United States Steel (NYSE: X) Chairman and CEO John Surma said during a first-quarter earnings call that the steel giant is making progress in both backing out expensive coke and in rebuilding part of its giant Clairton coke works near Pittsburgh.
Coke, which is a baked form of metallurgical coal, is a key component in the process of reducing iron ore down into finished steel. U.S. Steel is one of the largest coke consumers in the U.S. The company is building a Carbonyx facility in Indiana that will use a lesser grade of coal as feedstock and produces a substitute coke product. It is also rebuilding the aged C-Battery at Clairton. At the Carbonyx project at the Gary Works, both modules are expected to start up in 2012, with full production expected in early 2013. At the Clairton C-Battery, full production is expected in early 2013.
“We’ve already got our coal purchased for the year, for the most part, at a slightly higher cost than last year,” Surma noted during the April 24 earnings call. “I think we bought wisely and our supplies are pretty well secured. So that piece of our cost structure should be about the same. By virtue of the expectation that our Carbonyx modules come on this year, and then early next year, late this year or late next year, our C-Battery comes on, we should be pretty well out of the purchased coke game. And that was a bad place for us to be, expensive, tight market, poor quality, hard deliveries. So we’ll be much better off, both cost and operating wise, to be out of that market.”
Surma said the company is well positioned to not have to put a lot of new capital in coke production, and its coke costs should be very stable. “And one of the ways we do that is the new facilities plus the increased use of natural gas,” he added. “So I can tell you that from an economic standpoint, there’s no reason not to use gas. We want to use as much as we can because the economics are overwhelmingly positive. We just have to make sure we can do that in a safe and responsible way throughout our operating infrastructure. So I’d say our cost structure overall should be stable. The more gas we use, the better it’s going to get.”
Surma later added about gas economics versus coke: “[W]e’ve given you some information before on our quarterly slides about what that means at sort of $4 or $5 gas versus $400 coke. It’s got a nice economic benefit to it. We’re probably about halfway there and we have blast furnace outages, as we will this quarter or have in this quarter, when there’s some kind of an upset to a project. We have to back off and use more coke just from a furnace operating standpoint.” He said the company has to respect the laws of thermodynamics here and proceed carefully, but should be able to increase its gas use as time goes along.