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Basic Materials

Testing America’s Mettle

By Elliott H. Gue, on Apr. 2, 2014

By the early 21st century, the US steel industry appeared to be in terminal decline.

China had surpassed the US to become the world’s largest producer and consumer of steel amid manufacturing and construction booms.

In early 1995, the US accounted for about 13 percent of global steel production, slightly more than China; today, the Mainland accounts for about half the world’s steel output, while America’s share of the market has slipped to 6 percent.

But investors shouldn’t dismiss America’s steel industry as another example of the nation’s fading glory.

The US steel industry is on the cusp of a dramatic comeback, thanks to America’s growing energy advantage.

Like Carnegie Steel in the late 19th century, American steel companies are at the forefront of a technological revolution that will reshape the industry.

Commercial steel production involves one of two technologies: the basic oxygen furnace (BOF) and the electric arc furnace (EAF).

The BOF uses the Bessemer process that Andrew Carnegie popularized in the US about 150 years ago. With this approach to steelmaking, the BOF heats the pig iron and blasts it with oxygen, removing carbon and other impurities and creating high-strength steel. Oxygen furnaces produce almost 70 percent of the world’s steel.

BOFs predominate in China and other countries where the availability of steel scrap is limited. This production process historically has produced the specialized, higher-end grades of steel used in the automobile industry and other applications.

An EAF heats recycled steel scrap to about 1,600 degrees Celsius to create high-quality steel that’s suitable for a wide range of applications.

Although operators sometimes mix in small quantities of pig iron to produce certain products, this process involves considerably less coking coal and iron ore than an oxygen furnace.

Equally important, these so-called mini-mills can be fired up and powered down with relative ease, allowing operators to adjust their production to match demand.

This steelmaking technology has emerged as an important supply source in the US and other countries where steel scrap is relatively abundant and inexpensive.

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