Material Insights · Understanding the Material World

Oxygen and Steel

Steelmaking is one of the largest industrial uses of oxygen: each tonne of converter steel needs about 55 to 60 cubic metres of high-purity oxygen, mostly made in air separation plants at the steelworks. Because the gas is made on site under long contracts, the tie is physical and operational rather than a traded price link, as India saw in 2021 when steel plants were called on to supply medical oxygen.

Oxygen (chemical) and Steel (commodity): 4 relationships.

How they are linked

1. Oxygen blown into steel

Physical flow · Strong · Oxygen to steel

A basic oxygen furnace turns molten iron into steel by blowing pure oxygen through a lance to burn off carbon and impurities; blast furnaces use oxygen to enrich the hot blast and electric arc furnaces use it to speed up melting.

  • about 55 to 60 m3 oxygen per tonne of crude steel in a converter
  • 99.5% minimum oxygen purity, to avoid nitrogen in the steel
  • 15 to 20 minutes oxygen blow per heat

More than half of the world's steel is made in oxygen converters, so oxygen demand follows integrated steel output. The purity needed for converter blowing favours large cryogenic air separation units at the steelworks. Electric arc furnaces also use oxygen to speed up melting, so oxygen demand grows with both routes.

Sources: IspatGuru; IspatGuru; Encyclopaedia Britannica; SFA (Oxford)

2. Captive air separation units

Joint production · Strong · Gas plants built inside steelworks

Oxygen is costly to move as a gas, so steelworks have air separation units on site, owned either by the steelmaker or by a gas company that sells the output over the fence under a long-term contract.

  • over 4,000 t a day single-train cryogenic oxygen plants offered by Air Products, at the top of its range

Air Products alone owns and runs more than 800 air separation plants worldwide, and large steelworks run several units in parallel: ArcelorMittal Nippon Steel's Hazira works in India commissioned its fifth with INOX Air Products. These units also make nitrogen and argon for the plant, so oxygen supply is tied to the steelworks' own run rate and expansions.

Sources: IspatGuru; Air Products; gasworld

3. Price link: main use

Cost and price · Weak · Both ways

Steel is a major outlet for oxygen, but most steelworks oxygen is made on site under long-term supply contracts, so traded steel prices hardly move the oxygen price.

  • 0.01 monthly change correlation
  • 0.20 12-month change correlation
  • 1.18 fitted elasticity

The weak correlation fits the contract model: on-site oxygen is priced under long-term agreements, while steel prices follow construction demand and trade. The site's series show a lag of about two months.

Sources: Material Insights (World Bank, FRED, IMF data)

4. Medical oxygen priority

Policy · High in India · Steel plant oxygen diverted to hospitals in emergencies

Steel plants run large air separation units that can switch output towards liquid oxygen, so in the 2021 COVID-19 wave the government called on them to supply liquid medical oxygen.

  • 4,749 t peak liquid medical oxygen supplied by steel plants in a day, 13 May 2021
  • about 0.5 Mt steel output lost in April to June 2021 to divert oxygen
  • 2,748 to 4,102 t a day liquid oxygen capacity at steel plants, 2020-21 to 2021-22

Steel plants cut their use of gaseous oxygen and their output of liquid nitrogen and argon to raise liquid oxygen, supplying about 230,000 tonnes between 1 April and 25 July 2021. The episode showed that the same assets serve steel and health, and liquid oxygen capacity at steel plants rose by about half between 2020-21 and 2021-22.

Sources: Ministry of Steel, PIB

For investors

Key learnings

  1. Oxygen demand from steel is volume-driven and contracted: growth in integrated steel capacity, not steel prices, drives industrial gas companies' on-site revenue.
  2. Each new converter or blast furnace expansion usually comes with a new air separation unit, so steel capex plans are a lead indicator for gas company project wins.
  3. The weak price link means oxygen is a contracted operating cost for steelmakers rather than a commodity exposure, and gas suppliers' returns depend on how hard the steelworks run.

What to track

  • Integrated (BF-BOF) steel capacity additions: New capacity brings new on-site oxygen contracts (Quarterly · Ministry of Steel, company filings)
  • Air separation unit contract awards at steelworks: New awards signal on-site oxygen growth for gas companies (As announced · company releases, gasworld)
  • Crude steel output by route: Converter output drives most steelworks oxygen use (Monthly · Joint Plant Committee, worldsteel)

For policymakers

Key learnings

  1. Steel plants are India's largest reserve of oxygen capacity, which makes them part of health emergency planning.
  2. Diverting oxygen from steel has a real cost in lost output, so dedicated liquid storage and hospital plants reduce the trade-off.
  3. As steel capacity grows towards national targets, oxygen capacity grows with it, and with it the power demand of air separation units.

What to track

  • Liquid oxygen capacity at steel plants: Shows reserve available in a health emergency (Annual · Ministry of Steel)
  • Medical oxygen storage and hospital generation capacity: Lowers reliance on diverting steel plant output (Annual · Ministry of Health)

India

India's steel plants raised liquid oxygen capacity from about 2,700 to over 4,100 tonnes a day after supplying hospitals in 2021, at the cost of about 0.5 Mt of steel output. Much of India's steelworks oxygen comes from on-site units, some run by gas companies such as INOX Air Products.

Sources

  1. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  2. Understanding steel making operations in basic oxygen furnace, IspatGuru
  3. Industrial gases used in steel industry, IspatGuru
  4. Industrial gases and cost-effective technologies for the iron and steel industry, Air Products
  5. INOX Air Products ramps up India's oxygen supply for steel industry, gasworld
  6. Supply of liquid medical oxygen by steel plants (press release), Ministry of Steel, PIB (2021)
  7. Steel: basic oxygen steelmaking, Encyclopaedia Britannica
  8. Oxygen (O), SFA (Oxford)