Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Many integrated steel mills in northwest Indiana are over a century old, and their age could be hurting the companies that own them operationally and financially. The region is home to about 50pc of US blast furnace capacity, making investments in regular maintenance essential. 


Pittsburgh-based U.S. Steel (USS), one of Northwest Indiana’s largest industrial employers, has been building its steel inventory ahead of a planned 48-day maintenance outage at its Gary Works No. 4 blast furnace in April. However, major flooding at the facility in November, and subsequent safety concerns, led to a forced shutdown of its blast furnaces. Moreover, the steelmaker lost $642mn in 2019 largely because its Great Lakes Works facility near Detroit closed. 


However, the company invested in an electric arc furnace with mini mill Big River Steel in Arkansas, adding variety to its traditionally integrated steelmaking capabilities. Market participants also believe steel prices have already bottomed out and that demand in the automotive and construction markets will be steady. According to USS, its flat-rolled order book is strong and the company is optimistic prices will recover.


ArcelorMittal Indiana Harbor in East Chicago, part of the largest integrated steelmaking sector in the US, was impaired in December by an explosion that damaged its No. 4 steel producing basic oxygen furnace, as well as a control room. The company resumed operations at the furnace in January and expects to keep meeting customer demands.


Upgrades have been made to steel mills across the US, but their old equipment hasn’t been replaced. Steelmaking economics are cyclical, and because freefalling steel prices throughout 2019 left the industry in financial straits, the capital needed for equipment upgrades or replacement has been delayed. 


Steel was priced at $550/mt at the end of November, a 29pc decrease from the same month in 2018. Steelmakers cannot make major capital investments when steel prices fall below the $600/mt needed to make a profit.


Maintenance can be more costly for aging mills, which can only remain operational with investments for upgrades. Integrated steel mills have invested in costly developments, like relining blast furnaces, but maintenance projects often get delayed during market declines so that steelmakers can protect their margins. 

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