Brazilian miners bet on high-grade iron metallics in race for Scope 3 carbon neutrality

As the world’s second-largest iron ore exporter, Brazil is expected to play a key role in helping the global steel industry slash carbon dioxide (CO2) emissions; Brazilian companies are already taking action to mitigate greenhouse gas (GHG) protocol Scope 3 emissions – those encompassing the entire value chain

World Steel Association (worldsteel) data from 2022 showed that the worldwide seaborne iron ore market supply amounted to around 1.65 billion tonnes that year. Direct-reduced iron (DRI) output, however, was just 125.1 million tonnes in 2022. Market participants said they anticipate that emission-cutting initiatives will gradually increase DRI procurement.

Fastmarkets spoke with leading iron ore producers in Brazil to discuss their initiatives that target scope 3 emission cuts. Most of those, they said, will also depend on market premiums for that sort of product, funding availability and finding a coal substitute, among other challenges.

For example, Rio de Janeiro-based Vale, the biggest iron producer in the world, estimates that by 2030 the average iron grade in its ore will have risen to 64%, from 62.4% in 2023. The company estimated that its quality premium would increase to $18-25 per tonne, from an average of $4 per tonne currently.

Fastmarkets most recently calculated its index for iron ore 62% Fe fines, cfr Qingdao at $133.48 per tonne on Monday November 27, up by 13.29% so far this year from $117.82 per tonne on December 30, 2022.

And Fastmarkets’ index for iron ore 65% Fe Brazil-origin fines, cfr Qingdao was at $146.48 per tonne on Monday, rising by 10.72% year-to-date from $132.30 per tonne on December 30, 2022.

Vale is testing a new direct-reduced (DR) product called green briquette, which the company says have the potential to cut carbon emissions by up to 10% by acting as a substitute for sinter, pellet and lump.

CSN Mineração (CMIN), the second-largest iron ore producer in Brazil, owned by flat steel producer Companhia Siderúrgica Nacional (CSN), is also investing to increase its average iron content and supply steelmakers worldwide with DR-based solutions for electric-arc furnaces (EAFs).

Meanwhile, Anglo American Brasil, operating the Minas-Rio complex and ranking third among the country’s biggest iron ore producers, is studying potential DRI products while already exporting high-grade material. Roughly 70% of output at Minas-Rio is 67%-iron blast-furnace (BF) pellet feed, with the remaining output 68%-iron DR pellet feed.

And J&F Mineração – owned by holding company J&F Investimentos, mostly known for being the controlling shareholder of meat producer JBS – is offering lump with grades above 65% iron content from the start. At the same time, it is developing a product called “natural pellet” with a 66% grade, with industrial tests expected in 2024.

Clean energy, green steelmaking solutions

Brazil already has a huge potential to produce low-carbon material under Scopes 1 and 2  – emissions directly generated by the entity or its subsidiaries, or indirectly from energy used – due to its vast renewable source of energy supply, and mining association IBRAM believes the country also has a role to play in decarbonizing global steelmaking as shown by these company initiatives.

“Everyone is now looking into decarbonizing, but Brazil has a head start due to our clean energy supply, even when compared with [the world’s largest iron ore exporter] Australia,” Alexandre Mello, IBRAM’s association affairs and climate change director, told Fastmarkets on October 27.

According to 2022 data from Brazilian Energy Research Office EPE – a part of the mines and energy ministry – 48.4% of the country’s total energy supply comes from renewable sources, while renewable electricity power sources amount to 82.9% of that amount.

For Scope 3 initiatives, high-grade iron ore for direct reduction is the big bet from producers, but decarbonizing will not be possible without a replacement for coking coal as a reducing agent in blast furnaces, Mello added.

“It could be green hydrogen… and Brazil has a large history of investing in new energy sources, such as ethanol, which gives us credibility to invest in hydrogen,” Mello said. “But we need funding to make that technology less expensive, which can be boosted by [state development bank] BNDES, and we need a more streamlined licensing process.”

Vale boosting briquette, pellet output

The main project for Vale’s Scope 3 decarbonization – for now, a goal of cutting 15% emissions by 2035 – is the green briquette, which is produced by agglomerating iron ore to withstand high temperatures in BFs without disintegrating.

It announced that project in September 2021 and started an 18-month test period in August 2023, with plans for total capacity of 6 million tonnes per year with two mills.

The first briquette plant in the company’s Tubarão unit, in Brazil’s southeastern Espírito Santo state, is scheduled to start up this year, with a second plant on the same site expected in early 2024. The company’s objective is to produce 100 million tpy of iron ore agglomerates, including briquette and pellet, from 2030.

In addition to its Scope 3 decarbonization strategies, Vale has set a goal of reducing Scope 1 and 2 emissions by 33% by 2030 with $4 billion-6 billion in investments. The company also plans to become carbon-neutral by 2050.

CMIN expects DRI demand jump by 2026

CSN’s CMIN has announced 7 billion Reais ($1.43 billion) in capital expenditures to develop a plant that will produce premium ore with 67% iron content, according to a company spokesperson. It expects larger projects in Europe to use DRI in EAFs that will come online from 2026, and some market participants are already in talks with the miner to understand availability of that product, the spokesperson said.

“[Our premium] product will be an irreplaceable input in the production of green steel and will make it possible to reduce our Scope 3 emissions by approximately 30%,” the spokesperson said. “There won’t be material available for all.”

Besides availability, the iron ore producer considers that the scenario for achieving decarbonization is full of other challenges, such as the global dependence on Chinese steel, a tighter scrap supply that will lead to rising costs, and the need for robust investments that might have to be state-subsidized.

CMIN has a target of cutting 30% of CO2 emissions per tonne of iron ore produced by 2035, becoming carbon neutral in 2044, considering Scopes 1 and 2. It is already considered net-zero in Scope 2 emissions due to 100% of its electric power supply coming from renewable sources, according to company statement.

Anglo American already a high-grade iron participant

Anglo American wants to cut 30% of worldwide Scope 1 and 2 emissions by 2030 and become carbon neutral under those scopes by 2040. It also wants to drop Scope 3 emissions by 50% by 2040.

In its Brazilian subsidiary, the miner already produces high-concentration and low-contaminant BF pellet feed, in addition to DR pellet feed. According to Tiago Alves, environment manager at Anglo American Brasil, it is likely that several low-carbon steel routes will be used in the future, although “there is still no clear direction on a process that is emerging as dominant.”

“Brazil is naturally well-positioned to [help with] Scopes 1, 2 and 3 emission cuts,” Alves told Fastmarkets. “There is a naturally higher complexity to hit Scope 3 targets… but there is a growing multi-sectoral cooperation to develop solutions and new markets.”

J&F product can cut DR load by half

A new entrant into the mining sector, J&F Mineração acquired manganese and logistics assets from Vale in April 2022 and invested more than $1 billion to improve the decarbonization market, according to Paulo Nogueira, J&F Mineração’s marketing manager.

The company’s main product in the mining sector is iron ore lump with more than 65% iron concentration. But J&F is also developing a product called “natural pellet,” a technology that uses natural gas to produce primary iron and steel to be applied in steel production using DR and EAF technologies.

With 66% iron content, this natural pellet should cut the load in DR reactors in half and reduce the emissions by 75 kg of CO2 per tonne of steel produced when replacing agglomerate iron-ore pellet, or 20 kg of CO2 per tonne of steel when replacing briquette.

Commercial director Claudio Alves told Fastmarkets that the product should start industrial testing in 2024 and be commercially available in 2025, when it will be destined for exportation.

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