The Costs Of Producing Steel With Electric Arc Furnaces

There are three main operating costs in recycling modern steel using electric arc furnaces, in addition to labor (which only amounts to about .003 man-hours per tonne on average), that they must strictly consider on a regular basis: scrap, energy and electrodes. Let's examine these costs, how the industry is managing them, and how these facets can be improved to affect profits and production.

Scrap
Steel scrap abounds after more than a century of industrial-scale steel production. However, it is still a large part of the cost of reusing steel. In the US, steel scrap ranges from $ 160-280 ($ 400-450) per ton at the time of writing. With industrial electric arc furnace loads ranging from 40 to 150 mt, that means a cost of $ 16,000 to $ 67,500 per load. Since rebar steel sells for more than $ 1000 per ton in the same market there is plenty of room for other costs and profits.

However, given the high cost of shipping, this margin is not as lucrative as it appears from an outside perspective.

In general, this cost represents about 5% to 6% of the value of gross sales. This is certainly not insignificant, and getting good quality scrap at a low price helps with margins. However, it is not a cost under the control of the manufacturers. With market demands, shipping limitations, and inefficiencies in global recycling systems, the most a steel producer can do to control this cost is to develop strong relationships with their suppliers that help ensure regular, timely and affordable deliveries. scrap for recycling. Fortunately, this market is relatively stable thanks to proper recycling programs and the “circular model” of steel production.

Energy
It's no secret that melting steel requires a lot of energy. However, few people understand the actual energy requirements of the various methods of casting steel. First, a basic oxygen furnace requires approximately five times more than an electric arc furnace requires. Approximately 500 kWh is needed to melt one metric ton of scrap steel in a modern electric arc furnace.

This means that for the 150 ton batch considered above, a steel producer can expect to need around 75,000 KWh of electricity. In the US, industrial producers paid around $ .0666 per KWh in 2020. This equates to roughly $ 6,250 in electrical costs to melt their batch of scrap steel. Industrial electricity costs are relatively stable thanks to the relatively stable balance of supply and demand. Even if one or the other industry is experiencing a rebound or slowdown, this rarely moves the power supply needle.

Electrodes
In a typical scenario, graphite-based electrodes only account for around 2% to 3% of the total cost of steel production. However, if the history of the market is any indication, this is not a cost that can be relied upon to remain stable due to its many complex influences.

It takes up to 3 kg (6.6 lb) of graphite electrodes to produce one ton of steel. This means that you can expect 900 pounds of graphite electrodes to be needed for your 150-ton batch of steel. This equates to between $ 1,100 and $ 1,900 in costs, depending on the quality and grade of your graphite electrode, based on current prices.

However, if you have followed the refractory electrode market for a long time, you know that the cost of this key part of the steel making process is not the most stable. With the complications of global trade and burgeoning industries placing new demands on graphite, such as the massive number of lithium-ion batteries needed for electric cars, smartphones, and other devices, the cost of graphite-based refractory electrodes has been tumultuous in this century. It has ranged much higher than current prices before the global slowdown with Covid-19.

History teaches us that securing a good price per ton in electrodes can make the difference between $ 10 and $ 80 in cost per ton in a single calendar year. Prices at the moment are great and may continue to be. However, with ongoing transportation issues, tariff wars in our recent memory, more and more devices using internal lithium-ion batteries, and potentially exponential growth in the electric car market looming on the near horizon, the time to stock up on refractory electrodes could be upon us. .

Considering that some of these factors will also affect the steel industry (one of the largest electric vehicle manufacturers, Tesla, uses substantially less steel than a traditional car, and many other electric vehicle manufacturers are leaning towards building materials dominated by aluminum) the point at which graphite- Electrode-based electrodes start to get more expensive also when steel is less in demand. The good news is that these market imbalances have happened before and they don't last forever, but they could outlast the electrode supply.

Final thoughts
The real difference between electrodes and the other major costs in the steel industry is that it is much more practical to store electrodes while they are at a good price, or to secure long-term sales contracts while the market is weak than with anything else. the rest. Power companies can lock in prices for a short period of time, but they have all the leverage given the very low competition in the power supply sector. Scrap is needed in such quantities that it is basically impossible to store significantly, and the need for multiple suppliers for most steel operations makes negotiating long-term deals that much more challenging.

In short, if you can lock in the price of your electrodes now, you will have better control over your future earnings.