Changing Situation Factors: Steel

Steel is an alloy of iron that is manufactured by removing impurities in iron, such as silicon, phosphorus, sulfur, and oxygen, and adding desirable elements, such as manganese and chromium. In the past, steel production was a good example of a bulk-reducing industry that located near its inputs.

Situation factors are still important, but two changes in these factors have altered the distribution of steel producers within the United States and worldwide:

• Changes in the relative importance of the main inputs.

• Increasing importance of proximity to markets.

Changing Distribution of World Steel Production

The shift of world manufacturing to new industrial regions can be seen clearly in steel production. In 1980, 81 percent of world steel was produced in developed countries and 19 percent in developing countries. Between 1980 and 2016, the share of world steel production declined to 35 percent in developed countries and increased to 65 percent in developing countries.

World Steel Production, 1980

(a) Most steel was produced in developed countries.

(b) The Soviet Union, the United States, and Japan together produced more than one-half of the world’s steel in 1980.

World Steel Production, 2017

(a) Most steel is now produced in developing countries.

(b) China is now the leading producer of steel.

World steel production more than doubled between 1980 and 2017, from 0.7 billion to 1.6 billion metric tons. China was responsible for 0.8 billion of the 0.9 billion metric ton increase, and other developing countries (primarily India and South Korea) for another 0.2 billion. Production in developed countries declined by 0.1 billion metric tons. China’s steel industry has grown in part because of access to the primary inputs iron ore and coal. However, the principal factor in recent years has been increased demand by growing industries in China that use a lot of steel, such as motor vehicles.

Changing Distribution of U.S. Steel Production

Steel is an alloy of iron that is manufactured by removing impurities in iron, such as silicon, phosphorus, sulfur, and oxygen, and adding desirable elements, such as manganese and chromium. The two principal inputs in steel production are iron ore and coal. Most steel was produced at large integrated mill complexes. They processed iron ore, converted coal into coke, converted the iron into steel, and formed the steel into sheets, beams, rods, or other shapes.

Because of the need for large quantities of bulky, heavy iron ore and coal, steelmaking traditionally clustered near sources of the two key raw materials. Within the United States, the distribution of steel production changed several times during the nineteenth and twentieth centuries because of changing inputs. More recently, steel production has relocated to be closer to markets .

Integrated Steel Mills in the United States

Integrated steel mills are clustered near the southern Great Lakes, especially Lake Erie and Lake Michigan. Historically, the most critical factor in situating a steel mill was to minimize transportation cost for raw materials, especially heavy, bulky iron ore and coal. In recent years, many integrated steel mills have closed. Most surviving mills are in the southern Great Lakes to maximize access to consumers.

The increasing importance of proximity to markets is also demonstrated by the recent growth of steel minimills, which have captured one-fourth of the U.S. steel market. Rather than iron ore and coal, the main input into minimill production is scrap metal. In the past, most steel was produced at large integrated mill complexes. They processed iron ore, converted coal into coke, converted the iron into steel, and formed the steel into sheets, beams, rods, or other shapes. Minimills, generally limited to one step in the process—steel production—are less expensive than integrated mills to build and operate, and they can locate near their markets because their main input—scrap metal—is widely available.

Minimills

Minimills, which produce steel from scrap metal, are more numerous than integrated steel mills, and they are distributed around the country near local markets. Shown are the plants of Nucor Corporation, the largest minimill operator in the United States.

Pause & Reflect 11.4.3

Why do you think proximity to markets has become increasingly important in the steel industry? What characteristics of minimills have facilitated this trend?