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Green iron trade will catalyse steel industry decarbonisation
Directly reduced green iron in the form of transportable HBI supports the
decoupling of iron and steel production.
Image: Midrex
Market research company Steelwatch presents a recent study explaining why decarbonising iron production will change the nature and location of iron production. In the following article, the analysts examine what transportable green iron is, where it could be produced or used, what advantages transportable green iron can offer, and address common concerns and solutions.
Ironmaking and steelmaking often go hand in hand, occurring in the same place in ‘integrated steel plants’, where iron ore is reduced to iron, and molten iron is used to make steel. The shift to a decarbonising, renewable energy-based economy creates drivers that will transform how and where iron is made. ##Transporting green iron between countries is a relatively new and under-valued contribution to decarbonising the steel industry. Some steel industry actors perceive it as a risk. The benefits – to companies, to countries, and for addressing the climate crisis – need more attention as a viable step toward decarbonising the steel industry.
What is transportable green iron?
Traditionally, virgin iron is made in a coal-based blast furnace. Molten pig iron emerges at around 1500˚C, along with tonnes of CO2. The more recent approach is the direct reduction of iron ore (DRI) process using gasses in a furnace or a kiln, producing what is known as sponge iron or direct reduced (DR) iron. Though still very hot (600-700°C), it is solid in the form of pellets.
Over recent decades, the DRI process has reached around 10% of global virgin iron production, but has run on fossil fuels.1 Recently, to drive decarbonisation, green hydrogen has started to be used instead. This process – termed H2-DRI (direct reduction of iron oxides with green hydrogen) – is today the only available near-zero-emissions ironmaking technology. The product of H2-DRI is referred to as ‘green iron’, technically called near-zero-emissions DR iron.
DR iron, if not used on site, is transported as briquettes. They are melted, then processed into steel, either in an electric arc furnace (EAF) or in a combination of electric smelter and basic oxygen furnace (BOF). Near-zero-emissions DR iron in forms of briquettes is what we refer to as “transportable green iron”.
Maximising renewable energy use means decoupling ironmaking and steelmaking Historically, ironmaking and steelmaking have been done on the same site, known as an ‘integrated steel plant’ and energy considerations help explain why. Proximity to coal or gas suppliers has mostly driven the location of many coal-based blast furnaces and fossil gas-DRI plants. Locating the steelmaking directly onsite with the ironmaking enables energy savings: the hot iron coming out of ironmaking goes straight to steelmaking, avoiding the need for reheating. In the case of coal-based blast furnaces, they also release excess energy which steel plants have learned to capture and reuse.
Looking ahead, access to renewable energy will increasingly shape locations of green iron production. Since green H2-DRI relies on the availability of green hydrogen made with renewable electricity, ironmaking will be pulled to regions with greater renewable electricity generation capacity, particularly those that also have iron ore.
At the same time, steelmaking is less likely to relocate because steelmakers want to stay close to their end-users such as carmakers or appliance producers. The shift to low-emissions DRI ironmaking is made easier by decoupling iron- and steelmaking. Transportation of green iron reconnects the two.
Today, the largest steelmaking countries tend to be the largest ironmaking countries. Some steelmakers will continue to make iron. H2-DRI-based ironmaking reduces, but does not eradicate, the benefits of producing iron and steel in one place, particularly in terms of energy efficiency.
How much ironmaking shifts location will vary by market context. But with a growing share of H2-DRI in global virgin iron production, more standalone ironmaking will emerge in renewable electricity-rich locations, shipping green DR iron to steelmaking plants located near their end-users.
Transportable green iron can decarbonise steelmaking
Decarbonisation of the global steel industry is a huge undertaking that is proceeding too slowly in the face of climate change. Lack of availability of green hydrogen – in part due to shortage of renewable energy – is one major constraint. Tapping into renewable energy hotspots for iron production is invaluable to address that feasibility constraint and speed up change.
When compared with relying solely on H2-DRI done at existing steel plants, green iron trade offers several advantages: it can boost feasibility, reduce costs, cut transport needs for materials and bring a range of benefits to different actors.
Green iron trade can save costs
There is emerging evidence on cost savings to be achieved by producing green iron in renewable energy hotspots. One study estimates global steel production costs can be cut by 2-4% using green iron trade compared with a scenario in which DR iron and steel production continue to be co-located.
Cost savings are highest in countries with the most limited access to renewable energy. In the case of Japan, studies estimate the steel production cost gap between steel made with locally-produced H2-DR iron vs H2-DR iron imported from either Australia or Canada would be around 30%. In Western or Central Europe or in South Korea, the production cost per tonne of steel would be around 20% cheaper with H2-DR iron imported from Canada than with locally produced H2-DR iron. Similar results emerge when comparing the production costs of steel made in Germany with H2-DR iron made locally versus H2-DR iron made in Australia.
Shipping green DR iron requires less transport capacity
Feeding a typical 2.5 Mtpa capacity DRI plant with iron ore and green hydrogen shipped separately from overseas would imply transporting 3.5 million m3 of materials annually, and would come with technical challenges and climate risks associated with transporting hydrogen over long distances. Conversely, shipping only the plant’s output – 2.5 million tonnes of green DR iron in the form of hot briquetted iron (HBI) – would require a transport capacity of 0.75-1 million m3, less than a third of the volume.
A higher-value export commodity for green iron producers
The largest iron ore exporting countries today may have the greatest advantages because they tend to also be rich in renewable electricity potential. So they have opportunities to climb up the value chain and export a more processed product – iron instead of iron ore.
A study by Deloitte and WWF Australia considers that “developing green iron manufacturing capacity offers the clearest avenue for Australia to competitively move up the green steel value chain” and represents an opportunity estimated between 60 and 185 billion USD per year.
Countries of the Middle East and North Africa (MENA) region have less iron ore but have potential as green iron producers due to significant renewable electricity potential. This could be leveraged by importing iron ore, and producing green DR iron for export to steelmaking countries.
Today’s steelmakers can gain from green iron
For some iron and steel producers (Japan, South Korea and certain European countries) where renewable electricity and green hydrogen production are limited, fully converting existing blast furnace-based ironmaking capacity into green H2-DRI may be challenging. Importing green DR iron will therefore be an essential contribution for decarbonising the iron and steel sector.
In the US and China, sector decarbonisation might rely less on imported green DR iron, but can still benefit from decoupling ironmaking and steelmaking within the country, with transportable green iron provided by regions offering better conditions for renewable electricity and green hydrogen production.
Losing some ironmaking capacity does not mean relinquishing steel production. Importing green DR iron from more favourable locations actually reduces the cost of decarbonisation and of producing green steel, strengthening the competitiveness of local green steel production.
Several steelmakers, particularly in industrialised nations, are already shifting to EAFs, which rely primarily on scrap, but require some amount of virgin iron for optimal quality. Transportable DR iron can feed EAFs, complementing scrap, ensuring high quality, low-emissions production (provided renewable energy is used). So as EAF steel production advances, access to supplies of transported green iron will be increasingly important.
Innovation by new players in the iron, steel and energy industries
Decoupling ironmaking and steelmaking opens opportunities for new players. Innovation and increased competition can accelerate decarbonisation and reduce costs. New entrants like Stegra in Sweden are already leveraging renewable electricity to produce green iron for export.
Iron ore miners like Fortescue (in Australia) and renewable electricity and hydrogen developers like CWP are entering ironmaking to climb up the value chain. Green energy producers, usually limited by the difficulty of transporting electricity and hydrogen over long distances, gain export opportunities by embedding the hydrogen in green iron.
Challenges for transportable green iron
Perceived threat to national sovereignty, security and pride In existing steelmaking countries, steel production is often seen as a foundation of national sovereignty and pride of an industrialised nation. It is also valued as an essential component for large manufacturing industries like the automotive sector, as well as strategic industries like defence. Shifting the ironmaking step overseas is seen as a potential threat and so is politically difficult to discuss. However, since the largest steel producing countries today already rely on imported iron ore, trading green iron does not increase dependence on others. Green iron imports are expected to come from current iron ore suppliers like Australia, Brazil, South Africa, and Canada. So current steelmaking countries can continue to make steel, while achieving decarbonisation and taking advantage of the new trade in green iron with longstanding trade partners.
Navigating job changes in ironmaking
Shifting to imports of green iron raises concerns about job losses. Ironmaking accounts for less than 10% of jobs in the steel value chain and it is these jobs that may shift. Net jobs will rise and fall at different points in the value chain and different locations and there are no robust estimates yet of total effect. There must be a just transition strategy to support affected workers. Long term, failing to transition would jeopardise the entire steel sector, including the steelmaking and finishing stages that represent over 90% of jobs.
Practical concerns: Safety and energy efficiency
Concerns about the safety of transporting iron are common. DR iron risks reoxidation when exposed to air or water, leading to fire hazards and physical deterioration during transport. However, briquetting DR iron into HBI mitigates these risks, and HBI is already a traded commodity (although made with fossil gas). Projects like HBI C-Flex are exploring whether H2-DR iron requires additional safety measures for handling and transport. ##Reheating cooled iron for steelmaking is also energy intensive, whereas feeding hot DR iron directly into steelmaking operations saves energy. However, the economic viability depends on the cost difference of renewable electricity and hydrogen between where the steel plant is located and the countries with optimal conditions to produce renewable energy and hydrogen. Local circumstances will determine the most cost-effective approach.
The future of green iron
Developing transportable green iron as a new commodity will require action across the industry. Existing steel producers should look to develop their supply chains through procurement or investment, while iron ore miners and green energy producers adapt to the new opportunities transportable green iron creates. Governments and policymakers will have a key role to play by supporting investment, trade policy, and diplomacy.
Successfully driving this transition will depend on willingness to have honest conversations and negotiations that prioritise climate needs and resilience of future-fit industry.
Decarbonising iron and steelmaking means more than simply replacing coal-based blast furnaces with H2-DRI plants. It requires strategic thinking, and recognising that certain disruptions – like where iron is produced and by whom – are not just inevitable, but essential for accelerating decarbonisation.
Transformation should not be feared. In the face of the climate crisis, the question is not whether the industry can afford to change—but whether it can afford not to.
Source: SteelWatch
Ironmaking and steelmaking often go hand in hand, occurring in the same place in ‘integrated steel plants’, where iron ore is reduced to iron, and molten iron is used to make steel. The shift to a decarbonising, renewable energy-based economy creates drivers that will transform how and where iron is made. ##Transporting green iron between countries is a relatively new and under-valued contribution to decarbonising the steel industry. Some steel industry actors perceive it as a risk. The benefits – to companies, to countries, and for addressing the climate crisis – need more attention as a viable step toward decarbonising the steel industry.
What is transportable green iron?
Traditionally, virgin iron is made in a coal-based blast furnace. Molten pig iron emerges at around 1500˚C, along with tonnes of CO2. The more recent approach is the direct reduction of iron ore (DRI) process using gasses in a furnace or a kiln, producing what is known as sponge iron or direct reduced (DR) iron. Though still very hot (600-700°C), it is solid in the form of pellets.
Over recent decades, the DRI process has reached around 10% of global virgin iron production, but has run on fossil fuels.1 Recently, to drive decarbonisation, green hydrogen has started to be used instead. This process – termed H2-DRI (direct reduction of iron oxides with green hydrogen) – is today the only available near-zero-emissions ironmaking technology. The product of H2-DRI is referred to as ‘green iron’, technically called near-zero-emissions DR iron.
DR iron, if not used on site, is transported as briquettes. They are melted, then processed into steel, either in an electric arc furnace (EAF) or in a combination of electric smelter and basic oxygen furnace (BOF). Near-zero-emissions DR iron in forms of briquettes is what we refer to as “transportable green iron”.
Maximising renewable energy use means decoupling ironmaking and steelmaking Historically, ironmaking and steelmaking have been done on the same site, known as an ‘integrated steel plant’ and energy considerations help explain why. Proximity to coal or gas suppliers has mostly driven the location of many coal-based blast furnaces and fossil gas-DRI plants. Locating the steelmaking directly onsite with the ironmaking enables energy savings: the hot iron coming out of ironmaking goes straight to steelmaking, avoiding the need for reheating. In the case of coal-based blast furnaces, they also release excess energy which steel plants have learned to capture and reuse.
Looking ahead, access to renewable energy will increasingly shape locations of green iron production. Since green H2-DRI relies on the availability of green hydrogen made with renewable electricity, ironmaking will be pulled to regions with greater renewable electricity generation capacity, particularly those that also have iron ore.
At the same time, steelmaking is less likely to relocate because steelmakers want to stay close to their end-users such as carmakers or appliance producers. The shift to low-emissions DRI ironmaking is made easier by decoupling iron- and steelmaking. Transportation of green iron reconnects the two.
Today, the largest steelmaking countries tend to be the largest ironmaking countries. Some steelmakers will continue to make iron. H2-DRI-based ironmaking reduces, but does not eradicate, the benefits of producing iron and steel in one place, particularly in terms of energy efficiency.
How much ironmaking shifts location will vary by market context. But with a growing share of H2-DRI in global virgin iron production, more standalone ironmaking will emerge in renewable electricity-rich locations, shipping green DR iron to steelmaking plants located near their end-users.
Transportable green iron can decarbonise steelmaking
Decarbonisation of the global steel industry is a huge undertaking that is proceeding too slowly in the face of climate change. Lack of availability of green hydrogen – in part due to shortage of renewable energy – is one major constraint. Tapping into renewable energy hotspots for iron production is invaluable to address that feasibility constraint and speed up change.
When compared with relying solely on H2-DRI done at existing steel plants, green iron trade offers several advantages: it can boost feasibility, reduce costs, cut transport needs for materials and bring a range of benefits to different actors.
Green iron trade can save costs
There is emerging evidence on cost savings to be achieved by producing green iron in renewable energy hotspots. One study estimates global steel production costs can be cut by 2-4% using green iron trade compared with a scenario in which DR iron and steel production continue to be co-located.
Cost savings are highest in countries with the most limited access to renewable energy. In the case of Japan, studies estimate the steel production cost gap between steel made with locally-produced H2-DR iron vs H2-DR iron imported from either Australia or Canada would be around 30%. In Western or Central Europe or in South Korea, the production cost per tonne of steel would be around 20% cheaper with H2-DR iron imported from Canada than with locally produced H2-DR iron. Similar results emerge when comparing the production costs of steel made in Germany with H2-DR iron made locally versus H2-DR iron made in Australia.
Shipping green DR iron requires less transport capacity
Feeding a typical 2.5 Mtpa capacity DRI plant with iron ore and green hydrogen shipped separately from overseas would imply transporting 3.5 million m3 of materials annually, and would come with technical challenges and climate risks associated with transporting hydrogen over long distances. Conversely, shipping only the plant’s output – 2.5 million tonnes of green DR iron in the form of hot briquetted iron (HBI) – would require a transport capacity of 0.75-1 million m3, less than a third of the volume.
A higher-value export commodity for green iron producers
The largest iron ore exporting countries today may have the greatest advantages because they tend to also be rich in renewable electricity potential. So they have opportunities to climb up the value chain and export a more processed product – iron instead of iron ore.
A study by Deloitte and WWF Australia considers that “developing green iron manufacturing capacity offers the clearest avenue for Australia to competitively move up the green steel value chain” and represents an opportunity estimated between 60 and 185 billion USD per year.
Countries of the Middle East and North Africa (MENA) region have less iron ore but have potential as green iron producers due to significant renewable electricity potential. This could be leveraged by importing iron ore, and producing green DR iron for export to steelmaking countries.
Today’s steelmakers can gain from green iron
For some iron and steel producers (Japan, South Korea and certain European countries) where renewable electricity and green hydrogen production are limited, fully converting existing blast furnace-based ironmaking capacity into green H2-DRI may be challenging. Importing green DR iron will therefore be an essential contribution for decarbonising the iron and steel sector.
In the US and China, sector decarbonisation might rely less on imported green DR iron, but can still benefit from decoupling ironmaking and steelmaking within the country, with transportable green iron provided by regions offering better conditions for renewable electricity and green hydrogen production.
Losing some ironmaking capacity does not mean relinquishing steel production. Importing green DR iron from more favourable locations actually reduces the cost of decarbonisation and of producing green steel, strengthening the competitiveness of local green steel production.
Several steelmakers, particularly in industrialised nations, are already shifting to EAFs, which rely primarily on scrap, but require some amount of virgin iron for optimal quality. Transportable DR iron can feed EAFs, complementing scrap, ensuring high quality, low-emissions production (provided renewable energy is used). So as EAF steel production advances, access to supplies of transported green iron will be increasingly important.
Innovation by new players in the iron, steel and energy industries
Decoupling ironmaking and steelmaking opens opportunities for new players. Innovation and increased competition can accelerate decarbonisation and reduce costs. New entrants like Stegra in Sweden are already leveraging renewable electricity to produce green iron for export.
Iron ore miners like Fortescue (in Australia) and renewable electricity and hydrogen developers like CWP are entering ironmaking to climb up the value chain. Green energy producers, usually limited by the difficulty of transporting electricity and hydrogen over long distances, gain export opportunities by embedding the hydrogen in green iron.
Challenges for transportable green iron
Perceived threat to national sovereignty, security and pride In existing steelmaking countries, steel production is often seen as a foundation of national sovereignty and pride of an industrialised nation. It is also valued as an essential component for large manufacturing industries like the automotive sector, as well as strategic industries like defence. Shifting the ironmaking step overseas is seen as a potential threat and so is politically difficult to discuss. However, since the largest steel producing countries today already rely on imported iron ore, trading green iron does not increase dependence on others. Green iron imports are expected to come from current iron ore suppliers like Australia, Brazil, South Africa, and Canada. So current steelmaking countries can continue to make steel, while achieving decarbonisation and taking advantage of the new trade in green iron with longstanding trade partners.
Navigating job changes in ironmaking
Shifting to imports of green iron raises concerns about job losses. Ironmaking accounts for less than 10% of jobs in the steel value chain and it is these jobs that may shift. Net jobs will rise and fall at different points in the value chain and different locations and there are no robust estimates yet of total effect. There must be a just transition strategy to support affected workers. Long term, failing to transition would jeopardise the entire steel sector, including the steelmaking and finishing stages that represent over 90% of jobs.
Practical concerns: Safety and energy efficiency
Concerns about the safety of transporting iron are common. DR iron risks reoxidation when exposed to air or water, leading to fire hazards and physical deterioration during transport. However, briquetting DR iron into HBI mitigates these risks, and HBI is already a traded commodity (although made with fossil gas). Projects like HBI C-Flex are exploring whether H2-DR iron requires additional safety measures for handling and transport. ##Reheating cooled iron for steelmaking is also energy intensive, whereas feeding hot DR iron directly into steelmaking operations saves energy. However, the economic viability depends on the cost difference of renewable electricity and hydrogen between where the steel plant is located and the countries with optimal conditions to produce renewable energy and hydrogen. Local circumstances will determine the most cost-effective approach.
The future of green iron
Developing transportable green iron as a new commodity will require action across the industry. Existing steel producers should look to develop their supply chains through procurement or investment, while iron ore miners and green energy producers adapt to the new opportunities transportable green iron creates. Governments and policymakers will have a key role to play by supporting investment, trade policy, and diplomacy.
Successfully driving this transition will depend on willingness to have honest conversations and negotiations that prioritise climate needs and resilience of future-fit industry.
Decarbonising iron and steelmaking means more than simply replacing coal-based blast furnaces with H2-DRI plants. It requires strategic thinking, and recognising that certain disruptions – like where iron is produced and by whom – are not just inevitable, but essential for accelerating decarbonisation.
Transformation should not be feared. In the face of the climate crisis, the question is not whether the industry can afford to change—but whether it can afford not to.
Source: SteelWatch