Charles Goulding and Peter Favata of R&D Tax Savers examine steel mini mills and more economical metal 3D printing.
The Steel Industry in the United States
The first steel mill in the United States dates back to the 1870s, built by Andrew Carnegie just outside of Pittsburgh in Braddock, Pennsylvania. Around this time there was a heightened need for steel sparked by the industrial revolution in America; factories were working around the clock and many of these factories required steel to operate, whether it be for the products they were making or in the construction of new buildings. The steel industry remained prominent in the United States up to the mid-1970s, when there was a large drop-off. The number of employed steelworkers in the United States decreased by more than half by the 1990s.
The Rise of Mini Mills
Today, the traditional large iron ore steel processing plants have been disrupted by mini mills. Mini mills are facilities that produce steel from recycled scrap metal, which effectively helps to utilize the nation’s 153 million tons of annual scrap metal. Additionally, there is a huge cost saving associated with mini mills. The average startup cost of a mini mill ranges between $30 and $50 million, which is significantly lower than costs associated with setting up an integrated steel mill.
Mini mills, however, are not a new concept. Following the decline of traditional steel mills in the 1980s, there has been a rise in steel mini mills in the United States.
Nucor is the largest U.S. steel producer today, as well as the largest mini mill steelmaker. In 2015 Nucor’s mini mill ranked as the largest recycler of any material in North America, processing 16.9 million tons of scrap metal.
Some other top steel mini mills in the U.S include Brackenridge Works, Evraz Claymont Steel, and Pennsylvania Steel Company. U.S. Steel, one of the largest steel manufactures in this country’s history, has also been turning to mini mills as the industry is facing hard times. After taking quarterly losses in November, the company has invested $700 million with Big River Steel for a 49.9% stake and an option to own 100% in the next four years. This large investment shows how even the largest steel producers believe that mini mills are the future of steel production in America. A newly constructed mini mill was commissioned as recently as 2017 in Oklahoma.
3D Printing Metal at a Lower Cost
With advancements in 3D printing metals and the growth of mini mills in the U.S., acquiring the material to print metal products is easier and more economical than it has ever been. Most purchasers of metal use a local steel supplier and should ask whether their steel is coming from lower overhead mini mills.
As it stands, 3D printing makes up for very little of the metals industry; however, it is growing quickly and expected to be worth $10 billion by 2030. There are many advantages to 3D printing metals. These include a shorter value chain with just a 4-step process, compared to traditional steelmaking processes that take 9 steps. Low waste and design freedom are other positive attributes of 3D printing metals, which is the direct result of being able to create and improve the design of a product in CAD before printing.
Companies that engage in 3D printing metals may be eligible for the R&D tax credit.
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Must be technological in nature
Must be a component of the taxpayer’s business
Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Since 2016, the R&D credit can be used to offset Alternative Minimum Tax (AMT) or companies with revenue below $50MM and, startup businesses can obtain up to $250,000 per year in cash rebates that can be applied directly to payroll taxes.
The steel industry in the United States has experienced a multitude of changes since the days of Andrew Carnegie. Looking forward, it seems as if 3D printing coupled with the use of mini mills could be a way of lowering the price of materials, as well as increasing production and profits for all involved.