Growing steel decarbonisation
momentum is prompting three of the big four iron ore miners to increase supply
of high-grade iron ore. The other is more focused on floundering carbon capture
technology, while investor
pressure on Scope 3 emissions continues
to build.
Much of the focus on the outlook for iron ore
naturally emphasises shorter-term economic performance and
steel demand in China – by far the largest importer of iron ore globally. China
is the destination for 85% of Australia’s iron ore exports.
However, along with declining long-term steel demand and plans for increased recycling of scrap steel,
there is another trend emerging in China. In January 2024, it was announced that China Baowu – the world’s largest
steelmaker – has begun commercial-scale production of direct reduced iron (DRI)
in Guangdong province. Using Energiron technology, the plant has been built
hydrogen-ready.
Green hydrogen-based DRI has emerged globally as
a key technology to reduce primary steelmaking emissions, which also constitute
the great
majority of iron
ore miners’ Scope 3 emissions. However, DRI production requires a higher grade
of iron ore with a greater iron (Fe) content than that used in coal-consuming
blast furnaces. Direct reduction (DR)-grade ore has an Fe content of 67% or
more. A global steel industry shift from blast furnaces towards DRI will drive
a significant shift in the quality profile of traded iron ore.
China Baowu’s project is the second
commercial-scale Energiron DRI plant to begin operations in China, after HBIS
started production at its plant in 2023. China is targeting peak steel sector emissions by 2030 but
looks like it is well ahead of schedule.
The emergence of commercial-scale DRI production
in China mirrors European steelmakers’ growing shift towards technology that doesn’t use coal
and is already hydrogen-ready.
Meanwhile, Asian steelmakers including Japan’s
Kobe Steel and JFE Steel are targeting DRI production in the Middle East, which
is already an established user of mature DRI technology.
The global steel technology shift away from
blast furnaces is accelerating and demand for suitable iron ore is set
for significant growth. DR-grade ore makes up only a small fraction of overall
iron ore trade, and Australian iron ore miners have long focused on lower-iron
content, blast furnace-grade ore in response to the huge growth in blast
furnace-based steel production in China over the previous two decades.
The benchmark 62% Fe iron ore produced in the
Pilbara is not suitable for existing DRI processes and the quality being
produced in the last decade has been
falling, making it even
less suitable.
Part of the solution will likely be technology
combinations that allow the use of blast furnace-grade ore in DRI-based
steelmaking. In Germany, Thyssenkrupp is starting to progressively replace its blast furnaces with DRI shaft furnaces
plus a melting stage, which then feeds existing basic oxygen furnaces, allowing
it to continue using lower-grade ore. All three of the Australian iron ore
majors are developing DRI-based technology combinations that can
use blast furnace-grade, Pilbara iron ore.
However, where steelmakers switch from blast
furnaces and basic oxygen furnaces to the established and mature DRI-electric arc
furnace (EAF) steelmaking pathway, DR-grade iron ore will be required.
The leading global producer of DR-grade iron ore
– Brazil’s Vale – is planning to increase its supply of the high-grade
ore in response to the accelerating steel technology shift. The remainder of
the ‘big four’ iron ore producers, operating in Australia, are now
demonstrating differing responses to this trend.
Rio Tinto
Rio Tinto’s Canadian operations already produce
DR-grade iron ore, and Rio has signed a multi-year agreement to supply the product to Swedish steel
start-up H2 Green Steel.
H2 Green Steel will use the DRI-EAF steelmaking
pathway using green hydrogen produced on site. Construction has already begun
and the company announced in January 2024 that a further US$5.2
billion in funding had been raised for the project.
While Rio continues
to invest in new
Pilbara mining capacity, it recently announced significant capital expenditure figures
for a major new mining investment overseas that will increase global supply of
DR-grade iron ore.
Simandou in Guinea, West Africa, is the world’s
largest untapped high-grade iron ore deposit, and Rio claims that the mining
and infrastructure projects to unlock it will be the largest greenfield
investment of its type in Africa. The mine has a 65% average Fe content and
will produce DR-grade iron ore as well as blast furnace products with a higher
Fe content than Pilbara ores.
Rio owns a 53% stake in one of the two mines
under development along with its Chinese consortium partners. The company’s
share of investment to co-develop one of the mines’ rail and port
infrastructure is estimated at US$6.2 billion. A final investment decision on
the project is expected in 2024.
Rio states: “Simandou will deliver a
significant new source of high-grade iron ore that will strengthen Rio Tinto’s
portfolio for the decarbonisation of the steel industry.” First production from
the mine is planned in 2025, with output ramping up over 30 months to reach 60
million tonnes per annum (Mtpa).
Another mine at Simandou – whose venture
partners include China
Baowu – will
produce a further 60Mtpa.