MB DRI & PELLET: What we learned at this week's Abu Dhabi conference

Pellet premiums and prospects for direct reduced iron (DRI) steelmaking in the Middle East-North Africa (Mena) region peppered sober debate at Metal Bulletin’s 3rd World DRI and Pellet Congress.

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The conference, held on March 2-4 at the Ritz-Carlton in Abu Dhabi, was smaller than last year, and was marked by the absence of regional heavyweight steelmakers Qatar Steel and Saudi Arabia’s Hadeed.

“A sign of the times” was the most-cited reason for the reduced attendee list of just above 200, representing pellet producers, DRI-based steelmakers and technology providers from around the globe, among others.

Sentiment in the Mena region’s DRI market has damped over the past year on thinning margins and supply concerns.

Difficulties in gaining gas allocations for steelmaking, and growing steel import volumes, have reduced the competitiveness of the region’s DRI-focused steelmakers, Abu Dhabi-based Emirates Steel’s chief commercial officer, Ahmed Al Dhaheri, told delegates.

But perhaps the most significant point of contention, echoed by Al Dhaheri and many other delegates, was pellet premiums, accompanied by continued calls for a revision of the pricing system.

Pellet premium
Direct reduction (DR) pellets are generally sold on long-term contracts, with prices settled on a quarterly basis and consisting of a benchmark 62% Fe index price plus a premium for the higher quality pellet material.

Buyers say that the growing gap between fines and pellet prices, particularly since the spectacular halving of spot 62% Fe prices over the past year, is unfair and unrealistic.

“We need a change to the pellet premium system but we can’t just divert from it, we need to discuss it together with pellet producers,” a representative of a Saudi Arabian steel producer told Steel First on the conference sidelines.

Metal Bulletin Iron Ore Index analyst Peter Hannah noted in his conference presentation that high-grade pricing is changing and becoming more reflective of the material at hand, but not all participants were convinced that index-pricing of DR pellets would happen in the near term.

“There’s not enough liquidity, just a few producers, and it’s shipped all over the world – how would you do it?” a representative from a pellet producer said on the sidelines.

Indeed, DR pellet producers, being limited in number, have generally seen fewer problems with the current pricing system.

“The premium is only based on supply and demand,” Samarco’s chief commercial officer, Roberto Carvalho, told delegates, while pointing out the numerous challenges facing the extraction high-grade pellet feed in Brazil, translating to further tightness in supply.

Pellet producers’ profitability has also waned with the general downward trend in iron ore prices, but they maintain a positive market outlook.

We have to cut costs and look into productivity, but demand is there,” Stig Nordlund, vp of marketing and sales in Mena and Australia for Sweden’s LKAB, told the audience.

Still potential
Most conference participants held a more positive long-term view for the metallic, also in the Mena region.

Global DRI production will have to nearly double by 2025 to keep up with demand created by the shortage of high-grade scrap as an electric arc furnace charge, Stuart Horner, secretary general of the International Iron Metallics Assn (IIMA), told Steel First at the conference.

Africa was identified as a high-potential growth area, and not just in the north where there is already existing DRI production.

Countries such as Nigeria, which has natural gas supplies and possibilities for local pellet production, could also adopt DRI processes to further their steelmaking capabilities, according to Fabio Muscolini, proposal engineer at technology provider Danieli/Energiron.

Mkhombi Mining, a privately held junior mining company, is also looking at the Mena region with longer-term optimism, as it looks for investment and offtake partners for its South African project close to the Swaziland border.

Having complete a pre-feasibility study and drilled 40% of the area, the Cascade project has 2.2 billion tonnes of JORC-compliant proven magnetite reserves that could be processed into at least 2 million tpy of concentrate, suitable for high-grade DR pelletization, Mkhombi’s non-executive director Ted Droste told Steel First on the sidelines.

Friendly on-stage banter between competing DRI technology providers Midrex and Energiron suppliers Danieli and Tenova also revealed shared optimism over the market outlook.

The more technical sessions at the conference focused on the strides taken to improve efficiency in pelletizing and DRI technology, such as larger pellet sizes and hot-DRI processes, respectively.

The Iran factor
A question that many left unanswered was what effect the potential lifting of Western sanctions on Iran would have on the global pellet and DRI market.

The country currently produces 52 million tpy of iron ore, of which 20.7 million tpy is in pellet form, Sadjad Ghoroghi, board member of Iron Ore Producers & Exporters Assn of Iran (Iropex), told delegates as part of a larger panel of Iranian speakers.

While pellet demand is already outstripping supply within Iran, the country will still look for further export opportunities when sanctions are lifted.

Meanwhile, Iropex is helping formulate Iran’s investment-heavy iron ore master plan for 2025, expected to be published in September this year, as the country looks to enlarge its DRI capabilities.

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