Currently, only two of five HBI producers in the country are in operation, and only at reduced rates, a source familiar with the matter told Metal Bulletin.

Venezuela was formerly the world’s largest exporter of HBI. In 2017, it exported just over 1 million tonnes, compared with about 7 million tonnes in 2008.

Orinoco Iron, the largest producer in Venezuela, continues to output HBI. The company’s operations were designed to produce 2.2 million tonnes per year of HBI but in 2017 its output was just 300,000 tonnes - less than 15% of its installed capacity, a source said.

The company is able to continue production because it manufactures HBI from iron ore fines and does not require pellets from suppliers CVG-FMO or Sidor, Metal Bulletin understands.

A second HBI producer, Venprecar, the smallest of the five HBI producers in Venezuela, is also still operating. It has capacity for around 900,000 tpy, but in 2017 its output was only around 250,000 tonnes.

Metal Bulletin’s latest weekly price assessment for Venezuelan HBI exports was $250-260 per tonne fob on Friday April 13.

Production closed
The remaining three HBI producers in the country - Briqven, Comsigua and Ferrominera Orinoco (FMO) - are currently closed.

Briqven has capacity for 1.5 million tpy of HBI, although in 2017 it only made around 130,000 tonnes.

Comsigua’s HBI capacity is close to 1.3 million tpy, but last year the company produced less than 100,000 tonnes.

And FMO is able to make 1 million tpy, but in 2017 its HBI output was less than 250,000 tonnes.

In total, Venezuelan companies produced slightly more than 1 million tonnes of HBI in 2017. That was a significant fall compared with the pre-nationalization figure of close to 7 million tonnes in 2008, according to data from sector specialist Midrex.

In 2017, almost all tonnages were exported to the EU – specifically, Germany, Italy, Spain and Portugal – according to the International Steel Statistics Bureau (ISSB).

Pellet supply
The troubles with pellet supplies began before the industry was nationalized in 2009, with operating issues at the CVG pellet plant, the main supplier to the HBI industry, and also at one of Sidor’s pellet plants.

And the lack of pellet supply is the key factor behind the current HBI production crisis. For the moment, only one of two 4 million-tpy pellet plants run by Sidor is operating, and only at reduced capacity.

FMO has its own 3.3 million-tpy pellet plant and, although that is currently shut down, the company has an expansion project for another 3.3 million-tpy pellet plant, which is under construction.

Nominally, Venezuela has capacity for 11.3 million tpy of pellets. Metal Bulletin estimates that to be barely enough to feed all five Venezuelan HBI producers, which in total can produce around 7 million tpy of HBI, and Sidor’s plants producing direct-reduction iron (DRI).

But the reduced supply of pellets is not the only problem that the country’s HBI producers face. Other problems include insufficient gas and energy supplies.

Energy supplies
“Venezuela has gas from natural wells and associated gas,” the source said. But HBI producers can only take the associated gas from oil wells because their production units are located far from the natural gas wells.

“This means that if we pump oil, we have gas; if we don’t pump oil, we have no gas,” a source added.

The Organization of the Petroleum Exporting Countries (OPEC) says that oil production in Venezuela fell to around 1.5 million barrels per day in March 2018, a record low.

And although Venezuela has four dams along the Caroni River which produce more than 60% of the electric power in the country, the energy crisis is another threat for HBI producers.

“We have enough water now, but how many of the generators and turbines at dams are operating is a big question, further compounded by problems with transmission lines,” a second source said.

He added that currently there is an electricity curfew lasting 6-12 hours per day in most major Venezuelan cities with the exception of the capital, Caracas.

Inflation
The International Monetary Fund (IMF) forecasts that hyperinflation in Venezuela will reach 13,000% in 2018. The real gross domestic product [GDP] is expected to fall by another 15% this year.

“This trend is the result of significant micro-level distortions and macroeconomic imbalances compounded by the collapse in oil exports. [This was caused] initially [by] the sharp fall in oil prices in mid-2014 and, more recently, the collapse in domestic oil production,” Alejandro Werner, director of the Western Hemisphere Department at the IMF, said in a recent report.

Crypto-currency
Venezuela is attempting to mitigate the effects of a shortage of hard currency by launching a virtual currency – the petro.

“All export trade, public and private, will now be done in this crypto-currency,” a source said.

The petro is supposed to be freely exchanged against the Chinese yuan, Russian rouble, Turkish lira and euro. But market sources cannot predict what influence this will have on Venezuela’s export activity.