The SunCoke Energy coke plant in Middletown can’t open fast enough for AK Steel Corp.

The coke plant starts heating up this month and will start producing coke next month, according to SunCoke. Coke is made from heating coal to more than 2,000 degrees until all that’s left is a highly concentrated carbon material.

AK Steel has a 20-year supply agreement to buy coke from the plant, which is used in the blast furnace of a steel plant to help convert iron ore to iron. The steady supply of coke will help AK Steel control its costs for raw materials. The coke plant will also supply AK Steel 46 megawatts of electricity.

SunCoke helps AK become more self-sufficient in raw materials and energy, key strategic initiatives for the company, said Alan McCoy, a vice president and spokesman for AK Steel.

“When operational in the fourth quarter of 2011, the new SunCoke plant will produce electricity from heat recovery generators and provide our Middletown steel plant with a long-term supply of blast furnace fuel,” said James Wainscott, AK Steel chairman, president and chief executive officer in comments for AK Steel’s annual meeting in May.

The prices of iron ore, coal and coke, limestone and steel, key materials used for steelmaking, are soaring. The benchmark price of iron ore increased 98.65 percent last year.

In an earnings conference call in July, Wainscott said, “As global steel production set records during the second quarter, and thus fueled demand for iron ore like never before, we continued to experience much higher iron ore prices than we had expected at the beginning of this year and at the start of the second quarter. And for that matter, it now appears that these higher iron ore prices will continue in the second half of 2011.”

SunCoke will supply AK Steel’s blast furnaces with 550,000 tons a year of metallurgical coke when it’s in full production, but that’s still not enough to meet all of AK Steel’s coke needs. This year, AK Steel closed its coke plant in Ashland, Ky., because the costs to maintain it had become too great. Middletown Works also has a coke battery.

AK Steel also has a deal to get coke and electricity from SunCoke’s plants in Franklin Furnace, according to McCoy.

Even when Ashland Coke was open, AK Steel didn’t have enough coke to meet its needs. The steel company can consume between 1.6 million to 2 million tons of coke a year in its two blast furnaces, depending on the market and how close it is to full capacity, according to McCoy. At best when Ashland Coke was running full, 75 percent of its needs were met and the rest it filled with purchased coke, he said.  

At full operation, AK Steel would get 550,000 tons of coke per year from SunCoke Middletown, another 550,000 from SunCoke’s plants in Franklin Furnace and some coke from AK Steel’s own ovens.

“Bottom line, at full operation, we would still be short of coke in an average year,” McCoy said.

In the July conference call, Wainscott said the company is seeking to recover higher raw material costs by raising spot market selling prices and negotiating new agreements with customers as agreements come up for renewal to recover higher iron ore costs. He said in the conference call AK Steel is introducing pricing mechanisms in its sales contracts that would allow it to recover a significant portion of its increasing coal costs.

And the company is focused on enhancing vertical integration, especially as it relates to iron ore and coal, to try to lower operating costs. Vertical integration is when one company moves to own more pieces of its supply chain. In the conference call, Wainscott said the company has been in dialogue with parties around the globe about taking an equity interest in iron ore properties or iron ore substitute ventures.

“We hope to have more to report on this subject in the very near future,” Wainscott said at the time.

Contact this reporter at (513) 705-2551 or clevingston@coxohio.com.