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But Ferrexpo – based in Ukraine but registered in Switzerland, and which is the third-largest exporter of high-grade iron ore pellets – sees risks in investing heavily in hydrogen during wartime, group head of investor relations & corporate communications Nick Bias said.
The industry has drawn up decarbonization pathways around the use of hydrogen in the production of DRI as feedstock for electric-arc furnaces, but recognizes that there will be challenges, such as a shortage of high-grade iron ore, and the large-scale implementation of cost-effective hydrogen-based DRI technology.
Over time, Ferrexpo expects to adopt hydrogen to fuel its pelletizer process, according to its official website.
It has already made some initial investments while it attempts to understand the opportunities presented by the use of hydrogen in the production process, Bias said, but he feels that it is still “too risky from a capital and war perspective to invest heavily in hydrogen” for now.
The shortage of high-grade iron ore to produce DRI was not a significant concern for Ferrexpo, Bias said, because the Ferrexpo Group has reserves that would last for more than 50 years.
Ferrexpo achieved its best quarterly performance since the start of the war in Ukraine in April-June this year, with total production of 1.67 million tonnes, comprising 1.48 million tonnes of high-grade pellets and 190,000 tonnes of 67% Fe high-grade concentrates, according to its quarterly performance report.
Total production in the first half-year was 3.73 million tonnes, an 83% increase compared with the previous six months and a 75% increase compared with the corresponding period of last year, the report said.
Ferrexpo resumed production of DR pellets during the quarter. Across its four pelleting lines, it has improved flexibility and adaptability to offer different product quality depending on customer demand.
“Demand in the Middle East-North Africa region for DR pellet will grow due to the availability of gas, and in Europe due to legislative requirements,” Bias said.
The group has had to overcome many difficulties to continue in operation since February 2022, when Russia invaded Ukraine.
Attacks on Ukrainian power plants have reduced the country’s domestic power supply, and Ferrexpo has had to source power from neighboring countries to minimize the disruption to its production.
“Electricity is a challenge but we have found solutions and continue to operate,” Bias said. “The price, however, is [another] challenge.”
Ferrexpo faced higher cost pressures and reduced margins in the second quarter against the backdrop of higher electricity prices and lower iron ore prices, chief financial officer Nikolay Kladiev said in its quarterly report.
The quarterly average value of the 67.5% Fe pellet feed premium flipped to negative in the second quarter.
Fastmarkets calculated its quarterly average value for the iron ore 67.5% Fe pellet feed premium, cfr Qingdao, at $(0.69) per tonne in the second quarter of 2024, compared with $3.93 per tonne in the first quarter of the year.
The weak pellet premium did not support pellet feed prices, trade sources told Fastmarkets.
The quarterly average of Fastmarkets’ iron ore pellet premium over 65% Fe fines, cfr China dropped to $11.15 per tonne in the second quarter, from $13.58 in the first quarter, while the iron ore DR-grade pellet premium indicator dropped to $52.88 per tonne from $53.92 per tonne in the same comparison.
Market sources said that China, the largest importer of iron ore, has been struggling with poor steelmaking margins since the country’s property crisis began to affect domestic steel demand. Buyers preferred to procure lower-grade iron ore to save costs than to use greener high-grade products.
“Carbon emissions and provenance are the primary factors that will drive green iron and steel premiums,” Bias said. “Governments must foster this transition, but it is ultimately the end-user that must enforce it.”
There are many markets where people want to pay for iron ore that comes from no-conflict jurisdictions and can be used to produce steel with the lowest possible emissions, Bias believes.
“As a European producer of premium iron ore pellets that can reduce carbon emissions in steelmaking,” he said. “We will help to enable European, Middle Eastern and North African steel mills to transition to lower-carbon steel production.”
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