DRI: Scrap's Friend or Foe?

Robert J. Garino is director of commodities for the Institute of Scrap Recycling Industries (Washington, D.C.).

Year by year, direct-reduced iron (DRI) is becoming a bigger and bigger issue for ferrous scrap processors and steelmakers alike. Scrap processors are concerned that DRI could substantially replace scrap in the steelmaking process. Steelmakers, particularly minimills, see DRI as a material that can help them meet the growing quality demands of their customers.

But as long as scrap prices continue to be lower than those of DRI, direct-reduced iron will remain only a complementary material to scrap, not a substitute for it, industry sources note. Some are concerned, however, that the potential for reduced supplies of quality prompt scrap in the future and increased steel demand in foreign countries could eventually tip the balance toward DRI.

DRI starts out as iron oxide in a form such as sized ore, concentrates, or pellets, which is reduced to metallic iron using a low-heat process (usually gas-based) that never melts the oxide. The end product can be used as a replacement for scrap or iron ore and coke in a variety of steelmaking furnaces.

More than 300 direct-reduction processes have reportedly been tested, but most never progressed beyond the laboratory. Today, four distinct processes dominate the industry: Midrex, Hyl, FIOR, and SL/RN. Combined, these four methods produced approximately 97 percent of all DRI made worldwide in 1990, with the Midrex process alone accounting for more than 60 percent of the total.

How big is DRI production? In 1990, global production increased for the eighth consecutive year, to a record 17.88 million metric tons (mt), approximately 12 percent more than the 16.00 million Mt produced in 1989. (Despite this steady growth, DRI production plants worldwide operated at only approximately 61 percent capacity in 1990.

U.S. DRI production growth was even more dramatic, increasing 34 percent--from 290,000 mt produced in 1989 to 390,OW Mt last year. Interestingly, U.S. production of DRI peaked in 1979 at 790,000 mt.

Domestic DRI production capacity has been significantly reduced in the last 10 years due to high natural gas prices coupled with relatively low scrap prices, industry sources note. Today, there is only one direct-reduction plant operating in the United States--Georgetown Steel Corp. (Georgetown, S.C.). The captive facility, which opened in 197 1, uses the Midrex process and is rated at 400,000 mt per year.

The United States also imports DRI, though the exact amount is uncertain since DRI import figures are included in iron-ore import statistics. While the U.S. Department of Commerce identified only approximately 327,700 Mt of DRI imported in 1990, brokers and industry analysts assert that the actual annual market is probably closer to 1.27 million mt--total reported DRI consumption (1.6 million mt) minus domestic production (390,000 mt).

Although DRI is used in induction furnaces, oxygen and blast furnaces, foundries, and cupolas, attention is most often given to its use as feed in electric-arc furnaces--or minimills--which are quickly expanding their share of the U.S. steelmaking market. According to Robert H. Garvey, chairman of the Steel Manufacturers Association (Washington, D.C.) and president of North Star Steel Co. (Minneapolis), the minimill market share has increased from a modest 15 percent in 1969 and 25 percent in 1979 to more than 37 percent of the 89.7 million mt of steel produced in the United States in 1990.

Virtually all of this electric furnace output was produced from purchased ferrous scrap, but some industry observers predict that DRI could become an increasingly prominent minimill feedstock. The reason revolves around the possibility that more minimills will expand their product lines from rebar and light structural shapes to higher-quality products such as sheet, heavy structurals, quality bar, and oil country tubular products. If more minimills do move in this direction (some are already producing a few of these products), industry executives wonder, will the supply of quality scrap keep pace with the rising demand from the minimills?

This raw material question has caused some to view DRI as a direct competitor to ferrous scrap in steelmaking, though others insist that DRI simply complements scrap usage. Still others believe that the real issue is related more to what product the minimills are planning to manufacture and less to what actually goes into the furnace as raw material.

Nevertheless, numerous studies reveal that continuous casting and improved steelmaking procedures are actually reducing the amount of quality prompt industrial scrap available, perhaps making room for DRI. In addition, greater production of coated steels such as galvanized sheet have increased the level of so-called tramp or residual elements in both obsolete and prompt scrap. Therefore, steelmakers, increasingly concerned about scrap impurities and the growing demands on what could be an ever-diminishing ferrous scrap stream, are examining alternatives.

The obvious advantage of making steel from DRI instead of iron ore and coke is that the need for coke ovens and blast furnaces is eliminated. Its advantage over scrap, however, is less clear-cut. DRI reportedly enables steelmakers to compete in higher-quality steel applications than some grades of scrap allow. In addition, steelmakers point out that, unlike scrap, all DRI can be continuously charged into electric-arc furnaces, which can improve furnace productivity and reduce electrode consumption as well as air emissions. The raw material cost difference between scrap and DRI, however, could negate those advantage claims. Currently, DRI is estimated to cost between $ 10 and $30 per mt more than premium scrap, such as No. 1 factory bundles.

DRI also requires more energy than scrap to make steel and its slag generation is higher, which lowers yields. In addition, DRI must be stored indoors, a restriction that some say could limit its potential.

Nevertheless, figures show that global DRI production is up, and more and more U.S. companies are consuming both DRI and hot-briquetted iron (HBI), an enhanced form of DRI. For example, North Star Steel Co., Northwestern Steel & Wire Co. (Sterling, Ill.), and Steel of West Virginia Inc. (Huntington, W.Va.) have all used DRI for products such as wire rod and bar. North Star and Oregon Steel Mills (Portland, Ore.) have also moved to set up DRI ventures with foreign producers. Oregon Steel, in fact, operated its own DRI production facility until 1985, when high energy costs (the company's natural gas bill was reportedly running $1 million per month), ample scrap supplies, and imported HBI prompted it to dismantle the plant. The company currently mixes up to 15 percent HBI with scrap in its furnace charge, depending on the end product.

Nucor Corp. (Charlotte, N.C.) is also planning on using DRI on a trial basis at its new flat-rolled steel--said to be the world's first--located in Crawfordsville, Ind. If Nucor begins to realize the $50-to-$70-per-mt cost advantage the company predicts it will have over traditional hot-strip producers, others may rush in and follow Nucor's lead. With the need for high-quality feed already prompting minimills to import approximately 15,000 mt of HBI per month, this "rush" could breathe new life into DRI as a substitute for or complement to scrap.

Dick Jaffre, vice president of raw materials for Chaparral Steel Co. (Midlothian, Texas), asserts that DRI's future success will be outside the United States. Not only are developing countries large buyers of ferrous scrap, observes Jaffre, but in many instances they are geographically close to DRI producers. For them, DRI might prove to be the most economical furnace feed. Many others note that two main factors could help DRI reach its full potential in steelmaking: increased steel demand in Asia, Latin America, and Africa, which account for the majority of DRI production; and increased quality demands from steel producers in the Western World.

For now, however, scrap availability and its lower cost seem to outweigh the need to produce the low-residual, high-quality steels used to manufacture certain products. Consequently, DRI should continue to act as an important complementary raw material--not a substitute--for scrap. •

While some see direct-reduced iron as a threat to ferrous scrap in steelmaking, others see it as simply a complementary feedstock. Which side is right, and how might the situation change in the future?