SDI Plans New EAF Mill in the Southwest

SDI has not yet selected a site for the mill, but would like to locate it in the Southwest to serve the South as well as the underserved Mexican flat roll steel market. SDI will be soliciting state and local government infrastructure and incentive support. Groundbreaking is anticipated for 2020, once a site has been selected and environmental and operational permits are secured. The company hopes to have the mill operational in the second half of 2021. The mill will create about 600 direct jobs along with many opportunities for indirect job growth from other support service providers.

“We believe our unique operating culture, coupled with our considerable experience in successfully constructing and operating cost-effective and highly profitable steel mills, positions us well to execute this greenfield opportunity, and to deliver strong long-term value creation,” said President and CEO Mark Millett. “We plan to utilize new technologies that will further reduce the gap between existing EAF and integrated steel mill production capabilities.

“We are excited to announce this investment, which is a culmination of our intentional focus to cost effectively further serve the customers in this growing flat roll steel consuming region, while increasing our steelmaking capacity and value-added product capability. As a site location is finalized and equipment negotiations are completed, we look forward to updating you on this important strategic initiative,” he added.

Is New Capacity Needed?

Does the market need more capacity? No, said Key Banc Capital Markets analyst Philip Gibbs in a note to clients: “Obviously there is no need for further U.S. sheet capacity on the surface given recent restart activity and a slew of capacity expansion announcements over the past several months. So…why now? We can’t help but think the timing of SDI’s announcement was related to Big River’s insistence on staying private after anecdotes it was for sale, including being courted by STLD and NUE, and public commentary by STLD and NUE that deal valuations/asks were becoming excessive.

“After M&A talks failed, Nucor announced its sheet capacity expansion at Gallatin of 1.4M tons and suggested there could be further sheet expansion announcements to come, while SDI waited a bit longer… until today.

“We believe the announcement provides SDI the option to continue to pursue Big River Steel if cooler heads come to rule on valuation, makes higher-cost producers like JSW think long and hard about pursuit of production growth, and likely puts political pressure on the U.S. government to put the slab import/sheet re-roller model under siege (>7M tons, or ~10-15% of apparent sheet demand) over the intermediate term.”