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Steelmaking Supported by Natural Gas Boom

Steel Producers Build DRI Plants

Written by Brianna Panzica
Posted January 2, 2013 at 9:19PM

The North American natural gas boom has given a boost to a number of industries. From the chemical industry to the oil and gas drillers themselves, and from water companies to pipeline companies, industries related to or providing services to fracking have been revived by the boom.

But there are also a number of industries benefiting from cheap natural gas. Utilities, for example, have shifted their focus away from coal and toward the cheap, abundant resource.

Natural gas vehicles are on the rise. Honda (NYSE: HMC) released the Honda Civic Natural Gas in 2012, and Clean Energy Fuels Corp. (NASDAQ: CLNE) will complete the second round of its Natural Gas Highway project for natural gas-powered trucks this year.

Similarly, the steel industry, an industry that has long relied on coal for production, is changing its fuel source.

The production of cheap natural gas is breathing life into the North American steel manufacturing industry. For years, the industry has been in a slump, struggling amid Chinese competition, depressed prices, and slow demand.

And coal was the main fuel used to purify iron ore. As it was in power generation, coal was a cheap and abundant fuel source for steelmaking.

But now natural gas might be an even better solution.

From the Pittsburgh Post-Gazette:

“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.”

Companies are already building brand new steel plants to accommodate the direct-reduced iron, or DRI, technology. This first stage of steelmaking can be accomplished for nearly 20% less than with a blast furnace.

One such company is Nucor Corp. (NYSE: NUE), a U.S. steel manufacturer building a $750 million factory in Louisiana. Nucor, like other steelmakers, has been doing poorly since the recession, with 2012 earnings expected to come in at just a third of 2008 levels. But the new steel plant is expected to be the start of renewed growth.

Nucor will have a source for its natural gas, too. In a joint venture with Encana Corp. (TSX: ECA), a Canadian oil and gas producer, Nucor will pay the company $3 billion for twenty years of access to its natural gas wells.

And it's not just U.S. companies taking advantage of this shift in technology. Austrian Voestalpine AG (ETR: VAS) is building a factory in the U.S. worth roughly $661 million, it announced last month. And Bluescope Steel Ltd., an Australian company, is teaming up with Cargill Inc. to build a factory in Ohio.

The steel industry is growing globally, having expanded 14% since 2008. But in the U.S., production decreased by 3.4%.

But that's all set to change as the shale revolution heats up yet another industry.

That's all for now,

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Brianna Panzica

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Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.

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