As the world clamors for more steel, manufacturers are testing a cheaper, faster production method.

Known as direct reduction, it allows steel to be made on a smaller scale, using less costly raw materials.

Key advantage: No blast furnace required. The centerpiece of all large steelworks, a blast furnace costs hundreds of billions of yen.

Despite a domestic shortage of steel supplies, the high cost of blast furnaces has made Japanese steelmakers reluctant to build up capacity.

``The investment risk is too high,'' says Akio Mimura, president of Nippon Steel Corp.

The new technology has arrived at an opportune moment. Demand for steel in global markets is white hot as China gobbles up construction materials and other steel products at a furious pace.

But the prices of raw materials needed to make steel have also gone sky high. Small and midsize steelmakers, in particular, are desperate for ways to cut their production costs.

Under existing production methods, iron ore and coke, which is produced from high-quality coking coal, are stacked in layers inside a blast furnace.

A jet of air heated to 1,500 degrees is blasted into the furnace from below. The vaporized coke causes a reduction process, whereby oxygen is extracted from the iron ore. The result is pig iron with a high degree of purity.

In contrast, the direct reduction method uses standard coal instead of coke.

Using the new method, iron ore and coal are mixed and granulated so that reduction takes place in a solid state.

This means steel can be made in smaller facilities that require significantly less investment.

Kobe Steel Ltd., a trailblazer in direct reduction, began offering its Fastmelt technology in April. Setup costs are 10 billion yen.

Production time is one-eighth that of a blast furnace, and the quality of the pig iron is virtually identical to that produced by a blast furnace, the company says.

The annual pig iron production capacity of the Fastmelt facility is 500,000 tons, one-sixth that of a large blast furnace.

Although no contracts have been completed, Kobe Steel says it is negotiating with several domestic and overseas steel manufacturers.

Company officials are confident demand for its ``low-risk'' alternative technology will increase.

The steelmaker is projecting Fastmelt sales of 20 billion yen in fiscal 2005 and 30 billion yen in fiscal 2006.

JFE Steel Corp., meanwhile, is testing its own direct reduction method at its East Japan Works in Chiba. By the end of fiscal 2005, the company plans to complete specifications for plants capable of producing 500,000 tons a year.

POSCO of South Korea has completed tests of the coal burning method and is now constructing a plant for full-scale production.(IHT/Asahi: January 27,2005)