STEEL TECHNOLOGY IS RED HOT SPEEDIER, SIMPLER PRODUCTION METHODS THAT LOOKED ECONOMICALLY DICEY A FEW YEARS AGO HAVE PUT AMERICA'S METAL MELTERS BACK ON THE MAP. QUALITY IS UP AND THE INNOVATION ISN'T OVER.
(FORTUNE Magazine) – Like a medieval knight jousting somewhere in hell, a guy on a forklift truck fitted with a stout metal battering ram takes aim and lunges toward a square portal filled with fire. Sparks and smoke spiral upward as the ram hits a tangle of scrap metal within the inferno, forcing it to settle and melt faster. The metal is enveloped in lightning bolts--crackling energy emanating from a soot-black carbon electrode 30 inches in diameter that's hooked up to enough current to fry a grove of giant redwood trees. You're witnessing business as usual at a 150-ton electric-arc furnace, the first step in steelmaking at Nucor Corp.'s Hickman mill in Armorel, Arkansas. Opened only four years ago, the complex is just a mile from the west bank of the Mississippi River, on which much of its output moves to customers by barge. If you still think of the American steel industry as an obsolete titan slowly corroding away in the Information Age, the efficient new production technology at Hickman--and at scores of other new and upgraded mills around the country--provides blazing evidence to the contrary. Raw steel production in the U.S. hit 103 million tons last year, its best showing in 15 years and far above that of 1982, when output was at a 75-million-ton low. While last year's figure fell short of the 121 million tons poured in 1981 and the even higher production rates of bygone times, it demonstrates American steel's ability to survive despite inroads by plastics, aluminum, imported steel, and foreign products made from steel. Quality has risen as output has rebounded--key customers reject less steel than formerly. Profits have rebounded too. More wondrous still, according to the American Iron and Steel Institute, an industry group, exports of made-in-America steel shot up 85% last year, to seven million tons, the biggest annual increase in half a century. Shifting exchange rates explain some, but certainly not all, of that rise as well as a decline in steel imports from 30 million tons to 24 million tons. Nucor, whose revenues have grown sevenfold on repeated capacity expansions since 1985, is the largest of the mini-mill producers that have set the pace in efficiency. Essentially recyclers, the minis rely mainly on scrap metal for raw material that lets them operate comparatively uncomplicated plants. Nucor's mills are the most productive in the world, cranking out flat-rolled metal with a labor input of just 0.6 man-hours per ton. But even the big integrated steelmakers--which start with iron ore and coke run through blast furnaces to obtain virgin metal and turn out a much broader range of products--have made enormous strides through process refinements. U.S. Steel, the metalmaking arm of USX, boasts that it invests only 2.5 man-hours of labor in each ton it ships, a drastic reduction from 11.5 man-hours in 1982. Recycling gave the minis their original edge. Making new steel requires the daunting manipulation of oxygen and carbon molecules. Iron ore as found in the ground is chemically identical to iron oxide, i.e., rust. An integrated producer uses coke, essentially pure carbon produced from coal, to strip oxygen molecules from the ore in a blast furnace. The iron's carbon content must then be burned away in a so-called basic oxygen furnace to form steel. All this requires platoons of workers as well as big-ticket facilities, which the minis don't need. In the Nineties, the minis have made further inroads against integrated producers through a technique called thin-slab casting. Using a process developed in Germany by the equipment builder SMS, it turns freshly melted steel into a continuous slab about two inches thick. It can be rolled into sheet steel faster and with far less machinery than the ten-inch-thick slabs cast in integrated steelmakers' plants. Thin-slab casting got its first production-scale tryout when Kenneth Iverson, Nucor's CEO, boldly ordered a big $275 million casting facility for the company's mill in Crawfordsville, Indiana. Nucor's early adventures with the caster, which began operating in 1989, are described in American Steel, a book by Richard Preston. They were often harrowing. Recalls Iverson: "When the plant was starting up, I used to say that I slept like a baby--I woke up every hour and a half and cried." He can sleep soundly now. Thin-slab casting's emergence is evident at the Hickman mill, home of Nucor's newest caster. In less than an hour, the scrap dumped into that big electric furnace along with alloying ingredients subsides into liquid metal glowing bright orange at 2,750 degrees Fahrenheit. A huge ladle suspended from a crane drains the steel from the bottom of the furnace and carries it to a caster that stands 38 feet high. This impressive device extrudes a two-inch slab of barely solidified steel. Gradually, as it passes through rollers that are internally cooled with water so the steel won't melt them into slush, the slab bends 90 degrees, from vertical to horizontal. When the glowing slab emerges, a powerful shear cuts it into 141-foot lengths. These pass into a long tunnel furnace, where they are bathed in natural gas flames that bring their temperature from end to end and side to side to a consistent 1,975 degrees. That's the proper temperature for the hot-rolling mill that waits at the end of the tunnel. Passing through its six sets of rollers, the slab slims down into sheet, accelerating dramatically in speed as its thickness decreases to as little as one-sixteenth of an inch. The squeezed-down strip flies into a cooling machine and then is wound into coils that are lined up in a shipping area, heat shimmering in the air above them. Trucks, railcars, and river barges carry them to customers who turn them into pipe, tubing, and an infinite number of flat products. Some of the metal winds up in the inner surfaces of automobile bodies. The array of huge machines is operated by a surprisingly small number of non-union workers, who have powerful incentives to keep things moving. When production is brisk, these folks earn as much as $30 an hour. But if a bottleneck develops and no steel is made, the hourly pay drops to $10. "You work really hard when you're not making much money," observes a grimy worker eyeing a row of video monitors in the pulpit where the arc-furnace controls are arrayed. Nucor's mastery of the thin-slab process has inspired a wave of installations. Today, seven casters with a total capacity of 6.5 million tons a year (including four belonging to Nucor) are operating at five mills in the U.S. By 1997, according to Rick Shulkosky, manager of manufacturing and technology at the American Iron and Steel Institute, eight million additional tons of capacity will be running at five other mills. These will include another Nucor caster as well as the first thin-slab device to be built by an integrated company, Acme Steel in Riverdale, Illinois. Thin-slab casters have added a new dimension to the competition between mini-mills and integrated producers, potentially enabling the minis to grab nearly half the $50 billion American steel market, compared with the 30% share they hold today. That would be a far cry from the minis' humble beginnings two decades ago, when integrated producers derided them as marginal upstarts turning junk into low-value products such as nails, reinforcing bars, and simple structural shapes for supermarket roofs. As proof that its gamble with thin-slab casting has paid off, Nucor points with pride to a customer, Emerson Electric, that now uses its steel in electric motors. The big, still unmet challenge for the minis is to gain entry to a high-profit market: supplying steel for the outer skins of cars and appliances. What steelmen call the "exposed auto body market" requires sheet steel with specific metallurgical properties and exceptionally smooth surface finish. It has been the exclusive preserve of the integrated mills, whose precise control of the metal from ore to casting and whose long rolling and finishing lines can deliver the needed quality. For now, marketing and cost barriers have caused Nucor to stop at the threshold of that frontier. Says Iverson: "We do not have any plans at this point to enter the exposed auto body market." He adds, however, that from a purely technical standpoint "there is no limit to the quality that can be produced by the thin-slab process." That was proved a couple of years ago, Iverson proudly recalls, when Manfred Kolakowski, the German co-inventor of crucial elements of the thin-slab caster, came over from Germany to oversee the production of a special batch of steel at the Crawfordsville mill. SMS, Nucor's equipment supplier, paid for the test. The coils were shipped to Germany, where SMS had them "pickled" to remove blemishes, cold-rolled, and annealed--heated and cooled to impart toughness--by Thyssen, a big integrated steelmaker. The steel was found to be suitable for exterior auto parts, though none was actually used this way. Says Iverson: "The coils had a class-one finish. So the potential is there for someone-maybe not us--to use thin-slab casting to provide the skin of an automobile." Some believers in thin-slab technology hope to move closer to that goal. Keith Busse, a former Nucor VP who was in charge of the Crawfordsville thin-slab operation, found financing and struck out with two other erstwhile Nucor executives to form a company called Steel Dynamics Inc. Its mini-mill in Butler, Indiana, began operating three months ago and has already produced sheet steel good enough for the crucial A-arm in the suspension system of a popular Big Three car. Says Busse: "That part has to take 13 hits in the stamping press and have holes pierced in it without tearing." In the past, he says, items like truck wheels made with mini-mill steel cracked during stamping or testing. Busse doesn't come out and promise that his company will later make steel good enough for the skin of cars, but his mill will have all the required equipment. At least one executive of an integrated producer takes the Steel Dynamics venture seriously. "I think they are potentially formidable," says Michael Moore, technical director of research at U.S. Steel. "We see it as just a matter of time before the minis will be able to make fine steels. But getting the needed finish will take some work." Finding the right raw material will be key to the mini-mills' upscale climb. What comes out of these operations is no better than what goes in. Top grades of mini-mill steel require the scrap equivalent of filet mignon, so-called "low residual" scrap containing only minimal amounts of other metals such as copper. Electric furnaces can't remove such contaminants from the brew, and they spoil the new steel's properties. The boom in mini-mills has already heated up demand for high-quality scrap, which recently commanded $164 a ton, or $20 more than in steel's previous cyclical peak. This trend has lent urgency to another steelmaking quest: the search for cheaper ways to make iron. When scrap gets expensive or scarce, mini-mills can round out their feedstocks with pig iron made in blast furnaces. The newer alternative is a metal called direct- reduced iron, or DRI. Typically, DRI is made by using carbon monoxide and hydrogen derived from natural gas to remove oxygen from iron ore by heating it below its melting temperature. The process results in iron pellets or briquettes; by adding them to the scrap that feeds the furnaces, mini-mills not only can dilute to acceptable levels the contaminants in scrap, they also can keep running when demand is high. Depending on price trends, DRI is sometimes a better buy than high-quality scrap. Times have never been better for Midrex Direct Reduction Corp., the Charlotte, North Carolina, company that developed the most widely used process to make DRI. Output based on its technology last year accounted for 65% of world DRI production, itself at a new high of 31 million metric tons. Midrex has no fewer than four plants under construction, in New Orleans, Mexico, Egypt, and South Korea. John Kopfle, manager of marketing and planning, says the company's process makes the most sense in regions with high-grade iron ore and cheap natural gas. Venezuela is blessed with both: two Midrex plants that feed U.S. mini-mills are operated by independent suppliers there. The only operating Midrex plant in the U.S. is at the Georgetown Steel complex in South Carolina. In another trailblazing effort, Nucor has built a plant in Trinidad that turns Brazilian ore into iron carbide, a blackish, sparkly material that is a potentially cheaper alternative to DRI. After a difficult startup, the facility came on line in January and is running at about 60% of its 320,000-ton annual capacity. In test batches, Nucor has successfully added up to 30% iron carbide to the recipe in its electric-arc furnaces. Theoretically, that figure can go as high as 60%--scrap can't be completely eliminated--but a limiting factor is the time required to charge the furnace. Says Iverson: "Iron carbide can be blown in at 3,000 pounds a minute, but that adds up to a lot of time if you want to fill 60% of a 150-ton furnace." Not all steelmaking advances pit the mini-mills against the integrated producers. Though U.S. Steel and Nucor might seem strange bedfellows, they have joined with Praxair, the industrial gas producer, to explore a venture that would carry the iron-carbide process a step further. It would produce steel without any need for coke, electricity, or blast furnaces. William Rathbone, U.S. Steel's general manager of research, notes that the 6% carbon within the iron carbide itself can provide all or most of the energy needed to make the steel. Calculations show that for the process to be viable, iron carbide must stay below $150 per ton. The Trinidad plant has been achieving $135 to $140 a ton, dearer than earlier estimates but low enough to keep the economics tantalizing. U.S. Steel's Michael Moore says plans have been drawn for a unique demonstration-scale plant. He's mum when asked what he whimsically calls the "magic blender" would look like. "It's not going to look like a steelmaking or ironmaking vessel," he says. "It's unlike anything that's been built or run before. The potential benefits of this technology include low capital cost, lower operating cost than our existing process, environmental cleanliness, and pureness of the steel that can be controlled to the parts per million. I still pinch myself and think that nothing could be that good. Could we fail? Sure we could." In the industrywide drive to simplify steelmaking, some companies are pursuing yet another advance: casting freshly melted metal in thicknesses much lower than those achieved at Crawfordsville--as little as 0.2 to 0.08 inches. Most of these "continuous strip-casting" efforts focus on premium-priced stainless steel, where the innovation appears most likely to pay off. Nippon Steel is building the world's first commercial-scale strip caster, which will produce stainless at its Hikari Works in Japan. There's one catch: Strip comes out of these machines at high velocity, but its thin gauge limits the tons-per-hour rate that can be achieved. Nucor's Iverson, who can hardly be called hidebound, takes a wait-and-see view: "It used to take three to four man-hours to produce a ton of flat-rolled product. Now that we're down to 0.6 man hours, there's a question of how much you can save by making continuous strip, and what the capital cost will be." The prospect of such advances makes one thing certain: Though mini-mills will continue to gain market share, that doesn't mean that integrated producers are headed the way of the dinosaurs. An astounding 50 million tons of steelmaking capacity has been retired or dismantled since the early Eighties by Big Steel. But the plants that have survived, for the most part, are lean, state-of-the-art affairs. Richard J. Fruehan, director of the Center for Iron and Steelmaking Research at Carnegie-Mellon University, thinks that "in 15 years we will still have big, efficient, integrated producers making the highest-quality products, because they don't have to contend with the contaminants that come with scrap." Fruehan says that process improvements are driving down costs at Big Steel at a time when scrap prices at the mini-mills are trending up. As a result, he says, liquid virgin steel pouring into the casting machines at some integrated mills actually costs less these days than the recycled stuff at mini-mills. The minis' most compelling advantage, according to Fruehan, isn't technology at all, but "flexibility in compensation." To anyone who has witnessed those non-union steel men scampering to boost tonnage in Nucor's Hickman mill, that advantage seems well on the way to locking up a growing piece of the business. Reporter Associate Alicia Hills Moore |
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