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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 https://www.televisory.com/specialReports

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