Gary, Indiana was once the poster child of American decline.
A failing primary steel industry drove population decline and despair, but a significant announcement by United States Steel at the company’s Gary Works suggests a turning point in US domestic primary steel production. A $60 million pig iron caster will be installed as part of a process that uses domestically sourced iron ore and metallurgical coal inputs, and feeds product to both blast furnaces and modern electric mills to make steel.
The short and entirely domestic supply chain should provide both delivery and price stability for domestic users in major industries such as construction and automotive. And it may be the turning point for an industry whose primary side has been declining for decades.
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While Gary has often been held up as the poster child for American deindustrialization, steelmaking never entirely left the city, and in a significant move for US primary production, United States Steel has announced a major investment in the company’s Gary Works, a new pig iron caster.
“Pigging” as the industry calls it, is the precursor to steelmaking, the fundamental process where iron ore is heated in blast furnaces in a reducing chemical environment to strip the oxygen from iron oxides to produce iron. That iron is itself the primary raw material for steelmaking, which reduces and homogenizes the iron’s carbon content and adds alloying metals. The pigging operation will feed US Steel’s integrated conventional and electric arc mini mill operations.
What makes it significant? For decades, primary steelmaking has been declining in America, with low-cost Asian producers replacing American mills for commodity steels and basic structural shapes. The US steel industry moved to electric arc mini mill technology, using scrap steel as a primary input, re-melting it and alloying it to make higher value-added steel products. The economic theory was that the US industry would move up the value chain and leave low-margin commodity steelmaking to others.
The weakness in this strategy is that the overall system still requires primary steelmaking to create the inputs for the mini mills, steel which travels over a very long supply line. While the low cost of production has given foreign producers a traditional advantage, the Covid 19 disruption of supply chains has shown that local and regional shortages of product can generate wild swings in market prices. End-users in major industries like construction and auto making may be willing to pay a price premium for reliable supply, moving product across an ocean comes with inherent risks.
The Gary operation’s economics are driven by the pigging operation’s primary input: iron ore. U.S. Steel owns two major Minnesota-based ore operations, Minntac and Keetac, a short-haul by bulk carrier on Lake Michigan. The pig iron supply is expected to account for about half of the input needs for the company’s Arkansas Big River Steel Works. The new $60 million operation is expected to start up in early 2023, and as importantly, it represents a commitment to steelmaking at the Gary Works, which currently employs almost 4,000.
The reshoring of manufacturing in America has largely been associated with tech related industries such as integrated circuit manufacturing and the assembly of personal electronic devices, but the fundamental enabling technology of any industrial nation is primary steelmaking. Today a new generation of electric arc furnaces are now harnessed for primary production. Modern processes, plus a guaranteed and reliable domestic supply of iron ore and metallurgical coal, supply chain security, lower pollution than overseas producers and local quality control may give the US industry a unique selling proposition compared to low cost overseas commodity product.
And the mini mills converting scrap into higher value steels will still be there. But in the future, they may be fed by inputs with traceability back to mines in places like Minnesota and Wisconsin.