Remaking the Global Steel Industry: Lower-cost Natural Gas and its Impacts
The article outlines some of the strategic implications for the global steel industry arising from a low-cost and long-term supply of natural gas. The bounty of natural gas rapidly being extracted from shale fields in the United States (U.S.) is serving as a catalyst. While major shale gas deposits can also be found in other parts of the world including China, Australia and Canada, exploration and extraction may not yet be as advanced as in the U.S., however the industry is likely to also evolve. Given that energy accounts for up to 40 percent of the cost of the finished steel product, global developments in shale gas will continue to be of significant interest to the industry.
Direct-reduced iron (DRI) is a potential area to benefit from increased access to natural gas. The article takes a closer look at this example and outlines some of the operational benefits of DRI. It explains how steel manufacturers that have access to DRI may be able to use less scrap and make better quality steel at more competitive prices and with improved environmental performance.
In an industry where capital investment rarely happens on a small scale, deciding when and how to take advantage of natural gas is a complex process that requires steel companies to evaluate their current situation (e.g. asset footprint, products, target markets, supply and sales contracts, etc.). The article highlights use of analytical tools such as Deloitte MarketBuilder to help with a broad risk assessment and plan for any number of scenarios that might play out.