Steel Mills
SIC 3310
NAICS 331111
Steelmakers operate blast or electric furnaces to create raw iron and steel. From crude steel the same manufacturer may produce any number of intermediate or finished steel products. Examples of industry output include:
hot-rolled steel products
cold-rolled steel products
iron and steel bars
steel ingots
stainless steel
iron and steel forgings
steel wire and nails
steel pipes and tubes
Companies that produce steel castings are discussed separately under Iron and Steel Foundries, and those that process nonferrous ores into metals are covered under Metals, Primary Smelting and Refining of Nonferrous Metals.
By the mid-2000s, China, Japan, and the United States were the top three steel producers worldwide. In early 2005 the OECD reported that world steel market had grown 8.8 percent in 2004 to reach about 935 million tons of finished products, and that steel demand increased 7.5 percent of 22 million tons over the previous year. World crude steel production passed the 1 billion ton mark for the first time ever in 2004, up 84 million tons over 2003. World trade in steel was up 4.4 percent for the year in 2004, reaching a record 263 million tons. However, steel was seeing a huge increase in both demand and price in the mid-2000s, largely due to market growth in China.
According to the International Iron and Steel Institute, China's steel production reached 270 million metric tons in 2004, an increase of 22.5 percent over 2003 levels. Steel prices were seeing corresponding increases, rising from 30 percent to 50 percent from the end of 2003 to the middle of 2004 alone. The Chinese demand for steel appeared to be growing exponentially for the foreseeable future. There was a 24 percent decline in steel imports by China in 2004 while Chinese steel exports doubled to more than 17 million metric tons.
At the close of 2003, according to European Report, Japan was leading the world in steel packaging recycling with 86 percent, followed by South Africa with 63 percent. More steel was being recycled in Europe than ever before, with about 60 percent of total steel packaging recycled. Belgium recycled the most steel packaging with 93 percent, and Portugal recycled the least with 28 percent. Australia's total was 59 percent, and the United States recycled 43 percent.
Steel is manufactured using iron ore, coke, and limestone. Typically, the coke (a high-grade coal distillate) is used as fuel to heat a blast furnace. The coke emits carbon monoxide as it burns, as does the limestone. The ore melts, creating a molten iron and carbon mixture. A basic oxygen furnace (BOF) is used to supply super-heated air, which removes impurities and converts the molten iron into steel. The steel is usually cast into ingots, which are later formed into standard shapes—usually billets, slabs, or blooms. A more advanced production technique, "continuous casting," bypasses ingots. These slabs, billets, and blooms are processed at mills into rails, rolls, plates, tubes, bars, or other more marketable products. Those units are used by automobile companies, for example, to create parts or body panels for vehicles.
The conventional steelmaking technique just described is referred to as integrated manufacturing because it integrates all aspects of the process, including melting the iron ore. In the 1990s, an increasing number of steelmakers, particularly in the United States and other highly developed nations, were utilizing minimills. Minimill producers, or non-integrated steel manufacturers, start with scrap iron or steel, rather than iron ore. They use electric arc furnaces (EAFs), rather than blast and basic-oxygen furnaces (BOFs), to continuously cast blooms and billets. Most minimills produce a limited number of finished products, such as rods and bars used in light construction, but some non-integrated manufacturers also produce plates, sheets, pipes, and other steel goods.
Many integrated steel mills can produce millions of tons of steel annually, while minimills typically churn out between 100,000 and 500,000 tons. However, minimills may generate as much as 10 times more profit per ton of steel produced. A primary advantage of minimills is that they do not have to be located near supplies of iron ore. Instead, they are commonly constructed near primary customers, thus significantly reducing shipping costs. That advantage, when combined with high-tech manufacturing techniques such as use of EAFs, allows non-integrated producers in industrialized nations to compete aggressively with low-cost importers for domestic market share.
Regardless of their production techniques, most steel companies manufacture a category of steel called carbon steel. Carbon steels account for roughly 90 percent of global output. They contain relatively few alloying additives and their high degree of malleability makes them ideal for general purpose uses such as automobile bodies, structural steel for buildings, and shipbuilding. The remainder of industry output is categorized in one of four segments: alloy, stainless, tool, and high-strength low alloy (HSLA). Alloy steels, the second largest industry product segment by output volume, contain various alloying materials such as vanadium, silicon, manganese, and copper. They offer characteristics such as corrosion resistance, high electrical or heat conductivity, and greater strength, qualities that make alloy steel useful for a variety of applications ranging from tools and electrical components to machine parts and armor.
Stainless steel, the third biggest product group, includes chromium/nickel alloy steels that resist corrosion and may be stronger or more heat resistant than lower-grade steels. Large markets include aerospace, medical device, and plumbing-related industries. Tool steels, the fourth industry segment, integrate molybdenum, tungsten, or other elements to produce ultra-hard alloys commonly used in tool and metalworking industries. Similarly, HSLA steels, the most recent family of steel products, use relatively small amounts of alloying materials, but are specially processed for hardness and light weight. Such steels are popular in applications where strength and weight factors are crucial, such as freight cars. In general, newly industrialized nations are more likely to focus solely on the production of low-tech carbon steel, while established western and Japanese manufacturers are more likely to compete in alloy, stainless, tool, and HSLA steel markets.
Because of high start-up costs and slow-growth markets, the steel industry is a difficult one to enter. In traditional steel-manufacturing regions—such as western Europe, the Russian Federation, the United States, and Japan—industries are highly consolidated with only a few manufacturers controlling the lion's share of the market in their respective countries. In general, new entrants to the industry are minimill producers, which incur start-up costs about one-quarter as great as those required to open an integrated facility.
Entry barriers are generally lower in emerging nations, where steel demand rose in the 1980s and early 1990s. Still, most newcomers were fully integrated and thus had to secure hefty sources of capital to build steel mills. Other obstacles have varied by country. In some nations, such as South Korea, access to the industry has traditionally been limited by the national government. Likewise, Brazil's steel industry was effectively controlled by the government until the early 1990s, when privatization ensued. In other regions, such as eastern Europe and China, additional hurdles have included the lack of a dependable distribution and supply infrastructure.
On an international level, the steel industry is characterized by fierce competition, not only among individual producers but also among different nations. In fact, the industry has traditionally been heavily influenced by government control for reasons relating primarily to defense and economic stability. In addition, because carbon steel is essentially a commodity, companies compete primarily on price. To help their producers compete internationally, governments in virtually all steelmaking nations support domestic producers through measures such as subsidies or restrictions on imports. By subsidizing steel exported to international markets a government can help its producers establish a presence and boost market share. Likewise, by instituting tariffs or stringent quality controls on imported material, government can help the same companies maintain dominance of their domestic market.
Widespread government support of domestic steel producers has contributed to an environment conducive to trade wars that feature dumping practices (selling steel below cost), sanctions, and retaliatory import restrictions and tariffs. To reduce friction and enhance free markets, several countries have entered agreements with other nations to help ensure free trade and/or regional cooperation. For example, the North American Free Trade Agreement (NAFTA) reduced trade barriers between the United States, Canada, and Mexico. Several European countries have also pursued agreements or acquiesced to regional regulatory bodies in an effort to drop trade barriers and to cooperate against export threats from other regions. The European Commission, for example, works to enhance free...
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