Sinton caps off southern ‘green steel’ shift
Fastmarkets charts the steady and recently rapid rise of southern steelmaking, and its possible impact on ferrous scrap markets and pricing
The latest mill
Steel Dynamics Inc (SDI), Butler, Indiana, has opened the newest flat-rolled mill in North America – in Sinton, Texas, on the outskirts of Corpus Christi. The new greenfield electric-arc furnace (EAF) mill will produce about 3 million tons of flat-rolled steel each year and serve customers along and north of the fast-growing Gulf Coast of Texas, as well as across the international border into northern Mexico.
Like other flat-rolled mills built in the United States in recent years – including SDI’s mill at Columbus, Mississippi, and US Steel’s Big River facility on the Mississippi River in Osceola, Arkansas – Sinton is designed to serve automotive assembly and heavy industrial facilities that are increasingly being built in the mid-South, the Gulf Coast and the US South Atlantic region. The new mills are all in the 3-million-ton-per-year production range and melt scrap in an EAF to make flat-rolled steel.
“Our members continue to invest in people, processes and equipment,” according to Philip K Bell, president of the Washington-based Steel Manufacturers Association. “And we’ve seen a lot of growth in places like Alabama, Arkansas and Texas.”
There was a time when the new Texas mill would have been located somewhere along the shores of the Lower Great Lakes, where it could blend iron ore shipped from Lake Superior, limestone from the Michigan shore of Lake Huron and coking coal from Pennsylvania in a blast furnace to make hot metal suitable for rolling steel into sheet for automobile bodies. That was because the American automotive industry was concentrated in the metropolitan Detroit region; the Big Three of Ford, Chrysler and General Motors dominated automobile production.
But that was a lifetime ago. The last integrated blast furnace mill in North America was brought into commercial production by the then-Bethlehem Steel Co in Burns Harbor, Indiana, in 1964. And in the past two decades of the 20th Century, the automotive industry in the US began a push southward out of the Great Lakes that has continued to this day. Japanese manufacturers like Honda and Toyota established beachheads in Ohio, Indiana and Kentucky in the 1980s, and South Korean and European manufacturers have followed suit.
The US Department of Commerce’s International Trade Administration said that since Honda opened its first automotive facility near Columbus, Ohio, 40 years ago (in 1982), Japanese, Korean and European automakers have built automotive plants and invested $75 billion in the US; most of those plants have been built south of the traditional Detroit manufacturing complex.
Metrics about which states produce the most automobiles are hard to come by, mainly because they are broken down into production figures, investment and jobs, but according to a 2015 study by the Center for Automotive Research in Ann Arbor, Michigan, six of the top 10 automotive states are located south of the Ohio River. Michigan, Ohio and Indiana remain the top three automotive states, but Texas has moved up to No4 on that list. Illinois is No5, and Tennessee, Missouri, Kentucky, Alabama and Mississippi round out the top 10.
The study notes that some 479 of the 599 auto manufacturing establishments in Ohio are parts manufacturing operations, and those parts are as likely as not to be shipped south along interstate highways to an assembly plant in Kentucky, Tennessee or Georgia – unlike 50 years ago, when parts flowed north into the Motor City.
And as automotive and consumer durables manufacturing has moved south in the US, so too has steel production. Since Nucor’s Ken Iverson sent Keith Busse to build a major EAF mill in the cornfields near Crawfordsville, Indiana, more than 35 years ago, EAF steel production has grown almost unabated.
Bell said US EAF steel output now accounts for more than 70% of the nation’s total steel production.
And in recent years, Bell noted, the US Congressional District with the largest amount of steel production has shifted south, along with automotive production. He said the Arkansas 1st District, located along the Mississippi River north of Memphis, Tennessee, has surpassed the Indiana 1st District, located in the state’s northwestern tier of counties adjacent to Chicago, when it comes to steel output.
“That just happened last year,” Bell said.
Underlining the trend was US Steel’s announcement in mid-January that it plans to expand its Big River Steel facility. The company said it will create a “6.3-million-ton mega-mill” at the site by adding two EAFs with a total capacity of 3 million tpy. Groundbreaking is scheduled for the first quarter of 2022, with commercial operation expected to begin in 2024.
Nucor Corp will build a $2.7-billion steel sheet mill in Mason County, West Virginia, the company announced on January 12. The mill will be able to produce 3 million tons of steel annually.
The wave of the future
SDI’s decision to locate its newest flat-rolled mill in Texas is likely tied to the next wave of automotive manufacturing in the US, along with automotive and consumer durables manufacturers residing in nearby Mexico.
Bell said that SDI’s decision to build in Sinton was driven by a number of factors, including the proximity of the mill to Mexico, local tax-incentive packages, access to a deep-water port in nearby Corpus Christi and low natural gas prices.
“SDI has created a business model with the Sinton project,” he said. “Right now, they’ve got six companies, I think, co-locating with them on the Sinton campus.”
With concerns about human-induced climate change growing by the day, established and new automobile manufacturers are stepping up and announcing major investments in greenfield electric vehicle (EV) battery and assembly plants. During the next four model years, an estimated 100 new EV models are on the drawing board for the US market. Sales of EVs are forecast to increase more than five-fold by 2025.
Even if that growth is a more conservative 300% over 2020 figures – an estimated 2% of the new car market – that will still require a major influx of steel production.
“If you understand the original concept of EAFs, it’s that you have the mill built close to the end users. You benefit from logistical efficiencies and synergies with customers,” Bell said.
Not all of the EV manufacturers will locate facilities in the South.
General Motors, which is making plans to convert existing facilities to produce EVs, has announced it will invest more than $3 billion to make EVs and batteries in Michigan. But Ford has said it will spend $11 billion to build battery manufacturing plants in Kentucky and Tennessee, and Toyota intends to spend $1.25 billion to build a battery plant in North Carolina. A Chinese company is making EVs at a plant in South Carolina, and Volkswagen AG is producing EVs at an existing plant in Chattanooga, Tennessee. Tesla expects to begin production of EVs soon at its plant in Austin, Texas.
The latest EV manufacturer to announce a major move to the US South is electric truck manufacturer Rivian, which announced in mid-December 2021 that its second major US assembly plant will be located just east of Atlanta. Construction of the Georgia plant, which will be capable of producing 400,000 vehicles per year, will begin in the first quarter of 2022. The plant will employ about 7,500 workers when it is up and running in 2023. Rivian plans to spend $5 billion on the new Georgia plant, noting that it expects to add 800-1,000 jobs at its original plant in Normal, Illinois.
The growth of automotive manufacturing – both EV and fossil-fuel based – in the South is driving the addition of flat-rolled capacity in such places as Texas, Kentucky and Alabama.
Bell expects several trends to accelerate in the years to come. “There is an increasing ability of EAF mills to supply automotive markets,” he said, “and states in the South have gotten more aggressive in courting steel mills.”
Southern scrap strategy
Key to the success of the Sinton site is ensuring an adequate supply of ferrous scrap to the greenfield mill.
SDI accomplished that 17 months ago when it purchased Monterrey, Mexico-based Zimmer SA de CV as part of its raw material procurement strategy.
Reflective of both a southern strategy in scrap and steel and the wave of consolidation in raw materials that has been sweeping the EAF sector of the industry, the Zimmer acquisition “expands [SDI’s] commercial presence in the region and strengthens our raw material supply strategy, allowing for cost-effective ferrous scrap procurement for our new Texas flat-roll steel mill,” SDI chairman, president and chief executive officer Mark Millett said at the time.
The acquisition gives SDI access to six scrap processing facilities in central and northern Mexico, as well as several third-party scrap processing locations, with an estimated annual processing capability of 2 million gross tons.
Another major producer that is expanding its footprint in the Mid-South is Nucor. With a long-time presence in the region – including mills on the Mississippi River in Arkansas and a state-of-the-art direct-reduced iron facility in Louisiana – Nucor is building a greenfield plate mill on the Ohio River at Brandenburg, Kentucky, west of Louisville, and adding a tube mill on the site of its sheet mill in Gallatin, Kentucky, between Louisville and Cincinnati, Ohio.
In October, Nucor announced the acquisition of Grossman Iron & Steel, a full-service ferrous and non-ferrous scrap metal recycling facility on the Mississippi River at St Louis, Missouri. Nucor said Grossman was “well-positioned to support our growing steelmaking capacity along the Mississippi and Ohio river system.”
The 101-year-old Grossman property includes a shredder and a metal recovery facility.
At the same time, Nucor announced the acquisition of Garden Street Iron & Metal, which operates three full-service ferrous and non-ferrous scrap metal recycling facilities, including a shredder and self-serve used auto parts store in the Ft Myers area of Southwest Florida.
Schnitzer Steel in August entered a definitive agreement to purchase Columbus Recycling and its eight operating facilities across the Southeast, further evidence of the rapid consolidation in the US scrap industry.
“Combined with Schnitzer’s nine existing facilities in Georgia, Alabama and Tennessee, the acquired operations will offer additional recycling products, services and logistics solutions to customers and suppliers across the Southeast, a region that is expected to see a significant increase in [EAF] steelmaking capacity in the coming years,” Schnitzer said at the time.
Commercial Metals Co (CMC) subsidiary Owen Steel Co of South Carolina purchased seven OmniSource Corp feeder yards in the Southeast in 2017.
The impact on pricing
So what do these changes mean for the markets? One outcome is that there is now a footprint for a more concentrated Texas consumer scrap price. Fastmarkets currently prices Houston markets on a dealer and consumer trend basis, but not an outright mill price.
Once Sinton’s melting schedule fully starts up, Fastmarkets is planning a consultation to introduce a Houston consumer price or switch its Houston dealer price to a consumer price. In terms of grades, Fastmarkets anticipates replicating the list of existing Houston prices, including heavy melt, busheling, shredded scrap, plate and structural, and machine shop turnings.
And indeed, further down the road, as southern steelmaking continues to grow, Fastmarkets is considering adding an index that will account for the South, and particularly the Southeast, in the same way as the Midwest, combining markets such as Alabama, Arkansas/Tennessee and Texas in one price series.
Fastmarkets has already expanded the footprint of its daily hot-rolled coil index to include southern states, given the growth in steelmaking there, and regularly prices scrap markets such as busheling in Alabama and Arkansas/Tennessee. It is also rapidly expanding its coverage of decarbonization and so-called “green steel,” for which EAF production and scrap use plays a critical role.
In the American Iron and Steel Institute’s weekly crude steel production count, southern output accounted for 742,000 tons for the week ended January 15, up from 735,000 tons the previous week. This compared with 629,000 tons around the Great Lakes and 209,000 tons in the Midwest.
It might not be long, especially as Sinton starts up and the new Nucor and US Steel mills are added before the South becomes the United States’ predominant steelmaking region.