focus and cost. Productivi

improvements have greatly reduced labor demands, with some U.S. producers cutting the number of man-hours require

to produce a ton of steel by 90 percent over the last 25 to 30 years.

The Global Steel Industry

China dominates the global steel industry, with 2006 estimated pig iron production of 380 million metric tons amounting

44.3 percent of the worldwide total and 420 million metric tons of raw steel accounting for 35 percent of global productio

The countrys capacity is seeing fast growth; pig iron production increased 15.2 percent from 2005 to 2006 and raw ste

production rose 20.3 percent during the year. While Chinese steel consumption has grown rapidly, production h

increased faster and in 2006 China moved from a net importer of steel to the worlds largest exporter. Chinese exports hav

continued to increase rapidly in the first half of 2007; net exports to the U.S. were almost double exports during the sam

period in 2006. The countrys heavy government ownership and subsidization and its effect on production have causeconcern about overexpansion in global steel capacity, given the cyclical nature of the industry. And the rise in consumptio

is pushing up the price of raw materials used in steelmaking.

Japan was the second largest producer of both pig iron and raw steel in 2006, claiming close to 9.5 percent of each marke

U.S. raw steel production of around 96 million metric tons of raw steel ranked third, while 39 million tons of pig iron place


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the United States fourth. The United States accounted for 4.5 percent of world pig iron production and 8.0 percent of ra

steel during 2006. While U.S. output of pig iron increased 5.6 percent from 2005 to 2006, raw steel production rose

meager 1.6 percent. Russia was also a major player in world steel, with the third highest pig iron and fourth highest ra

steel output in 2006.

2006 marked the fifth straight year for output and demand growth in the global steel market. The strong world econom

and infrastructure and other investment in developing countries is helping drive global demand. The American Institute f

International Steel forecasts steel consumption growth of 5.2 percent in 2007, or 2.6 percent if China is excluded.

The Steel Industry in the United States

In 2006 about 59 companies in the United States with around 106 plants were capable of producing approximately 1

million metric tons of raw steel. Also, in 2006 eight companies produced pig iron at 18 integrated steel mills. About 1,10

ferrous foundries contributed to 2006 steel industry output valued at approximately $150 billion. Primary stee

manufacturing states in 2006 included Indiana with 24 percent of production, Ohio (16 percent), and Pennsylvania an

Michigan, each with around 6 percent. Major users of U.S. steel were the construction industry (16 percent), an

transportation (mainly automotive producers) with a 13 percent share. Warehouses and steel service centers received 2

percent of steel shipments, much of it for further processing by industries that manufacture products including iron an

steel pipes and tubes, bars, shapes, powder, and wire from purchased steel.

The U.S. steel industry is seeing significant consolidation, restructuring, and new capital investment in the 21st century. Th

number of companies producing raw steel declined by 24 between 2003 and 2006 and the number of plant locations w

cut in half. Integrated steel mill locations with blast furnaces producing pig iron fell from 33 in 2003 to 18 in 200

International Steel Group, U.S. Steel, and Nucor are among companies that have expanded significantly by acquisitio

Technological developments have helped labor productivity to more than triple since the early 1980s, with the averag

number of man-hours per finished ton dropping from 10.1 to about three in 2004; many plants are able to produce a ton

finished steel in less than one man-hour. As a result, despite significant reduction in the number of plants and mode

attrition in the workforce, production capacity rose from 103 to 112 million metric tons between 2003 and 2006.

Domestic raw steel production in 2007 totaled 56,437,000 tons through mid-July, with average capacity utilization at 84

percent compared to 90.2 percent for the same period in 2006. Imports of finished steel mill products amounted to 14

million tons, up 14.3 percent on an annualized basis from 2005, but 19.9 percent below record-high imports of 17.8 millio

tons in the first half of 2006. Canada, followed by China, South Korea, Mexico, and Brazil were the largest sources of U.

imports. While U.S. imports of steel mill products exceed exports, the country is a net exporter of iron and steel scra

Weakness in the U.S. housing industry and constrained consumer spending are negatively impacting domestic demand fo


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steel. Global Insights industrial production index for iron and steel products is forecasted to dip from 116.9 in 2006 t

114.2 in 2007, but then rebound to 118.6 in 2008 and continue to climb steadily to 126.9 in 2012.

International investment in the U.S. Steel industry is growing, with Russias Evraz Group buying Oregon Steel, Brazilian ste

producer Gerdau in the process of acquiring Chaparral Steel, Swedish subsidiary SSAB Canada purchasing IPSCO, Germa

steel-producer ThyssenKrupp AG beginning work on a U.S. plant, and Russias Severstal involved in a joint venture

Mississippi. Industry analysts expect intercontinental mergers and acquisitions to continue.

Tariffs are an important concern for both U.S. steel producers and industries that utilize significant amounts of stee

Undertaking a five-year review, the U.S. International Trade Commission (ITC) voted to leave antidumping orders on ste

concrete reinforcing bars from seven countries, including China and Ukraine, in place. Countervailing and antidumpin

duties on hot-rolled carbon steel imports from 11 countries are currently being reviewed.

Alabamas Iron and Steel Industry

Industry beginnings. The iron and steel industry has a storied history in Alabama. With ample supplies of iron ore, coal, an

limestone, north Alabama, and in particular the Birmingham area, was well-positioned to be a center for iron and ste

manufacturing. The industry began to flourish around Birmingham in the late 1800s, with southern investors and northe

bankers coming together to finance the large capital investments required, while northern and midwestern enginee

provided technological expertise. The largest of these blast furnace complexes were owned by the Tennessee Coal, Iro

and Railroad Company and the Sloss-Sheffield Steel and Iron Company. Industry development brought new rail lines t

Birmingham and enabled the rapid post-Civil War growth that earned it the Magic City label and spawned the cities

Bessemer and Fairfield. Cast iron production flourished as well, with the raw materials in the area good for certain types

pipeAmerican Cast Iron Pipe Company (ACIPCO) was founded in Birmingham in 1905. Ultimately, however, th

phosphorus content of the iron supply limited the areas ability to produce high-quality steel products, although they we

ideal for foundry pig iron, to the extent that in 1940 Birmingham provided 40 percent of the U.S. supply. Early iron and ste

production also spread northeast of Birmingham to Gadsden, where Gulf States Steel began integrated steel mill operation

around 1904.

Steel Mill Developments. The integrated steel mill founded in 1886 by the Tennessee Coal, Iron, and Railroad Company w

acquired by Pittsburgh-based U.S. Steel in 1909 and continues operation today as U.S. Steel-Fairfield Works. It is the state

largest iron and steel mill with about 2,200 workers and a capacity of 2.4 million tons of raw steel and 640,000 tons o

seamless tubular products annually. Gulf States Steel in Gadsden declared bankruptcy and closed in August 2000, idlin

about 1,700 employees. Despite local attempts to restore some operations, purchasers of the site dismantled the mill an

shipped the equipment to a buyer in China.


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With the growing use of electric arc furnace technology to produce steel in a mini-mill environment, location of a pla

became more dependent on ease of transportation of scrap metal rather than on availability of basic raw materials. Th

earliest mini-mills were located in the Birmingham area, however. Birmingham Steel was incorporated by AEA Investors

1983 and began operation with the acquisition of Birmingham Bolt Companys rebar and merchant product mini-milNucor bought its Birmingham operations after bankruptcy in 2002; Nucor-Birmingham has capacity for 600,000 tons o

carbon steel reinforcing bars used in the construction industry annually. Also in 1983 CMC Steel Alabama became th

second steel mini-mill for the Commercial Metals Group, producing structural steel materials in Birmingham; the plant

workforce in 2006 numbered about 400.

Tuscaloosa Steel was created in 1984 as a joint venture of Tippins, ONeal Steel, ACIPCO, and British Steel. British Steel (no

Corus) became the sole owner in 1991. The plant began as a steckel mill using imported steel slabs, but the addition of a

electric arc furnace in 1996 expanded capabilities and boosted capacity to 0.8 million tons annually. Corus Tuscaloosa wa

purchased by Nucor Steel in July 2004 and employed 345 in 2006. Trico Steel, a joint venture of LTV, Corus, and Sumitom

Metals Industries, constructed a $465 million plant in Decatur that became operational in 1997, with 300 employees an

capacity of about 1.9 million tons of finished sheet steel per year. However, Trico filed for bankruptcy just four years lat

and in 2002 Charlotte-based Nucor purchased the assets of the company for over $116 million. Renamed Nucor Stee

Decatur LLC, the mill was upgraded and currently employs more than 600. The plant was named Alabamas larg

Manufacturer of the Year in 2007. Nucor also purchased the adjacent former Worthington Industries cold rolling mill

2004. IPSCOs $425 million Mobile Steelworks mini-mill began production in April 2001, making discrete plate and hot rolle

coil for machinery, rail car, ship, bridge, and other industrial products; capacity is 1.25 million tons per year. IPSCO wa

recently acquired by a Canadian subsidiary of Swedish company SSAB.

Foundry Developments. Birminghams iron and steel production continues to have a strong foundry emphasis. America

Cast Iron Pipe maintains the headquarters it set up in Birmingham in 1905 and employs about 2,400 at its steel pipe an

ductile iron pipe operations there. The 2,100 acre site with almost 60 acres of plant is the worlds largest iron pipe castin

plant. U.S. Pipes Bessemer operation, which was founded as the Howard-Harrison Iron Company in 1889, is one of th

original plants acquired by the company incorporated in 1899 as the United States Cast Iron Pipe and Foundry Compan

After merging with the Sloss-Sheffield Steel and Iron Company in 1952, U.S. Pipe relocated its headquarters to Birmingham

U.S. Pipe was acquired by Jim Walter Corporation in 1969. The Bessemer plant employed over 300 in 2006 and another 20

employees work at the companys Anniston plant. Jim Walter was renamed Walter Industries in 1991; Walter spun o

Mueller Water Products in 2006, with operations including U.S. Pipe and a plant that employs around 600 in Albertvilmanufacturing fire hydrants. Sloss Industries continues operation under the Walter umbrella and produced 400,000 tons

furnace and foundry coke in 2006.

The Birmingham-based McWane Corporation was founded as McWane Cast Iron Pipe in 1921 by former American Cast Iro

Pipe Company president, J.R. McWane. The companys cast iron pipe operations in Birmingham employed about 300


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2006. M and H Valve Company was acquired by McWane in the 1980sthe company had begun its history in 1854 in Ne

York City; its cast iron valve operations relocated to Anniston in 1925 and employed almost 440 in 2006. Als

headquartered in Birmingham, Citation began operation in 1974 with the purchase of Jones Foundry Company in Besseme

Through acquisition, Citation also has metal components foundries in Brewton, Marion, and Columbiana and employs mo

than 1,200 at its Alabama foundry operations.

Looking to the Future. Although Alabama is not among the largest iron and steel producing states, the industry is

significant part of the states economy. In 2006 Alabamas iron and steel industry had sales of almost $2.4 billion fro

approximately 47 iron and steel mill operations, four ferroalloy manufacturers, and around 37 foundries. Employme

totaled more than 10,500. About 18 plants in the state that purchase iron and steel to manufacture pipes and tubes, rolle

steel shapes, and steel wire provide a market for some of these iron and steel products. Largest among these compani

are Hanna Steel, Southland Tube, and Tubular Products. Alabamas industrial consumer base for steel products has grow

markedly over the last decade with the states burgeoning auto industry and a strong commercial construction sector. Th

National Alabama Corporation railcar manufacturing plant to be built in the Florence-Muscle Shoals area will also be

heavy consumer of steel. The states solid base in the industry has helped attract new iron and steel producing companie

and expansions of existing firms.

Current development includes ongoing construction of Nucors $167 million sheet steel galvanizing facility in Decatur. Wit

capacity for about 500,000 tons annually, the plant will employ about 100 at completion in mid-2008 and utilize anoth

100 contract workers. In May 2007, U.S. Pipe announced that it will invest $45 million in a new, state-of-the art ductile iro

pipe plant adjacent to its existing facility in Bessemer. The operation could come online early in 2009 with close to 100 job

it is the first new ductile iron pipe plant built in the United States in over 55 years. Alabamas steel pipe production capaci

will expand with construction of a Berg Spiral Pipe Corporation plant in Mobile. A venture of Panama City-based Berg StePipe, the $75 million facility will employ more than 100 making spiral pipe used by the oil and gas industry. The state

growing steel industry is bringing a related business to Millport in Lamar CountySteel Dust Recycling expects to recyc

110,000 tons per year of steel mill dust that is a byproduct of the EAF process. The plant should be operational in th

second quarter of 2008 and employ 40.

Alabamas iron and steel industry will see significant expansion with the states most recent economic developme

recruitment successthe massive $3.7 billion plant to be built by German steelmaker ThyssenKrupp AG in northern Mobi

County. Slated for completion in 2010 with employment of 2,700, the plant will manufacture and process carbon an

stainless steel for high-end manufacturers, including the automotive, construction, utility, appliance, and machine

manufacturing industries. Steel slabs will be imported for further processing from a ThyssenKrupp plant under constructio

in Brazil. The Alabama plant is expected to have a capacity of 4.1 million tons of carbon steel end products annuall

Location of the plant in the United States gives a boost to the countrys steel industry outlookprior to its announcemen

industry analysts had thought a project of this magnitude unlikely for the foreseeable future.

Alabama Iron and Steel Industry 2006 (revised)


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Employment

Business Sales

(millions)

Iron and steel mills

4,760

$1,390

Ferroalloy manufacturers

285

$77

Iron and foundries

5,460

$907

Total


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10,505

$2,374

Source: Dun and Bradstreet.

A Look into the Iron and Steel Industry

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