Changing dynamics of iron ore pellets industry

  • Iron ore pellets and their advantages over other feed
  • Demand drivers for iron ore pellets
  • Future demand and pellet premium outlook in a seaborne market


Iron ore pellets

Pellets are small and hardened iron balls with a diameter of 10-20 mm and are used as raw material for iron/steel manufacturing. The pelletizing process was commercially introduced in the world market in 1955, following the World War II scarcity of high-grade natural iron ore in the United States. Hence, the need to utilise low-grade ore was paramount and this commenced the process of sintering and palletization. Moreover, palletization is a process designed to transform iron ore fines into agglomerates to feed Blast Furnace (BF) and Direct Reduced Iron (DRI) producing units.

Steel is made predominantly by two routes: Blast Furnace – Basic Oxygen Furnace (BF-BOF) route and Electric Arc Furnace (EAF) route globally, both these processes require iron ore to be fed in BF or DRI units. Globally, around two billion tonnes of iron ore (average 62%) is used in the form of lumps/sinter/pellets to produce steel. However, the reserves of high-grade ore are depleting rapidly due to which the adoption of beneficiation technologies such as sintering and pelletizing to utilise fine ore and low-grade ore is attracting heightened attention in the industry. Furthermore, widespread adoption of pellets started in the US and Europe, and increased in China and other Asian countries at the start of the year 2000.

Demand drivers for pellets:

  1. Benefits of using pellets: pellets are a better feed for iron making as compared to other feeds due to its various benefits, which includes uniform size, high metallization rate, increased permeability in blast furnaces to optimise fuel consumption rate among others.

  2. Steel production growth: the steel industry has grown significantly, nearly doubling its production from the 1980 levels due to increased demand from emerging Asian economies. The global crude steel production has increased from 716 Mt (1980) to 1,689 Mt (2017). The key factor leading to this increase was the steel production in China, its production increased manifold from a level of 37 Mt (1980) to 832 Mt (2017). China has increased its steel manufacturing capacity after the year 2000 because of the rapid growth in the domestic infrastructure.

  3. Change in steel manufacturing process: the total global production share of the two steel production methods has seen a divergence since 2000, with the overall global BOF share of steel production rising from 66% to 71.5%. This was due to the exponential growth in the steel production in China through the BOF route, which rose from 64% (1999) to 91% (2017). China’s crude steel production has grown at a CAGR of 11.7% between 2000 to 2017, which was mainly led by a surge in the BOF steel production.

The ex-China share of BOF steel declined from 63.1% to 55.3% due to the strong growth in EAF steel production. The rising share of EAF steelmaking route was led by consumption of pellets as well as the availability of steel scrap in the developed countries, which increased the overall share of EAF. The global ex-China EAF share of steelmaking increased gradually from less than 37% (2000) to 46% (2017), whereas, China’s share of EAF steelmaking declined from 16% to 9% over the same period, although it increased in volume.

Furthermore, the feed-mix of iron ore changed drastically in developing nations towards pellet and sinter, however, it still lags behind the developed world.

Future demand drivers:

  1. Environmental concerns: globally, the environmental concerns have gained heightened regulatory oversight for polluting industries including power, iron and steel among others. Hence, the steel industry has great concerns and interest in any legislative initiatives dealing with the global climate change issues. Steel is a highly energy-intensive industry and about 60% of this energy is derived from coal. Principally coal is required as a raw material to produce coke used in sintering and blast furnaces to convert iron ore to iron.

    This process is highly pollutive and led to the announcement of phasing out old and low-efficiency plants from polluting industries by the Chinese government in order to curb the pollution levels in the country. In the first phase of the pollution control, China phased out around 85 and 50 million tonnes of surplus steel capacity in 2016 and 2017, respectively. Additionally, it has also shut down obsolete induction furnace capacity of 110 million tonnes and is on track to reduce its surplus steel capacity by 170 Mt by 2020. Furthermore, there are restrictions on the capacity of sintering and coking during the winter to reduce pollution.

    These environmental initiatives have evoked a two-pronged effect on the pellet demand globally:
    1. Higher utilisation of pellets in feed mix excluding China – to compensate for capacity phaseout in China, world ex-China is expected to increase its steel output. This will increase global pellet consumption because of higher ex-China steel through EAF route.  
    2. Pickup in Chinese utilisation of pellets in feed mix – Chinese utilisation of pellets is expected to increase due to higher productivity provided by pellets in BF plants and increased emphasis on EAF steelmaking route.

  2. Limited availability of high-grade lump ore: lump ore finds limited application as the total global availability of high-quality lump iron ore, which can be used directly in the BF plant is limited. The availability of high-quality lump ore declined gradually due to a high occurrence of mining by the mining companies. Further, because of its low environmental impact, a high demand among steelmakers is causing its depletion. The charge feed mix in BF plants is undergoing a radical change as a result of these factors. Additionally, a highly pollutive sintering process as compared to the pelletization process is leading steelmakers towards a high pellet adoption in BF feed and therefore, contributing to the increased demand for pellets globally.

Demand Outlook

The iron ore pellet industry with the current capacity of ~800 Mt is experiencing a strong and growing demand and as a consequence, the pellet premiums in 2017-18 have reached the highest levels in the past decade.

Televisory expect the iron ore pellet industry to continue its growth phase for the next decade, led by growing environmental concerns among steelmakers globally and limited availability of high-grade lump ore as well as ferrous scrap. The total iron ore pellets demand was ~443 Mt in 2017, which is expected to grow at a CAGR of 6% to ~529 Mt by 2020. The growth in the iron ore pellet demand is expected to lead to a strong growth in the demand for both BF and DR pellets.

This phenomenon will certainly benefit countries which have large capacities of iron ore pellets such as Brazil and Ukraine among others. Players which have market pellets capacity and export these to international destinations are expected to achieve increased profitability because of high pellet premiums in the seaborne market over the medium-term. 

To gain a deeper understanding of the global iron ore, pellets and steel industry dynamics, please subscribe to Televisory’s report on ‘The Global Iron Ore Pellets Industry – Outlook 2030’ on the website

Your Rating

Slack set out to kill E-mail

Started as a side project for internal use in a gaming company High revenue growth with recurring revenues Went Public by offering shares through the Direct Public Offering ...

Will the Big Bang merger drive, of Indian Public Sector banks, provide the required impetus to the slowing economy?

India’s Government announces plans to merge 10 of the country’s public sector banks Probable impact of the mergers   India’s Finance Minister, Nirmala Sitharaman,...

Is Mothercare on the verge of collapse?

History of Mothercare What went wrong? Company moved into administration   Mothercare, an iconic brand for babies, children and parents to be, went into...

Rapidly growing Indian online food delivery industry and its unrealised profits

Evolution of online food delivery industry in India Geographical penetration and scope for expansion Key players and their zeal to balance revenue and costs   Online...

An analysis of Malaysian rubber glove industry

How big is the international rubber gloves market? Reasons behind the healthy and steady growth Malaysia’s role in the industry Why are companies struggling for stable...

Tire manufacturing industry, analysing the cost and margin trends

The global market for tire manufacturing stands at $180 billion. Michelin anticipates the long-term demand to rise at the rate of 5 to 10% a year in developing markets and 1 to 2% a year in mature...

Failure of Amazon in China, an analysis

E-commerce market in China Online consumer product retailers in China Performance of Amazon in China   Amazon is a global e-commerce player selling a wide...

Can lithium-ion anode demand for needle coke reduce availability for electrode players?

What is needle coke? Uses of needle coke Lithium-ion battery manufacturers demand needle coke   Needle coke? Needle coke is a specialised form of petroleum coke...

Indian wood panel industry, growth drivers and present trends

Current market scenario in the Indian plywood industry Growth in the housing sector and rapid urbanisation to provide the boost GST rationalization to reduce price difference...

Housing finance market in India. Is affordable housing driving the growth?

Overview of the housing finance sector in India Key players dominating the segment and their dynamics Factors driving aggressive demand for housing   The housing...

Carbon black industry, strong potential for supernormal profitability?

What is carbon black? Its uses Impact of the environmental curbs in China   What is carbon black? Carbon black is a fine carbon powder and it is a disorderly...

Is the radio broadcasting industry in the U.S. dying? An analysis

Radio, the most powerful medium of reach in the U.S. Why the industry is moving at a slow pace? Radio’s health is still sound, will it continue in the long-term?   ...

Malaysian rubber glove industry, an update

Rising global demand for gloves Impact of USP 800’s implementation and the US-China trade war on Malaysia’s rubber gloves industry Key challenges for the Malaysian rubber...

Rice industry outlook 2018

Major rice producers and consumers Global rice trade Factors dominating the trade   Rice is the 3 rd largest produced agricultural commodity in the world, after...

Blockchain, an emerging concept, a disruptive technology (Part 1)

What is blockchain? How is blockchain revolutionary? Cryptocurrency, the new money ICOs, the new way of raising money Summary Blockchain is a software architecture...

Rise of Ant Financial, will the success story continue?

What is Ant Financial? Journey to become king of unicorn Will regulatory curbs hinder its success journey?    Ant Financial, an affiliate and integral part...

Sri Lankan economic and political crisis

Sri Lanka’s latest political crisis, who governs the nation? Poor economic indicators adding to the nation’s woes   Sri Lanka is currently embroiled in a political crisis,...

Battle for the textile and apparel industry in Southeast Asia

The reasons for China’s decreasing presence in the industry Initiatives by the governments in Southeast Asia to boost the textile trade Vietnam and Bangladesh’s quest to conquer...

Education industry in India, an overview

Growth of private universities in the nation Future potential of the education industry in India   The education sector in India is estimated to be worth USD 91.7 billion...

Unnoticed growth of the media and entertainment industry in India

Overall industry brief Growth of the M&E industry and its segments Major supporting elements of this growth   Media and Entertainment (M&E) is a very wide industry...