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• Market for DR grade 65% plus iron ore could rise fivefold to 750Mtpa according to new research from Wood Mackenzie
• As much as US$1.4 trillion needs to be spent on new mines, renewable energy, steel mills, hydrogen and carbon capture to reduce carbon emissions from steel making by 90% in a net zero world

The numbers are staggering …

Incredibly, a growing, urbanising world and the rollout of renewable energy linked to the energy transition will mean the notoriously hard to abate industry will need to eliminate carbon emissions while seeing steel demandincreaseby 15% to 2.2Btpa.

WoodMac says US$150-200 billion needs to be spent on developing iron ore mines, 63% on new high grade mines and 37% on existing operations.

The pool of scrap steel will need to double to 1.3Bt, 52Mt of yet to be commercialised green hydrogen will be required, 2000GW of renewable energy (equivalent to two-thirds of current global capacity) and 400-500Mt of carbon capture and storage will need to be installed.

US$100b will need to be spent on DR pelletisation, US$350-400b on iron reduction, 44% on developing an H2 ecosystem and 56% on DRI furnaces, US$450-500b on the world’s steelmaking fleet, 54% of it retrofitting basic oxygen furnaces, 34% on EAF capacity and 12% on another technology called molten oxide electrolysis, and US$200-250b on CCUS.

Wu said in an interview we are currently way behind the pace when it comes to meeting these ambitious requirements.

“I think this is a very urgent task, we must tackle it and be willing to put the investment in,” she said.

“I think it’s possible, but how are we going currently I think we’re definitely way behind where the speed needs to be at.

“We need at least 350 million tons of new high grade ore (over and above current planned supply).

“So that means the miners need to invest about US$250-300 billion, including creating zero carbon mines to combat their scope one and two emissions, developing high grade mines and setting up the pellet plants to feed growing steel.”

Green premiums

Green premiums of two different kinds are expected to emerge.

Along with the increased demand and likely uptick in prices for higher grades of iron ore, an additional US$100/t is expected on steel prices, increasing costs by around 15-20%.

That will come from higher prices for raw materials, as well as carbon taxes and offsets.

As mentioned before, WoodMac expects premiums for DR grade pellets, while a carbon price of around US$5/t is expected over its long term 62% Fe iron ore price of US$80/t.

Challenges to the transition are expected to come from a variety of sources.

The dearth of high grade developments in the global pipeline is one, as is the task of reducing the cost of producing green hydrogen to US$2/kg, the key enabler of green direct reduced iron.

Also of concern is the relatively young life of the blast furnace fleets in China, the world’s largest steel producer with a global market share of almost 60%, and India, widely expected to be the world’s growth market for the commodity.

“India is one of the regions in our analysis actually where we see their carbon emissions are going to increase because India is a growing economy, their steel consumption will increase over time,” Wu said.

“And they are well positioned to stick to the conventional blast furnace route of steelmaking because they have domestic iron ore deposits and are very close to the met coal seaborne markets.

“And also they currently have a number of blast furnace capacity expansion projects already in the pipeline.”

These could have a shelf life of 40-50 years, one of the reasonsBHP remains bullish about the outlook for metallurgical coal demand from blast furnace steelmaking for decades to come.

Wu said one way of reducing steel emissions would be by using hydrogen to replace pulverised coal for injection in the blast furnace, noting India has the ambition of producing green hydrogen also on a massive commercial scale.

She describes China on the other hand as “the elephant in the room”.

“China’s carbon emissions naturally are going to decline because its demand and production is declining and (economy) is maturing and that by itself will reduce about 50% of the current carbon emissions,” Wu said.

“But that is not enough for China to get to net zero, the industry must reduce this carbon emissions by more than 90%.

“China’s blast furnaces still have a long way to go.

“I think they have at least another 15-20 years to go in a lot of their blast furnaces. So that will go down to how serious the government is in terms of decarbonising the steel industry and how much government support will be lent to the industry.”

Hawsons Iron (ASX:HIO)

Formerly known as Carpentaria Resources, Hawsons owns the deposit of the same name near the historic mining town of Broken Hill in New South Wales, birthplace of BHP.

Hawsons boasts a maiden probable reserve 755Mt at 14.7% Davis Tube Recovery grade it says could be upgraded to 111Mt of “Supergrade” 70% magnetite concentrate, which it is marketing as a “green steel” product.

A PFS was released in 2017 estimating it would cost US$1.4 billion to deliver a project shipping 10Mtpa at an all-in FOB cost of US$48.03/dmt. But Hawsons is now looking into the possibility of expanding that scale to 20Mtpa on account of demand for greener iron ore products.

Whether that will be achievable remains to be seen, with a BFS on the way. The company this year upgraded its measured, indicated and inferred resource base from 400Mt of ore including 3.06Bt at DTR 13.1% to 484Mt including 3.95Bt at DTR 12.2%.

Hawsons is one of the few iron ore companies to enjoy a share price run in 2022, up 167.65% YTD.