Nucor to invest in US DRI plant, sees scrap up

US steelmaker Nucor will take its Louisiana direct-reduced iron (DRI) plant offline for 60 days in 2019 as part of a $200mn investment designed to boost reliability following multiple unplanned outages in recent years.

Planned improvements include $90mn in upgrades to the plant's raw materials handling and storage operation and an $85mn investment to repair and re-engineer the process gas heater at the facility. The two areas accounted for 90pc of the failures at the plant, Nucor chief executive John Ferriola said today on an earnings call.

The projects are expected to be completed by the end of 2019. Nucor will take the 2.5mn t/yr facility offline for 60 days in the second half of the year to complete some of the work.

The Convent, Louisiana, facility suffered multiple unplanned outages in 2017 that stymied production that year. Production rebounded in 2018, with output through September of 1.3mn t exceeding the volume produced through all of 2017.

But human error forced the plant offline for several weeks in July as it was ramping back up from a planned 30-day maintenance outage. The outages, along with a $110mn impairment charge related to Nucor's natural gas well assets and decreased performance in its scrap brokerage and processing operations, drove a loss of $29mn in the company's raw materials segment in the third quarter of 2018 compared with earnings of $10mn in the same period a year earlier.

Ferriola cited the "world-class" reliability of the Nucor's 2mn t/yr Trinidad DRI plant as a model for the Louisiana plant.

The Trinidad facility recently experienced 137 consecutive days of continuous operation, a record for a facility of its type.

"The only thing that stopped them from going further was an earthquake," Ferriola said.

Scrap expected to firm

More reliable DRI production changes how Nucor procures the 18mn of scrap and 3-4mn t of pig iron it requires.

DRI reliability "allows us to strategically place our buys...and that's where you get the real value out of a more reliable DRI plant in Louisiana," Ferriola said.

The company has no plans to construct a second DRI plant in the US, but sees a need for alternative iron units as it moves up the value chain in steel and as a reduction in manufacturing and more efficient existing processes tighten overall prime scrap supply.

The degradation of the existing prime scrap as it is continuously recycled also creates a need for alternative iron units, with the amount of copper in prime scrap up by 300pc since Nucor began tracking it in the 1990s.

"I think prime scrap is going to continue to be challenged, and pricing will continue to increase, and the value of DRI will increase also," Ferriola said.

Nucor shared similar expectations as those expressed by fellow EAF steelmaker Steel Dynamics that scrap prices will firm in the near term as supply tightens seasonally through the winter before prices moderate in the spring.

"Barring any unusual events in the world, I don't see a major change [in scrap prices], maybe in the neighborhood of $20-25/gt on the upside over the next several months," Ferriola said.