MNI INTERVIEW:China Decarbonisation To Lower Aussie Ore Demand

MNI (BEIJING) - China's plans to increase steel production using the low-carbon direct reduced iron (DRI) process over the next 10 years will reduce Beijing’s reliance on Australian iron ore by potentially tens of millions of tonnes per annum, as the technique favours magnetite ores more common to mines in Guinea and South America, a Chinese commodity expert has told MNI.

At least two major Chinese steel manufacturers plan to start using between 30-50 million tonnes of iron-ore for DRI processing over the next decade, said John Johnson, head of Beijing-based commodity research firm CRU. 

The industry currently consumes only a few million tonnes of DRI each year, he added. “Coming off such a low base will give rise to a significant increase in demand for DRI, which uses pelletised iron ore,” he continued, noting China imported 1.18 billion tonnes of total iron ore in 2023.

Government policy to reduce carbon emissions will accelerate the use of DRI, which is well-suited for use in electric arc furnaces and emits 70% less carbon than traditional methods. Beijing aims to use low carbon electric furnaces to supply 30% of steel by 2035, said Luo Tiejun, vice president at China Iron and Steel Association, at a conference last year. 

AUSTRALIA’S CHALLENGE

Australia will find meeting the DRI demand challenging as its ore is predominantly a hematite compound not suitable to pelletise – a crucial step in the process, Johnson explained, noting the country exported 737 million metric tons of iron ore to China in 2023.

While Australia operates a limited number of magnetite mines, Brazil, Chile, Peru, and Guinea stood to gain the most market share, he continued. 

He added the pellets, created at the mine site, could ship directly to China given the planned expansion of domestic facilities, or to the Middle East or other countries first for the deoxidisation process.

Russia and the Middle East currently lead DRI production globally due to the energy intensive nature of the process, Johnson said, noting other facilities in China, Europe, Australia and other counties would soon come online. 

Strong global expansion could lead to tight supply of pellet feed ore in the coming years given limited supply, he continued, adding the process would also drive demand for natural gas and hydrogen. 

DRI equipment manufacturing would also require significant investment given the few firms that operate in the market, he said.

China’s steel industry PMI reached 42.5 points in July, down 5.3 percentage points m/m to reach the lowest point this year, according to the China Federation of Iron and Steel Logistics. Poor real-estate sales this year had challenged the steel market's recovery this year, the federation noted.