Niche steel, iron ore quality forge emissions pathway

Differentiated steel markets and persistent high-grade iron ore demand and premiums are likely to be among the two consequences of the global steel sector's push to cut its carbon emissions.

Commodities including steel, which have operated as global markets until now, may see the development of niches where "green" steel premiums are adopted, said participants at the SGX ferrous markets forum in Singapore last week.

Europe's carbon border adjustment mechanism could propel the development of such differentiated steel markets, as will demand for lower emissions steel from the automotive sector, they added.

A clear definition of green steel does not exist, market participants noted, but conceded that more direct reduction iron (DRI) plants were likely to be built in regions like Europe in the coming decade to bring down steel-producing emissions.

Demand for direct reduction agglomerates is expected to rise from around 40mn t in 2022 to 60mn t by 2026, said Brazilian mining firm Vale's iron ore marketing manager Eduardo Mello Franco. Demand for 62pc and low-grade fines was expected to fall from around 900mn t in 2022 to around 790mn t by 2026. The premium for high-grade iron ore fines is projected to rise to $22/dry metric tonne (dmt) beyond 2030 from 18/dmt in 2018-22, he added.

European steel producer Salzgitter earlier this month contracted a consortium comprising Tenova, Danieli and DSD Steel Group to build a direct reduction plant at the Salzgitter Flachstahl site in Germany. Salzgitter's Salcos project consists of a 2mn t/yr direct reduction plant, an electric arc furnace (EAF) and a 100MW electrolysis plant for hydrogen production.

European DRI capacity is expected to expand to 40mn t/yr by 2035-40 from under 1mn t/yr currently, UK-South African producer Anglo American said earlier this year.

Singapore-based Meranti Steel is developing an integrated DRI and EAF plant with continuous casting and hot strip mill in Thailand, with an estimated capacity of up to 2mn t/yr of hot-rolled coil, it said this month. Production is expected to start in the second half of 2027.

Blast furnace-based steel production is likely to comprise 57pc of southeast Asia's steel production by 2026 compared with a share of 30pc in 2020. This underlines that the push to cut emissions will take place at a varying pace globally for the steel sector, with customers likely to focus on proximity of steel resources as a means to manage their costs and carbon exposure. DRI-based steel production typically produces around 1.4t of carbon dioxide (CO2) per tonne for natural gas based DRI-EAF compared with 2.2t of CO2 per tonne via the blast furnace/basic oxygen furnace route.

HBI option

Demand for metallics like iron briquettes will also be encouraged by the push to cut emissions. An Asian steel producer at the conference told Argus it may be able to buy hot briquetted iron (HBI) produced in Malaysia or the Middle East in the coming years to meet its demand for low-carbon steel.

HBI is used as an input in an EAF, along with scrap and electricity, for steel production. It is a compacted form of DRI that is easier to transport and does not have seasonality linked to its supplies as is often the case with ferrous scrap.

Meeting demand for high-grade iron ore supply remains a critical challenge in building DRI plants. Typically ore fed into DRI plants needs to be over 65pc Fe grade with low-acid gangue materials silica and alumina and low phosphorus. Mid- and low-grade iron ore fines currently represent the largest proportion of the global iron ore output, with the global average grade falling in the past decade. Vale expects that globally around 400mn t of production will need to be replaced by 2030 because of mine depletions.

By Deepali Sharma