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rive along the southern edge of Lake Michigan, and the steel legacy of northern Indiana becomes inescapably apparent, in both the best and worst of senses. Much of the industry’s looming gray capacity has gone dormant, but there is still a core that thrives. And where big steel has suffered, little steel is doing its part to heal the wound.
The mini-mill concept is straightforward: use melted scrap as the primary feedstock, and do it on a manageable scale. Primary among the wealth of practitioners that have popped up throughout the Midwest is Steel Dynamics Inc. (SDI), created just nine years ago, and one of the most profitable steel producers in the country, in terms of profit per ton. Today the company boasts three operations in Indiana, including a newly constructed, US$315-million Structural and Rail Division steel mini-mill at Columbia City, in Whitley County.
The mill, expected to eventually employ 300 and have an annual production capacity of 1 million to 1.3 million tons, is located on a 460-acre (18.6-hectare) site. Construction began in May 2001, and before anyone could say “John Henry,” the first melting and casting was taking place in April 2002, followed by beam production in late June 2002. That beat the lightning-fast 14-month schedule at the company’s Butler facility in 1996.
“This being our second steel plant, we built upon some of the research we had done the first time around,” says Dick Teets, vice president and general manager of SDI’s Structural and Rail Division. “There was only a three-year time frame between initiations of both site searches. We had a desire to continue to have a presence in the Midwest. Not that it was mandatory from a company standpoint, other than looking at where the market was, and where our competitors were not. There had not been any major expansions or investments in the Midwestern market, yet six or seven of the largest structural steel-consuming states are located within a couple-hundred-mile radius. It was a natural.”
Not Having a COW
Some did not think it was natural at all.
The road to completion for Steel Dynamics’ new plant was anything but smooth, as various legal challenges were raised on environmental grounds since the initial announcement in 1998. Chief among the project’s opponents was a local citizens’ group called Citizens Organized Watch (COW), which had challenged the validity of the mill’s modified prevention of significant deterioration permit issued in January 2001 by the Indiana Department of Environmental Management.
After denying the group a review of its previous decision, the U.S. EPA’s Environmental Appeals Board put an end to all subsequent appeals and motions in April 2001, finally clearing the way for the company to begin construction. To say they were ready would be a profound understatement.
“We are extremely pleased that the Environmental Appeals Board has taken this prompt and definitive action, paving the way, at long last, to begin construction of what we believe will be one of the most technologically advanced and environmentally friendly structural steel production facilities in the world,” said SDI President and CEO Keith Busse that day.
Waiting for that day to come was a whole network of materials (much of them made at SDI’s own facilities) waiting in storage, and a team of employees and contractors ready to move on a moment’s notice.
“We had the unfortunate advantage of being delayed two years, so therefore the engineering was basically complete,” says Teets. “So it was not a hand-to-mouth engineering supply story. It was more of a well-planned and well-executed construction cycle. We had our own employees managing the structural steel and rebar as it was laid out, managing the equipment. We had things in storage throughout a multi-state area, and controlled it. Then as the contractors were executing their work assignments, we were right there by their side supplying the materials as quickly and efficiently as possible, so that when they turned around, the next column was there before they asked for it.”
That unfortunate delay had also allowed SDI the time, albeit tinged with frustration, to size up the market. Thus did an originally announced investment accrue another $40 million, in order to diversify the operation with the making of extra-long rail as well as structural steel products.
“We’re just in the process of beginning the installation of equipment for the production of railroad rail, and we’re still commissioning the equipment and trying new section sizes for structural products, so we have not made the full gamut of our product capability,” says Teets. “Both those products will have to have the ability to ship nationwide and to Canada and Mexico at least. Needless to say though, it behooves us to market our product in close proximity to the mill because of freight considerations. So we have a focus on a 300-mile [482-km.] radius for the structural products, recognizing that the rail will be truly North American-oriented, as there are only six or seven Class One railroads that will be the buyers of our product.”
The company’s innovation is its head-hardening technique, which will allow it to build extra-long lengths. Traditionally in the international rail market, because of both mill configurations and shipping constraints, 80-ft. (24.4-m.) lengths have been the norm. Those are then melded into quarter-mile strings, then delivered and welded into place. The SDI way will start with 240-ft. (73-m.) continuously-rolled lengths (eventually growing to 320 feet, or 97 meters), which will be welded into 1,600-ft. (488-m.) strings, meaning four welds instead of 19 and substantially reducing the high cost of weld maintenance for the railroads.
“The only thing you lose is the clickety-clack, which might have been romantic when more people were traveling by rail,” notes Teets. “Because of the higher-maintenance time and cost associated with more welds, that is harder to dovetail into the higher utilization that those railroads are placing on these rail lines. They don’t want to have a lot of downtime when they’re out there servicing welds that need attention.”
The Process Behind the Process
Attention to as fine a level of detail in project development as in its proprietary steelmaking techniques has had a huge effect on SDI’s own profitability, beginning with a design-build approach that utilizes the future plant’s own talent.
“We are mostly project managers, yet we have a lot of steel operating experience, maintenance experience, and facilities/ logistics understanding,” says Teets. “We execute a design that is done by outside firms, and we hands-on manage the construction and implementation of the project, act as our own general contractor, and issue many contracts to numerous contractors. And then what we attempt to do is reduce the size of each contract to the smallest manageable size, so we can implement it using our future steelmaking supervisors and hourly employees to assist the contractors in executing their portion of the work in as efficient and safe a manner as possible.”
He adds that they also hope to help those contractors make more money than they expected to based on their lump-sum bid, “because once we agree to a contract price, then we’re satisfied with it. Then the best thing to do is get ’em done and out of here, and on to something else.”
The lineup card for the Columbia City project included 18 to 24 major contractors, four concrete placement companies, five electrical contractors, four or five mechanical contractors, ironworkers, and half a dozen piping contractors.
“And each one of those could have one or two dozen contracts with us at any one time,” says Teets. “That’s how we break it down to a more manageable size.”
Some might speculate that it doesn’t sound manageable at all. But Teets has a counter.
“Some people would say, ‘Hey, you’re not getting the buying power of putting it all together,'” he says. “Well, I think as long you’re showing fairness to the contractors, and a willingness to consider their efficiencies, then every time they extend their stay and increase their workload, they are passing on those efficiencies, if not in total, then in partnership with the owner.”
He also notes that past experience has led SDI to hire multiple engineering firms that have demonstrated a proficiency in certain areas: site development, foundations and building design, equipment placement and installation, piping, water treatment systems. Asked if those contractors are not going after the whole package as often, but perhaps honing those specialties, Teets says he does not think so.
“I believe the vast majority of owners prefer to have single-source responsibility,” he says. “All of these are basically full-service engineering firms and could handle the whole project. Just like in construction, we could hire one general contractor and have them handle the construction side of things. But it’s harder for us to manage that way, and we believe it might be harder for them to execute in that fashion. If a couple of our supervisory engineers are dealing with one firm, while the guys doing our ground or railroad work are working with another engineering firm, you’re not getting bogged down in monstrous meetings and internal communications. But it still has to be coordinated, because it’s easy to have one put a column up and have another put a pipe through it. And that doesn’t work.”
Coordination was essential to some of the other site selection criteria as well.
“There was not an unlimited number of sites that can put together 400-plus contiguous acres and make sense from an environmental as well as community perspective,” says Teets.
So the old records from the Butler site search were hauled out and pored over again. Among the candidates were a site adjacent to the Butler facility, as well as sites in southern Michigan and in Ohio, which came in with a late contender at the Port of Toledo that was a narrow runner-up. In the end, a hard review of utility costs and labor rates, a “stiff section of the electrical grid,” and high-pressure natural gas lines allowed Indiana to “eke out the selection,” says Teets. But there were mitigating factors, including an interesting railroad scenario.
“We’ve always attempted to place ourselves where there were two railroads — Butler originally was a three-railroad site, and there are very few of those out here,” he explains. “We had one other one in Ohio at the time, but once Conrail was consumed by Norfolk Southern and CSX, it became a search for a two-railroad site, which we accommodated here through a trackage agreement. We are now officially on a CSX line. Originally it was a Conrail line when we looked here for the Butler project. In the interim, Norfolk Southern bought it, then once Conrail went away, it was part of the Surface Transportation Board’s decision to have CSX ultimately own it. These are things that throw wrenches into our plans, but then when it looked like this whole site area was out of contention because it was a single-rail site, we ended up getting the trackage rights to allow Norfolk Southern to come up the CSX line a couple miles to service the mill.”
A similar arrangement is in effect at Butler, all contributing to the overall two-way transportation needs of a mini-mill.
“Because we’re getting scrap from larger distances up in Butler, rail was more important from the scrap side,” he says. “Down here, trucking was a bit more important, so we were looking for a very good highway infrastructure system. We’re located adjacent to U.S. 30, a four-lane highway with limited access, and it provides a great truck route east-west, we’re ten miles west of I-69, and with the county roads and state highways, it’s a nice infrastructure system around this area, for both shipments and deliveries.”
Other Dots On the Map
Big steel does not get to win the day very often anymore. But there is certainly still some healthy big steel around. For instance, Ispat Inland, formerly Inland Steel Co., still accounts for about 5 percent of the nation’s steel production, primarily out of its the 1,900-acre (769-hectare) Indiana Harbor Works in East Chicago, Ind. Ispat Inland also operates two steel-finishing plants near New Carlisle, Indiana.
Some of the main factory’s output is specialty bar product, but most is flat-rolled steel, which goes into everything from appliances, motors and office furniture to the company’s mainstay: automobiles. In fact, earlier this year, Ispat Inland was recognized as a “gold medal” winner in the ferrous metals supplier category in Automotive Industries’ 2001 Quest for Excellence survey. Of special note: the company beat out a British firm and a mini-mill for the top honor.
But meanwhile, ironic as it may sound, SDI and other minis just keep growing. Various factors are in their favor, not least of which are their intrinsic low-cost competitiveness and their non-union ways. In that vein, their operating philosophy, which touts embracing change and seeking out growth while always focusing on continuous improvement, follows on the very successful model employed by Toyota and others in the North American industrial market.
“We operate as a non-union steel company,” says Dick Teets. “Our firm belief is that you treat everyone appropriately, compensate them well and first and foremost give them a safe place to work, and one that expects to have longevity in the business environment. We fulfill those needs that have in the past been ignored by management in some places and have had other requirements for the workers to take action. We manage with a very open door policy, and share just about everything possible with all of our employees, and I think it’s appreciated.”
In Butler, where the company’s inaugural facility churns out 2 million tons a year, a new bay has been added parallel to the existing manufacturing bay in order to coat coil product at an annual capacity of some 240,000 tons. The investment of $25 million to $30 million will also mean 40 more jobs at the plant.
“We are excited about the opportunity to vertically integrate into painted products that will allow further market diversification at Butler,” says Mark Millett, vice president and general manager of the Butler Flat Roll Division.
One more feather landed in the SDI cap in September, when the company paid $45 million for the special bar quality mini-mill assets of the idled Qualitech Steel plant in Pittsboro, Ind., beating out the bid and the legal challenges of rival Nucor. An additional $60 million to $70 million will be invested in the conversion of the plant, with some of the additional equipment expected to require new facilities to house it by the time the conversion is completed at the end of 2003. No SBQ will be made initially, but it has not been ruled out either, as part of the mill’s overall capacity of 500,000 to 600,000 tons per year.
“Acquiring this mill fits our strategy of pursuing product growth and diversification,” says Busse. “We feel that we have acquired a nearly new Indiana production facility at a very reasonable cost, and, with our planned reconfiguration costs, it should enable us to enter the merchant bar and shapes market as a low-cost producer of these products.”
Steel Dynamics has quickly become a solid player in the U.S. steel marketplace, and the place they have chosen to do so is part and parcel of that prosperity.
“We were very satisfied with the Midwestern culture we were comfortable with,” says Teets. “The employees are tremendous in Butler, and there was no reason to expect to be met with anything different than that in Ohio or Michigan or elsewhere in Indiana. We believe we’re on the high end of the pay scale through work incentives, production and quality incentives, so we weren’t worried about labor rates, but we always look at things like tax rates, workers compensation and so forth, and found the Midwest to be acceptable.”
More than acceptable, considering the multiple projects. And given the momentum the company has created, the incentive package was almost an afterthought.
“We round everything into it,” says Teets. “In total it was around $10-million to $12 million of incentives, long term tax abatements, 10-year programs, TIF, a half-percent or quarter-percent interest reduction based on backing of bonds. We had larger ones offered to us at other locations, but this one was sufficient enough to be packaged together with all the other positives to win the day.”
