Upstream Steel

Upstream production refers to the extraction of raw materials for production.  Raw material extraction is an integral part to the production of steel.  About 70% of steel company costs are related to raw material inputs.  These products are mainly iron ore and coal.  As a result of the high costs of upstream production, steel companies often integrate the mining process into their production line in order to internalize the costs.  Coal is the more important of the two of these commodities.  There a many forms of coal that are used, with the market for seaborne coal rapidly becoming the standard practice.  The most sought after form of coal in the steel industry, however, is Hard Carbon Coal because its high quality helps keep Blast Furnaces from caving in under extreme heat.  The extraction of this product however only exists in 3 areas of the world for the most part, Australia, Western Canada, and the US.  The US has a decreasing supply of these materials while Australia and Western Canada control about 65% and 35% respectively.  As a result of these extraction costs being so high for steel companies many have turned to the recycling to help alleviate the costs.  Currently, about 70% of steel is recycled because it is a simpler and cheaper way of producing steel compared to the constant extraction of coal and iron ore.

 

Warrian, Peter. A Profile of the Steel Industry: Global Reinvention for a New Economy. New York: Business Expert, LLC, 2012. Print.

4 thoughts on “Upstream Steel

  1. Has the environmental concerns surrounding the burning of coal had any effects on the steel industry? Many countries want to move away from this form of energy in order to create a more sustainable economy, and I would be interested to see if this has any affect on the steel industry’s business.

    • Coal is the most concentrated source of carbon dioxide and serves as a huge threat to the climate due to global warming. Leading scientists have theorized that in order to stabilize the climate we must phase out of coal burning in steel production be 2030, leaving a small window for steel producers to develop new methods. One of the largest coal producers in New Zealand, Solid Energy, directs 60% of its coal production to making steel, and argues that there are no alternative methods to make steel without using coal. Will scientific advancements allow steel producers to invent new ways to make steel before severe environmental impact?

    • It is apparent that steel can be made without coal and in some areas of the world, New Zealand in particular, the making of steel without coal is a popular method. In these areas, wood and biomass are viable substitutes for the production of coal however there are worries that these processes lead to deforestation and other environmental hazards, and questions arise from whether or not these processes can provide the supply of steel that the industry demands. There is also a process called electrolysis that is being developed to produce steel without the use of coal. Will technology progress quick enough to provide coal substitutes at comparable costs to producers?

  2. Who produces the coal? Independent mining firms? If so, how many? And so on – even if there are 3 main geographic regions with reserves, the issues are quite different if there are 100 producers versus 3-4.

    Secondarily, do steel mills make their own coke? How about transport? – if nothing else, the rail lines may carry only one product. Mines in a region wouldn’t want to face a single monopolistic seller of rail services. Ditto for the harbor operator. How does the industry (upstream? downstream?) keep from paying such providers through the nose?

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