SSS 2020: SDI Texas EAF targets exposed auto

Steel Dynamics Inc’s (SDI) new $1.9-billion flat-rolled steel mill in Sinton, Texas, could be the first electric-arc furnace (EAF) facility to produce exposed-grade automotive material, the company’s top executive said.

“The Sinton mill will certainly produce unexposed automotive steels, and we believe it will offer the possibility for the first mini-mill production of exposed automotive steels,” SDI president and chief executive officer Mark Millett said during a keynote presentation at Fastmarkets’ Steel Success Strategies conference on Wednesday October 28.

Exposed grade automotive steel – sheet for roofs, hoods and other applications where surface quality is critical – have been one of the last bastions of integrated mills, which use iron ore rather than scrap as a raw material.

SDI’s Sinton mill, still on track to be completed in mid-2021, should be able to make those grades thanks to a 5-inch-thick caster coupled with a traditional hot-strip mill, Millett said.

“The thicker caster will facilitate greater reductions for superior metallurgical and surface properties. The hot-strip mill configuration allows for firmer mechanical rolling for tougher, stronger steels at less cost,” he said.

USMCA, green steel to drive auto to Texas
The Sinton mill should benefit from the increased local content standards embedded in the US-Mexico-Canada (USMCA) trade agreement, which stipulates that automakers need to source 70% of the steel or aluminum they use within North America.

Underscoring SDI’s commitment to the region, and to the potential growth of the Mexican market, Millett said that SDI had initially considered building the Texas mill in Mexico. The logic of locating in Mexico: US demand grows incrementally while it could grow exponentially in Mexico.

The company ultimately decided not to build in Mexico due to the lack of a local partner and because it could not find a good site, he said.

But while SDI might not have built in Mexico, ramped-up local content rules in USMCA are “already gaining traction” among European automotive companies that need to source more of their products from North America, both in the US and Mexico, instead of relying on imports from the Continent, Millett said.

The Texas mill has also benefited from an increased focus on green priorities and sustainability – namely, the movement toward environmental, social and corporate governance, or ESG. “Although eschewed by some, ESG provides us with a material competitive advantage. We continue to gain significant market share with ESG-centric consumers - particularly the European automakers,” he said.

Also on the environmental front, Millett said SDI would support a carbon border tax similar to what is already being considered in Europe. The US imports approximately 20 million tons of steel directly and as much as 30 million tons annually indirectly - via steel-intensive goods such as passenger vehicles and appliances.

Much of that steel originates “in countries that have little environmental concern and that are massive contributors to greenhouse gasses,” he said. “Why import the pollution?”

Trump, Biden and the unknowable future
Millett declined to say which candidate he supported for US president, Donald Trump or Joe Biden. But he said an administration under either should continue to support the domestic steel industry, and its consumer base, through tools deployed by past administration - both Republican and Democrat.

“The future is unknowable. So who knows what the hell is going to happen here in a couple of weeks,” Millett said.

US presidential elections will take place on Tuesday November 3. If the race is close, the result might not be known immediately.

“We really need to recognize that we are at war with China, economic war, and we have been for years. [And] we cannot rely on the WTO (World Trade Organization). … So my hope is that the administration will continue to recognize that,” he said.

Policies that have benefited the steel industry include not only Trump’s Section 232 tariffs and quotas, but also Section 201 measures, a stricter definition of “injury” by imports passed under the administration of former President Barrack Obama, and anti-circumvention cases pioneered under Obama and continued under Trump.

“They may not be ideal. But fair-trade mechanisms must remain in place,” Millett said.

One sure thing: Coated is coming sooner
Turning back to the Texas steel mill, Millett said that it will be capable of making sheet up to 84-inches wide and one inch thick. That width should allow it to make the 26-inch pipe that is popular in the energy distribution sector.

The mill will take time to achieve automotive certification and so will initially run more basic construction and energy products, Millett said.

He is confident that the mid-2021 target will not slip in part because the mill’s coating, galvanizing and pre-paint lines will begin operating before melting begins. “Those products will definitely be available mid-next year,” he said.

The market for coated products has been extremely tight in the United States, with some sources reporting little or no availability for spot galvanized coils, for example.

And on the Galvalume side, where lead times are long and spot tons limited, some sources have said there might be little price relief until SDI’s new mill, or at least its coating facilities, come online.

Fastmarkets’ assessment for steel hot-dipped galvanized (cold-rolled coil base) steel coil, fob mill US was $42 per cwt on October 22, up from $41.50 per ton a week earlier and marking 10 consecutive weeks of rising prices.

Fastmarkets assessed the price for steel coil Galvalume, fob mill US at $41 per hundredweight ($820 per short ton) on October 20, up 13.9% from $36 per cwt on September 15. The increase marked the products largest jump since March 2018 and its highest price point since $42.50 per cwt in December 2018.

Galvalume® is a registered trademark of BIEC International.

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