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Ilva's industrial plan – drawn up by former special commissioner Enrico Bondi – involves producing 2.5 million tpy of steel from imported DRI, or its compact form hot-briquetted iron (HBI) by 2015, after which 80%, or 6.4 million tpy of Taranto's total steel output would be made with DRI, sources told Steel First last week.
The plant is testing the use of DRI, and aims to produce its own DRI from pellets as part of the plan.
Italian union members and the Riva family, which owns Ilva, have been vocal in their criticism of the plan, particularly due to the lack of available and cheap natural gas in Italy.
Ilva started evaluating the possibility of importing DRI, and handling the material safely, three to four months ago, and the company bought a test cargo of DRI/HBI a month ago, metals traders told Steel First.
Given its typically gas-based production process, DRI is considered an environmentally-friendlier way of steelmaking – a key appeal in Bondi's plan given Taranto's polluting past.
Several market participants agreed that from the environmental point of view, consuming DRI/HBI at Taranto is viable, and the import market for it is already well-established.
Italy imported more than 590,000 tonnes of DRI/HBI in 2013, according to figures from Metal Bulletin Research.
The material came almost exclusively from Libya Iron & Steel (Lisco) and Metalloinvest's Lebedinsky plant in Russia, with some tonnages from Venezuela before a pellet shortage and maintenance issues curtailed trade flows from the South American country earlier this year.
Despite the environmental benefits of using DRI, building a new plant would require a significant capital commitment – a bill Ilva is unlikely to be able to foot.
"I don't think Ilva could even think about making a DRI plant given its current financial situation," a European metals trader said.
Bondi's plan listed total investments of €4.2 billion ($5.6 billion) into environmental and industrial improvements, according to Italian media, but cash-strapped Taranto is already in monetary doldrums.
Another key concern regards the availability of raw materials for the proposed steel production route.
DRI has grown in popularity in regions where gas resources are cheap and plentiful, such as North America and the Middle East & North Africa (Mena) region. Italy, on the other hand, is reliant on costlier foreign gas supplies from Russia as well as from Algeria and Libya in declining volumes.
If 6.4 million tpy of Taranto's steel is intended to be produced from DRI, the gas requirement for captive DRI output would be 1.73-1.93 billion cubic metres, based on Steel First calculations.
That is 2-3% of Italy's total annual gas consumption.
Furthermore, where would Taranto source the high-grade pellets needed for DRI production?
An option close-by would Sweden's state-owned miner LKAB, but its direct reduction pellets are mostly tied-up in existing long-term contracts, with growing demand from its Middle Eastern customers.
Alternative pellet sources include the USA and Brazil, but despite concerns of oversupply in the global seaborne iron ore market, high-grade pellets are likely to be in short supply as currently constructed DRI projects come on stream.
Indeed, both in terms of finances and the availability of raw materials, most market participants do not regard DRI production at Taranto as a viable means of reviving the troubled steelworks.
"DRI production? In Italy? I can't see that happening within the next 20 years," an Italian market source said.
Piero Gnudi, who replaced Bondi as Ilva's special commissioner last week, has yet to announce whether he expects to stick to Bondi's plan or draft a new roadmap for Taranto's industrial revival.
Meanwhile, global steel and mining major ArcelorMittal has been tipped as a potential buyer of Ilva alongside Italian steel companies Marcegaglia and Arvedi.
"ArcelorMittal has captive iron ore supplies, so if [it buys] Ilva, it could make sense to produce DRI," a second metals trader said.
ArcelorMittal has operational DRI production facilities in Trinidad & Tobago, Canada, Mexico, Germany and South Africa, according to DRI technology provider Midrex.
A plan that would see Italian steelmaker Ilva's troubled Taranto plant ultimately start direct-reduced iron (DRI) production has been met with scepticism in the market. So just how viable is the DRI plan?