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Energy & Utilities | Mining & Resources

How could Australia help support the steel industry’s net zero future?

24 Feb 2023, by Amy Sarcevic

As the world’s largest producer of iron ore and a major contributor of its derivative, steel, Australia is facing immense pressure to support the steel industry’s net zero future. Currently, the steel value chain is accountable for around 7 percent of global emissions, with blast furnace production and the shipping of unprocessed ore feed largely to blame for its oversized carbon footprint.

With China recently announcing it would increase its share of electric arc furnace (EAF) steel output to 15 to 20 percent by 2025, the pressure to decarbonise has amplified. The target signifies the start of new, more challenging export requirements and a shift in demand from the world’s largest steel and iron ore importer.

But while the steel industry is committed to decarbonisation, the emissions in its value chain are notoriously hard to abate. Greener production infrastructure and methods are costly; and there are a number of systemic barriers deterring investment. As such, some major steel producers have already declared their intention to reline and maintain blast furnaces that are nearing retirement, citing the technical and financial challenges of switching infrastructure.

Paul McTaggart of Citi – a speaker at this year’s Global Iron Ore & Steel Forecast Conference – believes these pressures will inevitably rock the steel value chain; but says boosting the iron ore spectre could help the industry thrive in the face of challenging new conditions.

“There is going to be an increase in demand for direct iron products from both domestic and overseas steel producers, so we need better control over quality and to supplement scrap for higher quality steels,” said Paul ahead of his speech.

“Scrap has copper and other tramp elements in it so there’s a limit to scrap use in flat products steel production. Both electric arc furnace steelmakers and blast furnace operators will look to increase their use of higher quality feedstocks like DRI pellets. Financially, too, it doesn’t make sense to be shipping a 60 percent iron, 40 percent dirt product if we are paying a carbon charge on that dirt.”

Statistics agree the approach is a logical move for steelmakers, with 95 percent iron products associated with a significant decrease in carbon emissions. For some, it may be the only feasible approach.

“Steel mills that have just built blast furnaces with a 50 year life are not going to just pull them down and replace them with new infrastructure. The most feasible option is to make changes to the existing furnaces and help them run more cleanly – and the most obvious way of doing this is processing an increased percentage of higher grade feed.”

“This is also a much cheaper way to decarbonise than an entirely new process, like hydrogen-based production which has yet to be proved commercial,” he said.

While trials to upgrade the iron ore spectre are already taking place throughout Australia, boosting domestic supply remains a challenge. Currently, there is a shortage of smelting infrastructure, with new projects failing to entice financiers. Additionally, much of Australia’s home-produced iron lacks the requisite properties for smelting.

“In Australia we currently don’t produce much high grade ore. The haematite ores in Pilbara don’t easily lend themselves to DRI production and previous attempts to produce DRI by major players have not worked out as planned. On top of that, there will be questions about who fronts up the capital for new projects,” Paul said.

Steel production in the Pilbara seems less likely, given its energy and capital intensiveness.

For these reasons, intermediate iron products could be a better solution, but only if complemented with efforts to decarbonise their production, Paul argued.

“If we can send intermediate iron products to steel makers elsewhere, we will reduce overall emissions through better shipping efficiency. Steel makers will also be using a higher grade, more environmentally friendly, feedstock.

“That said, production of Pilbara iron ore would still be energy intensive and would require a low carbon solution either through clean energy or carbon capture and storage.

“Of course, this isn’t a perfect solution, but it could tie the industry over until cleaner steelmaking options become more feasible.”

Paul McTaggart is a Metals & Mining Analyst and Head of Research at Citi Research Australia/New Zealand, having joined in January 2019. Paul has over 25 years’ experience as a rated sell-side analyst in both Australia and the UK, running global mining and commodities research teams for major global investment banks. Paul also worked for a number of years as a corporate M&A advisor to major mining companies and, early in his career, as an engineer with BHP Limited.

Hear more expert advice from Paul at the upcoming Global Iron Ore & Steel Forecast Conference.

This year’s event will be held 22-23 March at the Hyatt Regency Perth.

Learn more and register your place here.

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