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There are two main steelmaking production process routes. These are:

  • Basic oxygen furnace (BOF) steelmaking. This process converts pig iron from the blast furnace into liquid steel by blowing oxygen into the furnace to remove carbon as carbon monoxide gas
  • Electric arc furnace (EAF) steelmaking. In this process an electric furnace melts (and thus recycles) steel scrap for the production of liquid steel using electrical power.

Prevalence of Different Steelmaking Processes

In 2010, some 71% of world steel production was made through BOF steelmaking, with ~28% produced with electric arc steelmaking. The remainder - or around 1% of world steel output - was produced through open hearth steelmaking. Open hearth steelmaking is an obsolete and relatively high cost production process only still used in parts of Russia, Ukraine and India. Because of environmental concerns as well as cost and quality issues, OHF steelmaking is however being gradually withdrawn.

Cost Differences

In BOF steelmaking, the main raw material inputs are iron ore and coal. Currently, these raw materials account for just over 50% of BOF steel costs. In EAF steelmaking, the main raw material is ferrous scrap. Currently, scrap represents around 75% of EAF steel cost. Differences between the total cost of BOF and EAF steel tend to be determined by relative differences between the cost of iron ore and the cost of scrap; but tend over time to broadly even out. A big difference between the two steelmaking processes however is in the capital investment costs involved. Whilst a typical integrated (i.e. BOF-route) steel mill today costs ~$1100 per tonne of installed capacity, a medium-size EAF-route mini-mill today costs under $300 per tonne in terms of the initial capital outlay.

As EAF steelmaking technology has improved in recent years - meaning that high quality steels are increasingly accessible to EAF steemakers - so the relatively low barriers to entry in electric steelmaking have allowed growth of the mini-mill steelmaker. The difference in capital costs nonetheless means that EAF steelmaking is likely to grow proportionately more than BOF steelmaking in the coming years. The trend means that traditional BOF steelmakers such as US Steel are increasingly faced with important decisions concerning their choice of future steelmaking process route.

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