Steel Dynamics, Inc. (STLD), the sixth-largest steel maker in the US, has commenced the production of the first batch of iron nuggets at the Mesabi Nugget facility at Hoyt Lakes, Minnesota, using the ITmk3® process developed by Kobe Steel Ltd. of Japan. This is the world’s first commercial production of nuggets using the ITmk3 process.

Steel Dynamics has built the Minnesota nugget plant in cooperation with Kobe Steel, which has licensed the technology and provided equipment and technical support. Steel Dynamics has an 81% ownership in the plant. The company expects to utilize a substantial portion of the plant’s output as feedstock for its electric-arc furnace mini mills in Indiana acquired from OmniSource Corporation in 2007.

Steel Dynamics plans to ramp up nugget production capacity at the plant to 500,000 tons per year by mid-2010. The company will start using the Mesabi nuggets at the flat-rolled mill from the first quarter of 2010.

The Minnesota plant was commissioned in the fourth quarter of 2009 after two years of construction. By the end of December 2009, all individual production systems were operational, and ready for the integration of the overall process to produce nuggets.

We expect the internally sourced iron nuggets to further reduce Steel Dynamics’ already low cost structure. Steel Dynamics should also benefit from its relatively higher mix of flat steel. The company has expanded its flat steel operation at the Butler plant in Indiana to 3 million tons and runs it at full capacity.

Despite a weak market for long products (bars and beams) and very low utilization rate, the company was able to manage profit on the back of strong prices at this division. Although the long products market, particularly for beams, could remain challenging for some time, we believe that Steel Dynamics is well positioned to take advantage when the market recovers.

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