### Cleveland.com: Steel

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## Heat back on steel makers
02/26/04 Peter Krouse Plain Dealer Reporter Up until a few months ago, the planets were aligned for the U.S. steel industry. Demand and prices were going up. A weak dollar was keeping steel imports at bay. Restructured companies such as International Steel Group Inc. were primed to take advantage of an economic recovery. Now a shortage of raw materials threatens to disrupt the harmonic convergence while adding to the costs of manufacturers and consumers. For minimill producers such as Nucor Corp. that use electric arc furnaces, the big expense has been the rising cost of steel scrap, the main ingredient in their finished product. The minimill industry and some of its customers may ask the U.S. Department of Commerce to limit scrap exports from the United States, in an attempt to keep the domestic supply high and reduce prices. For ISG and the other integrated steel makers those who produce steel from scratch a lack of coke is a greater worry. "We have an unprecedented world shortage of coke," said Mike Locker, an industry analyst with Locker Associates. "And the price has gone to unprecedented levels." What U.S. steel makers paid about $110 a ton for a year ago now commands $350 to $400 a ton, Locker said. To protect their profits, the companies have tacked steep surcharges onto their finished steel, passing on the pain to their customers. And some of those customers - manufacturers - are trying to pass the added costs along to their customers. An early February study by the Precision Metalforming Association, a group of steel users, said 31 percent of its 1,200 members were trying to recover steel surcharges. And PMA President Bill Gaskin said a third of that group have been passing along 75 percent to 100 percent of the added cost. Contributing to the coke shortage: Several coke batteries have closed in recent years, victims of a depressed steel industry, said Andrew Aloe, Steel a Steel Home Photo Gallery In-Depth a Business News 

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## Heat back on steel makers
02/26/04 Peter Krouse Plain Dealer Reporter Up until a few months ago, the planets were aligned forthe U.S. steel industry. Demand and prices were going up. A weak dollarwas keeping steel imports at bay. Restructured companies such as International Steel Group Inc. were primed to take advantage ofan economic recovery. Nowa shortage of raw materials threatens to disruptthe harmonic convergence while adding to the costs of manufacturers and consumers. For minimill producers such as Nucor Corp. that use electric arc furnaces, the big expense has been the rising cost ofsteel scrap, the main ingredient in their finished product. The minimill industry and some of its customers may askthe U.S. Department ofCommerce to limit scrap exportsfrom the United States, in an attemptto keepthedomestic supply high and reduce prices. For ISG and the other integrated steel makers those who produce steel from scratch a lack ofcoke is a greaterworry. "We have an unprecedented world shortage ofcoke," said Mike Locker, an industry analystwith LockerAssociates. "And the price has gone to unprecedented levels." What U.S. steel makers paid about $110 a ton for a year ago now commands $350 to $400 a ton, Locker said. To protecttheir profits, the companies have tacked steep surcharges onto theirfinished steel, passing on the pain to their customers. And some ofthose customers
- manufacturers
- are trying to pass the added costs along to their customers. An early February study by the Precision Metalforming Association, a group ofsteel users, said 31 percent of its 1,200 memberswere trying to recover steel surcharges. And PMA President Bill Gaskin said a third ofthat group have been passing along 75 percentto 100 percent ofthe added cost. Contributing to the coke shortage: Several coke batteries have closed in recent years, victims ofa depressed steel industry, said AndrewAloe, 

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### http://www.cleveland.comlindepth/steellindex.ssf? lindepthlsteellmorel1 077791716314950.html 8/8/2005

### Cleveland.com: Steel Page 2 of 3 president of Shenango Inc., an independent coke producer that owns a battery on Neville Island in the Ohio River near Pittsburgh. Aloe said the U.S. capacity for coke production has gone down about 15 percent since 2002. Exports, especially from China, have helped make up the difference. But with Chinese steel production surging, those exports have declined considerably, from 15.2 million metric tons in 2000 to 13.3 million in 2003 and an estimated 8.7 million in 2004, according to research and consulting firm World Steel Dynamics. Closer to home, a mine fire in West Virginia shut a major source of coking coal used by U.S. Steel Corp. at its Clairton coke batteries near Pittsburgh. U.S. Steel sells a considerable amount of coke to other steel producers, including Weirton Steel Corp. in Weirton, W.Va., Rouge Steel Co. in Dearborn, Mich., and WCI Steel Inc. in Warren. U.S. Steel told its customers to expect diminished shipments as a result of the mine fire. Weirton and Rouge curtailed steel production as a result, while WCI has used natural gas to fill the gap. Coke is made from coal that is heated at extremely high temperatures to burn off certain compounds and form a dense material that's more than 90 percent carbon. At integrated mills, the grey, lava-like coke lumps are added to iron ore and other ingredients in a blast furnace to produce molten iron. The coke serves as fuel and as a means to extract impurities from the iron ore. It also provides a sturdy but porous base inside the oven, so air can freely pass through to feed the fire. The liquid iron the blast furnace produces is poured, along with scrap (although much less scrap than a minimill uses), into a basic oxygen furnace to make steel. The rising cost of coke has cut into the advantage integrated mills enjoyed while steel scrap prices were on the way up. They could get that advantage back - the coke shortage could resolve itself as fast as it arrived, if China slows its economic expansion. If not, solutions are harder. The industry can't easily build new plants; they are expensive and must meet strict environmental guidelines. Sun Coke Co. of Knoxville, Tenn., is building a plant along the Ohio River in Haverhill, Ohio, but the technology differs from traditional coke ovens. Besides making coke, the plant will burn off residual gases and use the excess heat to create steam for a neighboring plant. "This will be the cleanest, highest-performing coke plant in the world," said Mike Dingus, Sun president. Environmental concerns could haunt the industry for some time, said Chuck Bradford, an analyst with Bradford Research/Soleil Securities. Coke reacts with oxygen in the blast furnace of an integrated mill to emit three times as much carbon dioxide as the minimills, according to Bradford. "It puts sort of a cloud over investment," he said. The Haverhill plant should start making coke in little more than a year. The first phase of 550,000 net tons is already under contract to ISG, which also gets coke from another Sun plant in southwest Virginia. ISG has said its steel production has not been curtailed because of a lack of coke. The company has its own batteries in Warren and Burns 

### http://www.cleveland.com/indepthlsteel/index.ssf?/indepthlsteel/more/ 10777917l6314950.html 8/8/2005 Cleveland.com: Steel president ofShenango Inc., an independent coke producerthat owns a battery on Neville Island in the Ohio River near Pittsburgh. Aloe said the U.S. capacityfor coke production has gone down about 15 percent since 2002. Exports, especiallyfrom China, have helped make up the difference. But with Chinese steel production surging, those exports have declined considerably, from 15.2 million metrictons in 2000 to 13.3 million in 2003 and an estimated 8.7 million in 2004, according to research and consulting firm World Steel Dynamics. Closerto home, a mine fire in West Virginia shut a majorsource of coking coal used by U.S. Steel Corp. at its Clairton coke batteries near Pittsburgh. U.S. Steel sells a considerable amount ofcoke to other steel producers, including Weirton Steel Corp. in Weirton, W.va., Rouge Steel Co. in Dearborn, Mich., and WCI Steel Inc. in Warren. U.S. Steel told its customers to expect diminished shipments as a result ofthe mine fire. Weirton and Rouge curtailed steel production as a result, while WCI has used natural gas to fill the gap. Coke is made from coal that is heated at extremely high temperatures to burn offcertain compounds and form a dense material that's more than 90 percent carbon. At integrated mills, the grey, lava-like coke lumps are added to iron ore and other ingredients in a blastfurnace to produce molten iron. The coke serves as fuel and as a means to extract impuritiesfrom the iron ore. It also provides a sturdy but porous base insidethe oven, so aircan freely pass through to feed the fire. The liquid iron the blastfurnace produces is poured, along with scrap (although much less scrap than a minimill uses), into a basic oxygen furnace to make steel. The rising cost ofcoke has cut into the advantage integrated mills enjoyed while steel scrap prices were on the way up. They could getthat advantage back
- the coke shortage could resolve itselfas fast as it arrived, ifChina slows its economic expansion. If not, solutions are harder. The industry can't easily build new plants; they are expensive and must meet strict environmental guidelines. Sun Coke Co. of Knoxville, Tenn., is building a plant along the Ohio River in Haverhill, Ohio, butthe technology differs from traditional coke ovens. Besides making coke, the plantwill burn off residual gases and use the excess heatto create steam for a neighboring plant. "This will be the cleanest, highest-performing coke plant in the world," said Mike Dingus, Sun president. Environmental concerns could hauntthe industryfor some time, said Chuck Bradford, an analystwith Bradford Research/Soleil Securities. Coke reacts with oxygen in the blast furnace ofan integrated mill to emit three times as much carbon dioxide as the minimills, according to Bradford. "It puts sort ofa cloud over investment," he said. The Haverhill plant should start making coke in little more than a year. The first phase of550,000 nettons is already under contract to ISG, which also gets coke from another Sun plant in southwest Virginia. ISG has said its steel production has not been curtailed because ofa lack ofcoke. The company has its own batteries in Warren and Burns 

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### 8/8/2005

### Cleveland.com: Steel Harbor, Ind., and gets more coke through contracts of a year or more, but it also must buy some on the open market. ISG Treasurer Brian Kurtz declined to comment specifically on the company's coke situation, but said it will likely be a topic of discussion today when ISG meets with stock analysts to discuss the company's first earnings report since it became a publicly traded company late last year. The one U.S. steel company least affected by the shortage is U.S. Steel, because it can make all the coke it needs. Even so, it buys coke for logistical reasons to supply a distant plant in Alabama. To reach this Plain Dealer reporter: pkrouse@plaind.com, 216-999-4834
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http://www.cleveland.comlindepth/steel/index.ssf?/indepth/steel/more/ 1077791716314950.html 8/8/2005 Cleveland.com: Steel Harbor, Ind., and gets more coke through contracts ofayear or more, but it also must buy some on the open market. ISG Treasurer Brian Kurtz declined to comment specifically on the company's coke situation, but said it will likely be a topic ofdiscussion today when ISG meets with stock analysts to discuss the company's first earnings report since it became a publiclytraded company late last year. The one U.S. steel company least affected by the shortage is U.S. Steel, because it can make all the coke it needs. Even so, it buys coke for logistical reasons to supply a distant plant in Alabama. To reach this Plain Dealer reporter: pkrouse@plaind.com, 216-999-4834



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