Above: Based on casting capability of up to 84 inches wide and 5.5 inches thick, SDI claims the new plant will become the world’s largest thin-slab facility.

SDI lays out business case for planned Texas flat-rolled mill

September 2019 - In July, Steel Dynamics Inc. selected Sinton, Texas, as the location for a greenfield flat-roll steel mill. SDI’s top executive explained the reasons for building new capacity and for its particular placement.

Expected to open in mid-2021, the $1.9 billion project will allow SDI to produce up to 3 million tons of sheet and ship it throughout the Southwestern U.S. and into Mexico. The goal is to replace a large amount of pipe and tube imports for the oil patch and value-added sheet products that are also imported, including to Mexican manufacturers of automobiles and appliances.

“Our team has selected a suite of technologies that should allow us to achieve steel grades previously out of reach to thin-slab casting technology, while sustaining the low-energy and low-carbon footprint that is at the core of our steelmaking operations,” Mark. D. Millett, president and CEO, said in a statement.

Based on casting capability of up to 84 inches wide and 5.5 inches thick, SDI claims the new plant will become the world’s largest thin-slab facility. The rolling mill’s configuration will allow SDI to produce advanced high-strength steel  grades, including some energy sector products not widely available domestically.

The mill will also be able to produce coils up to 52.5 tons, which would be cost efficient for certain energy customers. The project will include a galvanizing line with an annual capacity of 550,000 tons and a 250,000-ton paint line. The total product line will include various hot-rolled, cold-rolled, galvanized, Galvalume and painted steel.

Forecasting

During SDI’s second-quarter earnings call with analysts July 23, Millett noted that the energy sector “is particularly strong and, with the necessary growth in transportation, pipeline and infrastructure for both gas and liquids, it will remain strong for several years to come.

“We believe both U.S. and Mexican steel consumption will continue to improve in the coming years with Mexican growth outpacing that of the U.S., based on meaningful increases in Mexico’s manufacturing base.”

Millett believes the United States’ trade position should continue to erode imports and increase domestic steel content requirements in light of the anticipated U.S., Mexico and Canadian trade agreement, which will replace NAFTA.

“The Sinton mill will have capabilities beyond existing electric-arc furnace flat-roll producers, competing even more effectively with the integrated steel model and foreign competition,” he says. “It isn’t just adding domestic capacity; it’s more of an import killer.”

Having a thicker cast section and two-stage hot-rolling process that allows thermal mechanical rolling, the hot strip mill will provide higher strength, tougher grades for the energy and automotive markets. The mill will be capable of 84-inch-wide, 1-inch-thick, 100 ksi hot-rolled coil.

“That capability [is] essentially unavailable in the U.S. today,” says Millett. “Heavier coil weights and heat sizes will provide intrinsic cost and yield savings for pipe producers,” who have a difficult time competitively sourcing the right substrate domestically, which is why they turn to imported coils.

Products from the Sinton steelmaking complex will include various grades of hot-rolled, cold-rolled, galvanized, Galvalume and painted steel.

To counter any potential criticism that the U.S. does not need additional sheet capacity, Millett argues that SDI’s Sinton mill will have a differentiated product portfolio, a significant geographic freight and lead time advantage, and that the target customer base has been well thought out.

That freight advantage could be $20 to $30 per ton less than shipments from most customers’ current closest domestic supplier, he says.

“Customers will be able to order on a much shorter lead time basis [because] we have the opportunity to provide steel in terms of weeks, not months.”

Regional supplier

The new mill is expected to effectively compete with imports arriving in Houston and along the West Coast “that inherently have long lead times,” which itself represents “pricing risks.” American pipe producers will have a supplier able to compete with foreign pipe producers.

   “Consider that approximately 2.4 million tons of OCTG and 1.5 million tons of line pipe were imported through the port of Houston in 2018,” Millett told analysts. “Customers are excited to have a regional supplier and have already expressed interest in possibly locating facilities on or near our site. We’re in dialogue with many of them.”

SDI targeted three regional markets to sell into, which represent a combined 27 million to 28 million tons of sheet consumption. A portion of sales might come from Texas, Oklahoma, Louisiana and Arkansas, a region that consumes roughly 8 million tons, has limited regional supply and relies “heavily” on imports, according to Millett.

The West Coast represents 4 million tons of consumption. The region also relies heavily on imports. The Northern and Mid-Central region of Mexico consumes 16 million tons; last year, Mexico imported 7.5 million tons of flat-rolled steel.

“We believe Mexican demand growth will continue to outpace supply, making it an even more attractive underserved market in the coming years,” says Millett. “We’ve been developing our flat-rolled steel business strategy for this region in Mexico for several years.”

SDI already has been shipping greater volumes of automotive-grade steels into Mexico, especially to BMW and other European manufacturers. Through its joint venture, United Steel Supply, he says, “we have an immediate growth opportunity for more prepainted Galvalume. There’s roughly 250,000 and 300,000 tons of Galvalume that came through the Port of Houston last year. And obviously, we’ll be able to compete with that.”

Co-location opportunities

Following a model it has used successfully at other plant sites, such as Butler, Indiana, Steel Dynamics will encourage processors, distributors and customers to co-locate on or near its Texas mill site.

“We have had an incredible amount of interest in this from our customer base,” claims Millett. “We have numerous steel consumers, including pipe producers, service centers, distributors and processors wanting to locate or co-locate in that region.

“I would imagine that we can achieve very, very quickly the same model as we have in Butler, where we have 500,000 or 600,000 tons of on-campus consumption.”

Overall, SDI’s leaders say they feel confident in the long-term strategic value and investment profile the Texas greenfield project provides. MM

MAP OF CONSUMPTION

The Sinton site, 190 miles from the Port of Houston and 300 miles from Monterrey, Mexico, provides advantages, SDI leaders say:

• Proximity to three targeted customer regions—the four-state Texas area, the Western U.S. and Mexico—representing 27 million tons of flat-roll steel consumption;

• Central to the largest domestic consumption of flat-roll Galvalume and painted construction products and an ability to effectively compete with excessive regional imports;

• Sufficient acreage to allow customers to locate on site, providing logistics savings and steel mill volume base-loading opportunities;

• Proximity to prime ferrous scrap generation and cost-effective access to pig iron through the Port of Corpus Christi, as well as other alternative iron units;

• Logistics advantage with on-site access to Class I railroads, proximity to a major U.S. highway system, and access to the port at Corpus Christi, all to provide shorter lead times; and

• Dependable power, natural gas and water sources.