The steel industry's transition to the use of DRI will lead to changes in the quality profile of iron ore
The long-term strategies of large mining companies are diverging in the context of the decarbonization of steel production. This is stated in a study by the Institute of Energy Economics and Financial Analysis (IEEFA).
Three of the four largest mining companies – Vale, Rio Tinto and Fortescue – are increasingly focused on supplying high-quality iron ore that is compatible with hydrogen-based direct reduced iron (DRI) production. At the same time, BHP continues to believe in carbon capture, utilization and storage (CCUS) technologies, even though they are still in their infancy and unproven.
As the steel industry's transition away from coal accelerates and pressure increases on companies to reduce Scope 3 emissions, DRI-based steelmaking solutions will likely play a more important role than CCUS.
Much of the attention given to the outlook for iron ore focuses on short-term economic performance and demand for steel in China, which is currently the largest importer of this raw material in the world. However, alongside this and plans to increase scrap processing in China, another trend is emerging. In January 2024, it was announced that China Baowu had begun commercial production of DRI in Guangdong Province using Energiron's technology.
The emergence of Chinese industrial DRI production reflects the transition of European steelmakers to coal-free and hydrogen-ready technologies. At the same time, Asian steelmakers, such as Japan's Kobe Steel and JFE Steel, aim to directly reduce iron production in the Middle East, which is already a mature user of this method.
The global steel industry's shift from blast furnace production to the use of reduced iron will directly lead to changes in the quality profile of iron ore traded on the market.
The 62% Fe benchmark iron ore mined in the Pilbara region is not suitable for existing DRI production processes and its quality has declined over the last decade. A partial solution to the problem will likely be technological combinations that will allow the use of blast furnace raw materials in the production of DRI steel. Therefore, three major Australian iron ore companies are developing suitable solutions.
At the same time, Vale, the world leader in DR ore production, plans to increase the supply of high-quality products in response to the accelerated change in steel production technologies. Other members of the Big Four are now showing different reactions to this trend.
For example, Rio Tinto's Canadian operations already have ore suitable for DRI production. While the miner is investing in new mining capacity in the Pilbara region, it has also recently announced significant investments abroad, including the Simandou project in West Africa. According to the company, Simandu will provide a significant new source of high-grade iron ore that will strengthen Rio Tinto's portfolio for decarbonizing metallurgy. The company also has a long list of development projects that aim to reduce emissions from steel production.
As previously reported by Compraço, global direct reduced iron (DRI) production in 2023 increased 7.4% compared to 2022, to 135.51 million, according to the WorldSteel Association.
