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March 2005
Ironing Out the Future
By Heather Head

Headed by Jim McClaskey, president and CEO, a Charlotte company called Midrex Technologies is rocking the world. Having no new major contracts in the last five and a half years, Midrex has staged a comeback with four new international contracts to build multi-million dollar iron reduction facilities, representing a full 100 percent market share for their industry segment for 2004.

They are elated, but cautious, because they know as the steel industry goes, so goes their business. So they are planning for a new future, one that won’t be fully dependent on the steel industry for revenue.

Midrex is a strictly a business-to-business operation and far at the end of that spectrum according to marketing manager Chris Ravenscroft, however, their operations impact considerably more than just their client companies and Charlotte. Overcoming technical, commercial, and cultural challenges, Midrex has built numerous ironmaking plants in 19 countries throughout the world since 1969

The impact of this Charlotte technology firm has been felt internationally – from the dry, sandy heat of Saudi Arabia and Egypt to the frigid cold temperatures of Canada and Russia. Their iron reduction processes contribute to more environmentally friendly steelmaking processes, keeping the air cleaner for all of us. These technologies enable various countries to cost-effectively produce the steel they need, using indigenous or imported materials. And their aggressive development effort is producing more jobs and more revenue to benefit the Charlotte area.


Steelmaking 101

Historically, Midrex has been recognized principally for a technology that converts iron oxide into a form of iron readily used by the growing electric arc furnace segment of the industry to produce steel.

Simply put, steel is a metal alloy consisting primarily of iron, with a small amount of carbon, and sometimes other elements. The first step in traditional steelmaking is mining the iron out of the earth in the form of iron ore. Iron ore usually comes in the form of oxidized iron, or Fe2O3 – also known as rust.

Most of the time, the iron ore then goes into enormous coal-burning blast furnaces that heat the Fe2O3 to more than 1500 degrees Celsius, simultaneously removing the oxygen (reduction) and melting the hot metallic iron into liquid referred to as “hot metal,” suitable for further refinement to create steel.

The metal, once cast into finished steel products then goes on to be formed into cars, appliances, bridges, construction materials and so on. Eventually, it comes back into the process when it reaches the end of its first life and returns as scrap steel. But scrap steel, which is already primarily pure Fe, does not require the energy intensive reduction step Therefore, scrap is not fed into a blast furnace, but is melted with electricity, in an electric arc furnace. This process is more environmentally friendly and cheaper than the hot coal furnaces.

But historically the steel making industry has continued to be dominated by the coal-burning furnace for several reasons. Since it is not economical to use electricity to directly smelt (melting and reduction) Fe2O3. Until the 1960s only scrap metal was used in the electric arc furnaces. So production was limited by the finite supply of scrap steel. Additionally, because scrap steel generally goes into the furnace with contaminants, such as the plastic, rust, and zinc from its former use, the quality of finished steel was usually of a lower grade than that produced by the coal-based furnaces melting pure Fe2O3.

In 1955, HyL, a company in Monterrey, Mexico, pioneered a process for turning iron oxide into pure Fe without the high temperatures necessary in traditional coal-based furnaces, thus rendering it suitable for use in electric arc furnaces.

The process, called direct reduction, works like this: iron oxide is heated and then exposed to a gaseous mix high in hydrogen and carbon monoxide. The gases react with the iron oxide, converting it to pure iron, with water and carbon dioxide as byproducts.

“What goes in is a solid pellet of iron oxide and it comes out as a solid pellet of metallic iron, just lighter without the oxygen,” says McClaskey. “What it does is it reduces the solid iron-bearing material to metal, without changing the shape.”

Direct reduced iron, or DRI, can be added to the electric arc furnace to improve the quality of the resulting metal, as well as to provide a more reliable stream of raw material. But HyL’s “batch” process, though clean and effective, was inefficient and limited in productivity, so the industry remained a purely niche field.

In 1969, the first commercial-scale continuous process direct reduction plant went into operation as the result of development efforts by Midrex Technologies, Inc.’s predecessor company.

The new continuous process from Midrex, which made direct reduction efficient, cost-effective and productive, together with improved scrap collection efforts, helped electric-arc-furnace-steelmaking to grow quickly from its niche position as a producer of only 1 or 2 percent of the world’s steel to its current share of 37 percent. Midrex also quickly overtook the lead in market share, and have maintained that lead at more than 60 percent ever since.

In 1971, a German steelmaker by the name of Willy Korf commissioned two Midrex plants and shortly thereafter purchased the rights to the technology. It was Korf who, in a deal made with the North Carolina National Bank, brought the company’s headquarters to Charlotte, where it has been ever since. In 1983, Midrex was sold to its current parent company, Kobe Steel of Japan.

The growth in DRI production and the concomitant growth in electric arc steel making is good news for the environment, because electric steel making uses cleaner sources of fuel than coal-burning furnaces. It’s also good news for many developing parts of the world, where coal and scrap metal are scarce but natural gas, which fuels the Midrex Direct Reduction Process, and iron ore are plentiful. “We think the future is extremely bright,” says McClaskey.


Rocks and Hard Places

But despite their meteoric and solid success, Midrex’s history has not been without its challenges. Perhaps the greatest challenge faced by Midrex is that they are at the mercy of steel prices. Additionally, because the Midrex process relies on natural gas, the price of natural gas can have an inverse effect on their business.

When petroleum and natural gas prices rose to record highs here in North America and global steel prices slumped ever lower from January 1999 to September 2004, Midrex landed no new major contracts. They continued to work on existing contracts through completion, but sales of new plants fell to exactly zero during those years. The company reduced their staff as they did during previous steel industry down cycles and cut their leased space to less than half.

However, they endured, surviving on the earnings from existing contracts and sales of equipment and services to existing plants.

But recent upswings in steel prices and regionally favorable gas prices around the world have sent Midrex back into boom times. In fact, for 2004 and 2005 they have won every new contract they have competitively bid on, resulting in a 100 percent market share for the past 12 months. Their staff has increased to more than 110, with more hires in process.

It’s no mystery why Midrex is the choice for all of the past year’s new contracts. Besides their commitment to innovation and their outstanding record of solutions and service, Midrex plants have the distinguished and unique track record of producing consistently well above rated capacity.

The recent boom is good news for Midrex, but they are determined not to remain at the mercy of steel prices. “It’s not a matter of IF, it’s a matter of WHEN steel prices will go into a down turn again,” says McClaskey. “So what we’re trying to do is level out the peaks and valleys.”

To that end, they have begun development of several promising new technologies, some of which are iron-based (and therefore still subject to the ups and downs of the steel market), but many of which are not. “It’s a new attitude,” says Robert Klawonn, vice president of Midrex’s commercial group, “to make sure that we are positioning ourselves for the next two or three decades.”

One of the new technologies, called ITmk3, allows a lower grade of iron ore to be used with lower grade coals, while producing a higher quality iron that brings a premium price. Additionally, the process is environmentally cleaner, and can be used with coal technologies for market segments where natural gas is expensive or simply not present. Midrex, in partnership with several other organizations, will begin engineering on a commercial-scale ITmk3 facility later this year in the U.S.

The new technology will help Midrex penetrate new markets and generate new sources of revenue but, as Klawonn points out, “It’s still in the same industry, so it’s still going to go through the same cycle. We need something that’s going to be counter-cyclical, to fill in the valleys when iron and steel is down.”

Other areas they are exploring include the non-ferrous metal market – that is, metals other than iron and steel, such as nickel and copper. The key, they say, is finding areas of development that will take advantage of their existing expertise in the fields of pyro-processing, high temperature solids and gases, etc.

This expertise includes a broad reach of services and abilities that complement their technology. For instance, they own their own procurement and shipping companies, as well as logistics and operations expertise, and partial ownership in a briquette manufacturing company.


Solid Foundation, Shiny Prospects

Midrex’s long history is nearly matched by the length of tenure of its senior employees. McClaskey joined the company in 1974 at the staff level. In 1990, a separate purchasing arm, called PSI, was spun off into Pittsburgh, and McClaskey went with it. In 1995 he returned with PSI to Charlotte, and two years ago was promoted to COO and president. He took over as CEO last June from the outgoing president Winston Tennies, a co-founder of the MIDREX Direct Reduction Process who had spent more than 38 years with the company.

Klawonn has been with the company twelve years, having joined the PSI branch in 1993 in Pittsburgh, selling spare and replacement parts. When PSI moved to Charlotte, he stayed in Pittsburgh to pursue another opportunity, but he soon came back. “I guess maybe the grass wasn’t so green there at my other opportunity,” he laughs. As vice president, Commercial, he now is in charge of marketing, sales, and licensing.

Klawonn’s story is not unusual at Midrex. The company prides itself on providing its employees great opportunities, and many return to the company after they learn that the grass isn’t always greener elsewhere.

Midrex’s other chief executive, vice president, Operations, Dan Sanford is yet another longtime member of the Midrex family and has recently been in Malaysia kicking off a brand new construction project with a client.

One of the attractions of the company is the international travel. “It’s sort of like the military,” jokes McClaskey: “Join Midrex, see the world.”

But it’s more than a joke. Nearly all of Midrex’s 28 plants are located outside the United States representing 47 out of 51 MIDREX modules. With the relocation of three U.S. modules to foreign locations, only one U.S. module will remain. This plant located at Georgetown, S.C., is the oldest Midrex plant in operation. Their foreign plant location map looks like an exotic vacation wish list – India, South Africa, Malaysia, the Arabian Gulf, Egypt, Europe, Russia and South America. Employees are encouraged to join project location teams and work in international settings, learning about the unique needs of other countries and the demands of different cultures.

On a more commonplace level, the company offers good benefits and competitive compensation, but they don’t resort to cute gimmicks or extraordinary incentives to keep good people on staff. They don’t have to. The average tenure of employees at the company is above the norm, with many of their team having made an entire career with the company.

All of this is good news for Charlotte, where Midrex currently holds its headquarters and only location, and where they plan to add dozens of new jobs over the coming months. Additional good news for Charlotte is the more than $300 million dollars of revenue the company will garner from their new contracts, and the additional more than $100 million they expect to contract over the next couple of months. There seems to be no immediate end in sight to this company’s good news.


Heather Head is a Charlotte-based freelance writer.
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