Commentary
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Our commentary partners will help you reach your own conclusions on complex topics.
Everybody, Peter Zeihan here coming to you from the capital of the Hoosier State, Indiana.
And today we’re going to talk about one of the most important economic sectors in the world and in the United States. And it’s important to everything that we do and that is steel fabrication.
Now, there are two ways you can make steel. The first way, the old fashioned way, the way that almost every country in the world does it is they get some iron ore and some coal and they throw them together into a blast furnace and they heat it up until it goes molten.
They basically cook carbon into it and cook all the impurities out. And you’re left with an intermediate product called pig iron. Now that pig iron goes on to be processed into hot and cold-rolled steels. Hot-rolled steels is kind of the ugly stuff. It is used where you need structure, but not necessarily beauty. And so it’s in the interior of things, rebar, inroads, and I-beams and buildings and car frames.
Then you’ve got cold-rolled, that’s the super fancy stuff that is the super corrosion resistant stuff that has all kinds of different properties and coatings that you can do on a micro level that is very high end. It is very expensive, and it goes into anything that you see.
So if you have any appliance cladding, or maybe the outside of your car, or your bumper, or the sort of coatings you see on buildings, built into solar panels and utility facilities, that’s typically all cold-rolled.
Now here in the United States, we are the world’s leader in cold-rolled steel. We make the most advanced steel you can imagine. And you can only make cold-rolled steel from pig iron, raw virgin pig iron.
Unfortunately, the raw virgin pig iron is something that the United States is not very good at, because of a mix of factors ranging from environmental regulations to Chinese and German subsidies for their steel industry.
Most pig iron that the United States uses is imported. Now here in Indiana is the largest exception. Roughly half of the pig iron that the United States does fabricate comes from Indiana, as does roughly 25% of all steel.
But what the United States really excels at is making the hot-roll because you can make that from recycled steel. Steel is one of those wonderful products that you can recycle any number of times. And so you basically just take the old steel, you throw it into a vat and you run currency through it until it melts.
And since the United States has the cheapest electricity in the world courtesy of the shale revolution, and will maintain the cheapest electricity in the world because we actually have some of the best solar and wind potential in the world, we will continue to recycle recycle, recycle recycle. We are the world’s best recyclers.
But the problem comes for that high value added stuff, since you can only make it from pig iron. And since the pig iron is mostly imported in the United States, we have to venture out to the international market sourcing. Well as of January of 2022. Our primary sources of pig iron were Russia and Ukraine.
We’re no longer getting anything from Russia because of sanctions. And we’re no longer getting anything from Ukraine because their steel industry has shut down that nuclear power plant that we keep hearing about that keeps getting shelled by the Russians, or keeps being used as a shield to protect themselves from Ukrainian shelling, that nuclear power plant provided almost all the electricity to the entirety of the Ukrainian steel belt.
And the coal and iron ore mines that used to drive the Ukrainian steel industry are for the most part in the war zone or occupied territory. And the foundries are in places that are also under assault. For example, some of the biggest ones in the region or in Mariya poll, which have been completely destroyed.
Now for the United States, that’s a bit of a problem because it means sourcing the material is something that we have to rely on one singular country for now, Brazil. And if you are in Indiana here, that means that all of a sudden you’re having to go out and interface directly with the Brazilians in order to make sure you can still get the iron or the pig iron that is necessary to make all of this work.
But Indiana has something going for it that the rest of United States doesn’t have. It still has those foundries. So instead of relying 100% upon imported pig iron, it actually can get the iron ore and make some of the pig iron itself, meaning that Indiana is one of the few bright pockets in the short and mid term for US Steel because they actually have the old infrastructure still in place. All right. That’s it for me. Until next time.
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In addition to the facts, we believe it’s vital to hear perspectives from all sides of the political spectrum. We hope these different voices will help you reach your own conclusions.
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The commentaries published in this section are solely those of the contributors and do not reflect the views of Straight Arrow News.
Peter Zeihan
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