Previously in this series, we’ve seen that U.S. Steel is investing $230 million in the construction of an electric arc furnace (EAF) in its plant in Alabama. With this plant, U.S. Steel will join the ranks of companies like Steel Dynamics (STLD) and Nucor (NUE), which produce steel through electric arc furnaces. Another advantage of using an EAF is that U.S. Steel can use steel scrap as a raw material for steelmaking.
The chart above shows the movement in steel scrap prices. Scrap prices have fallen sharply this year. However, being an integrated steel producer, U.S. Steel has been using self-mined iron ore for steel production. It hasn’t been able to benefit from lower steel scrap and iron ore prices. By producing steel through EAFs, U.S. Steel can use steel scrap to produce finished steel. The company will benefit from lower steel scrap prices.
U.S. Steel had halted expansion at its iron ore mine in Minnesota. It had also stopped further development of carbon alloy facilities at the Gary works plant. The project started in 2011 and was meant to replace traditionally manufactured coke. Suncoke Energy (SXC) supplies coke to U.S. Steel.
Along with investment in EAF, U.S. Steel is investing $47.5 million towards the construction of a coupling facility. This facility will help U.S. Steel develop premium value-added steel products for the energy industry. Tenaris (TS) is another leading supplier to the energy industry.
Value-added steel products sell at higher prices compared to standard steel products. This is also part of the Carnegie Way plan, through which U.S. Steel is working to increase its profit margins.
Currently, the company forms 3.2% of the SPDR S&P Metals and Mining ETF (XME). Carpenter Technology (CRS) and Schnitzler Steel Industries (SCHN), respectively, form 3.3%, and 1.2% of XME. You can learn more about the steel industry by visiting our Steel page.