Electric arc furnace steelmaker Steel Dynamics (SDI) has lost production at its new Texas steel mill as it deals with equipment and power issues.
The Sinton steel mill located near Corpus Christi is expected to lose production of 100,000-150,000 short tons (st) in 2022, chief executive Mark Millett said today on an earnings call.
That would reduce the mills estimated output this year to 1.35-1.4mn st from a previous estimate of 1.5mn st.
The mill has had production rates between 75-80pc but has been dealing with a substation arcing issue, various equipment failures, and electricity supply problems related to the Texas grid and high heat during and overall elevated power demand during the month. The equipment and substation issues are being exacerbated by supply chain problems that have made replacement times increase.
Texas has been enduring stretches of triple-digit temperatures, forcing the state's grid operator to call for energy conservation twice in one week. During those times large power consumers like steel mills and cement plants are generally requested to curtail consumption in order to protect the grid's stability.
Chief financial officer Theresa Wagler said while she did not have specifics the mill is more exposed to spot power prices as it continues to ramp up.
The 3mn st/yr flat-rolled mill melted its first coil in February and market participants have noted that the mill has not been a big player in the overall market.
Millett added that in the last few weeks SDI's hot rolled coil (HRC) order book has improved "dramatically," indicating what he called "signs of an inflection" point.
The Argus US HRC Midwest ex-works assessment has averaged $899/st so far in the third quarter compared to $1,317/st in the second quarter and fell to $860/st this week. The average was $1,901/st in the third quarter of 2021.
Production costs may also be rising, with electricity and natural gas prices the most under pressure.
"Across the portfolio of the steel mills we have a mix [of prices]," Wagler said. "I would say it's probably at least 50-60pc that's contractual, and they tend to be long term contracts of two to three years that have escalating factors included in them and the remainder is spot."
Millett added that SDI hedges between 60-65pc of its natural gas supply.
