Direct Reduced Iron




The HBI plant in 2001.

Also see "Iron in Western Australia"

Other links:

bulletAmerican Metal Market's website at  bulletNew Steel Magazine at bulletMetal Bulletin at .  


September 2003

The plant reported a loss before interest and tax for the 12 months to June 30, 2003, of $US53 million cf. the previous year's $US116 million loss.

HBI prices are now around 60 per cent higher at $US170-$SU180 a tonne compared with $US105-$US110 range in the past year.

In 2003 HBI made up just six per cent of BHP Billiton's carbon steel turnover.

But demand for the product is strong and unlike the lower iron ore prices, the HBI price is climbing.

Production is continuing to ramp with it targeting greater than than 1.8 million tonnes for 2004.

Other notes updating details further down

BHP is now now as BHP Billiton following its merger.

The HBI project in WA has incurred write-offs of A$2.6bn and remains under review with prospects of closure. It has achieved two-thirds of budget at 450 000 tonnes production since December 2000 and with generous taxation benefits, the loss has been A$99 million for that period. Closure would initiate additional liabilities of A$1.1billion for take-or-pay gas contracts. 

Orinoco Iron Company is owned jointly by BHP and International Briquette Holdings - subsidiary of Venezuelan company Sivensa. With the BHP project in Western Australia, the two projects will have capacity to produce five million tonnes representing one-third of the world's merchant (traded) HBI.

In 1999, the price of fine ore fell 11 per cent to US$26.63 per tonne; lump ore by 10.2 per cent US438.83 and lump premium fell by 7.5 per cent to US$8.20 per dry long tonne. Iron ore sinter fines were US$21.23 per tonne. Global steel production in 1997 was 797 million tonnes, sea borne iron ore trade was 420 million tonnes. In 1998 steel output fell 12 per cent.


Typical prices per ton for DRI on the merchant market US$105-110 per tonne in December 2000 on par with scrap prices. 

BHP's production cost was reported as being estimated at $103 in year 2007 when its production reaches 2.4 million tonnes per year (projected June 2002 at $120 per tonne). 

Production is being ramped up (Dec 2000) from having reached 600,000 tonnes by June 2001 to 1.6 million tonnes by 2001-02.  

Sales have been to Indonesia's Krakatou Steel, Tawain's China Steel, Japan's Nippon Steel. 

There have not been long term supply contracts. Three shipments made to December 2000 with 200 000 tonnes produced.


Fastmet Coal, fine ore and or EAF dust-based rotary hearth furnace (RHF) as used by Nippo Steel and Kobe Steel
Fastmelt Fastmet DRI melted in an EIF
ITmk3 Direct production of BF quality iron in an RHF
KwikSteel/KwikIron Molten ITmk3 nuggets
HIsmelt Australian demonstration plant

  EAF production in millions of tonnes







Metallics requirements






Steel production












EAF production






EAF metallics required






Metallics sources












Captive DRI






Merchant DRI






Total DRI






Merchant pig iron






Hot metal






New iron






The following is current to Feb 1998.

bullet"Investors go cool on hot ore plans" – so read the West Australian of 8 January, 1998. bulletRio Tinto subsidiary, Hamersley Iron has reputedly found a conventional DRI plant would not be close to viable for several years based on inadequate demand in South East Asia. bulletTwo other DRI starters in Western Australia, Mt Gibson Iron Ore and Mineralogy have gone quiet while BHP is facing a 50 per cent cost blowout on its billion-dollar project. bulletCRU International, a specialist consulting group concluded their presentation in June at the Hong Kong's Third Asian Steel Summit just eight months ago, and before the melt down in Asia, that "the DRI market will be burdened by too much of a good thing." Concluding there is surplus capacity for the next five years. Worldwide capacity utilisation rates have been around 70 to 80 per cent according to CRU and based on comparisons to other markets, DRI prices may fall below full production costs if too much production capacity is added around the world in the next few years.
Indeed even with current projections of growth, production capacity increases will be four-times the conservative estimate of required demand and equalling the optimistic demand.That projection by CRU was made before the so-called "Asian melt down"!
That is some of the negative side. What is happening with DRI and why?

DRI growth is similar to a new high technology synthetic material with current production at around 34 million tonnes projected to double before year 2005. This product has been referred to as the "New Iron" having uniform specifications and stable in price and supply.

In this presentation, the term DRI, Direct Reduced Iron, will be used to describe pellets, hot briquetted iron, lumps and iron carbide.

DRI is the process of converting iron ores, to metallic iron without the smelting process. If it uses gas, the process can be described as in the following chart. REDUCTION
Fe3O4 + CO > 3FeO + CO2
Fe3O4 + H2 > 3FeO + H2O
FeO + CO > Fe + CO2
FeO + H2 > Fe + H2O
CH4 + CO2 > 2CO + 2H2
CH4 + H2O > CO + 3H2

The following chart places DRI in perspective with blast furnaces and the developing direct smelt process.

The DRI process can use gas, uses fine ores and involves a lower capital investment. The downside is that a relatively high grade of iron ore is required as the process retains the impurities and even some unconverted iron oxide. Western Australia is an obvious place for DRI production.

The other and yet fully commercialised process is the direct smelt process, being explored by HIsmelt, the Rio Tinto subsidiary located at Kwinana, Western Australia. It aims to produce steel containing 96 per cent iron and 4 per cent carbon avoiding the coke ovens and sinter plants using the cheaper non-coking coal. It is a continuous process that could replace the conventional blast furnaces that dominate world steel production.

Western Australia has four companies with investments of more than $6bn either on their way, on the starting blocks or making their way to becoming DRI producers. WA already produces 140 Mtpa of iron ore from 11 mines, 4 railways and 5 shipping facilities at 3 ports. The predominant product is high quality Brockman ore that is excellent for blast furnaces. However, to be useful for the principal market, the blast furnaces, the ore must generally be in lump form or at least pelletised from fine ores.

It is relevant to note that the Pilbara in Western Australia has some 6 000 billion tonnes of banded iron-formation (BIF) but with an iron content of only 25 to 35 per cent. BIF is used by the world's steel producers (eg. US, Russia and China) but transport costs has precluded their export or use in Australia.

While BIF has a low iron content with its magnetic iron ore (magnetite), it can be readily enriched from 32 per cent iron to 70 per cent. DRI requires a high-grade ore that requires beneficiation of the ores to reduce the silica and alumina to between 2 and 3 per cent. So even when produced as a co-product of the mining of Brockman lump ore, it has to be crushed to fines followed by the gravity concentration process. But it is therefore also produced as a fine ore.

Fine ore, as the by-product of mining lump ore sells at a discount of around 25 per cent on the lump ore. In Western Australia, two tonnes of fines are produced for every tonne of the more valuable lump form so that the value of fines produced in the state exceeds the value of lump ore. (Of course some producers produce largely lump ore and others almost entirely fines.)

Obviously the ability to use the low cost enriched BIF-sourced ore, or other sourced fines, in a DRI process provides a significant commercial advantage. Being able to beneficiate a low grade contributes to the competitiveness of the An Feng King Stream, Mineralogy and Mt Gibson Iron projects. For AUSI and of course BHP, the ability to use lower value fines, even if having to be pelletised in the case of the former, provides an important edge about which more will be said.

For fine ore using DRI producers, the lower price of fines containing the same amount of iron represents an important potential raw material advantage for any iron ore producer capable of using those fines (of course if not incurring the cost for its pelletisation). That status provides an advantage to another potential starter, AUSI that plans to purchase fines for its DRI project from Hamersley Iron.

The ability to use fines is part of the story, energy too is important. Since deregulation, gas prices in WA have fallen substantially – around one-half. Gas prices of around US$1.50 per gigajoule (or MMBtu) are believed to be capable of negotiation with the gas producers. In perspective, while prices around $0.80 are available in the Middle East and Venezuela, they are one-quarter below those in the USA, and less than half those of Europe and Asia. For the DRI process where energy represents one-third of the production cost, this provides another key advantage for the West Australian producers. Transport of remains a dominant and offsetting influence and Australia is best placed to serve the Asian market.

To place this in perspective, the following graph provides and indication of the production cost (ie. without recovery of the cost of investment). The iron ore price is taken at the nominal value.

Gas and ore each represent about one third of the production cost so the ingredients for success in WA are clearly there. Freight provides the third advantage with respect to the nearby Asian markets that helps offset any gas cost disadvantage against the Middle East and Venezuela.

The advantages may be summarised as: bulletWA has some of the highest grades of ore in the world and is located closer to markets than Brazil which is three times the distance from Asian markets. But Japan is a declining producer and Asia is in a meltdown phase. bulletSome two-thirds of Asian growth in steel production is projected to come from EAFs representing some 40 million tonnes of steel per year. bulletThe ores contain fairly high levels of impurities and not so suited to DRI though beneficiation is possible. bulletCompetitive gas.


Some appreciation of the issues can be obtained by considering the DRI companies.


First, let me describe BHP as unlike the other companies is already well advanced with its $1.4bn project. It is a remarkable project and it is unfortunate that it received so much publicity about its production cost blowout. The reality of construction in greenfield has been illustrated. It is however on schedule.

The BHP project is one of the few operated by a mining company. Even in phase 1, it will be one of the largest DRI plants in the world. In perspective, projects under construction or in the start-up phased account for some 20Mtpa of which around 50 per cent or 10Mtpa are producing merchant-grade. Therefore BHP will represent around 25 per cent of the worlds new capacity of arms-length sales. BHP has already installed facilities to enable it to double production.

The FINMET process will be used that avoids pelletisation using the fines direct. Of course the issue is gas usage and required plant. The Finmet is also used by Orinoco Iron with which it has a joint venture to operate a plant by end 1999 – the operators of which will commission BHP’s Port Hedland plant. BHP is now expected to begin production late 1998 with shipments early 1999.

It is important to note that all its production is for sale. In other words it is producing merchant grade which in past years is unusual with most production being captive. As I will show later, BHP is one of the largest merchant grade producers in the world, representing one fifth of new capacity to come on stream.

BHP did select key customers that are committed providing security of market. The project is in two phases with a proposed doubling of capacity. To reduce construction costs to take advantage of scale economies, excess beneficiation capacity and conveying facilities have been built. Nevertheless, even though the scale-up cost is low, BHP has deferred phase 2.

DRI production costs

For BHP, operating costs are roughly 30 per cent for ore at market price of smelter grade ore, 30 per cent for gas, 30 per cent for electricity, water, labour and ancillaries, and 10 per cent for administration overheads. However, the real cost of ore to BHP is low since its ability to use fines, allows BHP to produce more of the more valuable lump grade. While the price of fines is typically 75 per cent of lump ore, allowing for freight advantages, the effective cost of fines to BHP is perhaps around 60 per cent of the price of lump ore. For a producer like BHP, a captured market for fines helps mine economics enabling increased production of lump ore that represents a further discount on its iron input - say 15 per cent.

To place the significance of the cost of iron ore in the HYL III process showing iron ore representing one-third of the production cost (but a lower proportion on full production costs).


Some analyses suggest the full cost (ie. including capital cost recovery) of producing DRI from a greenfield site, (as any project in Western Australia would be) is around US$140 per tonne using gas at US$1.50 per gigajoule. Adding US$10 per tonne for briquetting, results in a price of US$150 per tonne which is also about the current price - no much of a margin. Of course the cash cost of production is much lower - around US$65 in Venezuela and US $95 in Australia. However, again this is calculated for fines at current prices as by-product from the production of lump ore. It does not allow for users of low market value ores such as An Feng Kingstream, Gibson Iron, and the magnetite ores as proposed by Mineralogy.

Other companies

Mineralogy Pty Ltd

Mineralogy Pty Ltd is a company owned by Queensland based Clive Palmer who proposes to build a $1.8bn HBI plant south of Karratha to produce 4 Mtpa of HBI – one of the largest in the world. It planned to utilise the Fortescue taconite deposit though containing just 32 per cent iron, it beneficiates to an extremely low impurity magnetite concentrate of 70 per cent iron.

The ore will require beneficiation that involves grinding to a grain size at which the magnetite (Fe3O4) is freed from its matrix of silicates and chert. The grinding process of course renders it basically unsuitable for blast furnace use unless pelletised. But the ore is still then so cheap for the company that it can justify an 85 km slurry pipeline (US$0.15 per tonne kilometre cost ie. US$12.75 per tonne) to Karratha (where there is a port and infrastructure), and pelletising before DRI processing.

It will have access to 700 million tonnes of magnetite that is sufficient for 40 years of production.

It plans to use the shaft furnace Midrex process.

Australian United Steel Industry Pty Ltd (AUSI)

AUSI is now owned by Kvaenrer listed in Norway.

Project includes a beneficiation, pellet and DRI plant to be established south of Cape Lambert between Karratha and Wickham. Feasibility study completed for 2Mtpa DRI/HBI production. The project has received environmental approval for the Cape Lambert site, with potential commissioning in Q1 2000 following a commitment mid-1998.
Expenditure: $1.8b.
Employment: Construction: 2000; Operation: 300

AUSI will have a 35 to 45 cents per gigajoule gas advantage over An Feng requiring some 165 terajoules of gas per day. It is also some 700 km closer to the market. An Feng on the other hand is operating with a captured market with its An Feng steel producer co-venturer.

It will be purchasing 7.5 Mtpa of fines from Hamersley Iron at arms length which will be railed directly to the AUSI site via a 40 km spur line. It will be using the Hyl III technology. Using high grade fines, it will not be involved with the extent of beneficiation required for Mt Gibson, Mineralogy and An Feng but of course those ores will be cheaper.

An Feng Kingstream Steel Ltd

Initial feasibility study completed November 1995. Environmental approval for a 1Mt/a steel mill obtained April 1996. Proposal includes mining the Tallering Peak magnetite iron ore deposit, on-site concentration and its processing ore at Oakajee near Geraldton. Scope of project has been increased to 2.4Mt/a of slab steel and billet. Expenditure: $2.4bn.
Employment: Construction: 2000; Operation: 822

It will require some 10 to 13 vessels.

Mt Gibson Iron Ltd

Feasibility study commenced January 1996 for a 2Mt/a HBI/DRI project. The proposed plant capacity has now been increased to 2.6 Mt/a HBI. Proposal entails mining the Mt Gibson iron ore deposit which is 280 km to the south east of Geraldton which has proven reserves of 260 million tonnes of magnetite which would be adequate for a 50 year project life.

The ore will be concentrated to the mine site to produce 3.7Mtpa of high-grade concentrate. It will be conveyed to Geraldton for processing. It will provide employment for 400.

It aims to produce HBI/DRI at Moonyoonooka or Oakajee near Geraldton. Expenditure: $900m.
Employment: Construction: 1000; Operation: 360.

This company is in some difficulty with concerns about its Korean partner Halla Engineering and Heavy Industries Co. Nevertheless MGI’s founding shareholder is Resource Equities Ltd that expects for float the company on the stock exchange in 1998.

DRI industry perspectives


Around 85 per cent of DRI production was in pellet or lump form, around 14 per cent as briquettes and 1 per cent as fines.

Venezuela produced 6 mtpa representing one-sixth of world production, with India at 5 mtpa and Mexico at 4 mtpa.

World profile 1996 according to Midrex Corp (Two-thirds of world production) bulletLatin America 12 mtpa bulletMiddle East and North Africa 9Mtpa bulletAsia 8Mtpa bulletNorth America 2Mtpa bulletFormer USSR and Eastern Europe 2Mtpa bulletAfrica 1Mtpa bulletWestern Europe 0.5Mtpa However there is a need to distinguish between captive production and merchant production – the market aimed for by Australia’s potential producers. Broadly the demand for merchant DRI in 1996 was less than 10 per cent or 3 million tonnes projected to increase to 10 million tonnes by year 2000 split evenly between Asia and North America. By year 2000, merchant capacity is anticipated to be around 16 Mtpa representing a 60 per cent capacity utilisation rate. Some project a capacity utilisation rate of only 40 per cent by year 2005.

Steel production profile.

World crude steel production is around 775 million tonnes with growth having fallen sharply to around 1 to 2 per cent.

The following two set of graphs shows the projections about the composition of steel production. The first a simple projection to year 2015 with the virtual elimination of open hearth furnaces.

The following two pie graphs summarises the composition of total steel production for 1980 and 1987. It shows: bulletthe growing significance of scrap, bulletthe decline of open hearth furnaces and bulletthe growth of DRI as a replacement for pig iron and as diluent for the scrap.


Scrap is processed largely in electric arc furnaces (EAF). In the next 15 years, their share of production is anticipated to rise by one-third from around 30 per cent today, at some 270 Mtpa, to around 50 per cent of production by year 2010. Nearly all growth in steel production will is assumed by EAFs. EAFs are also encroaching the flat steel products market that now represent around one-half of steel production.

There will be little or no growth in blast furnace production. Even total steel production is not anticipated to grow significantly.

Why EAFs

EAFs were originally used to produce low quality steel. Since then, with thin slab casting technologies, EAFs are used to produce steel close to markets.

The capital cost of an EAF, expressed on tonnage capacity is around, one-third of a blast furnace or basic oxygen furnace (which can be around $1000 per tonne of annual production capacity). Manning too of an EAF is one-third per tonne of steel produced. The actual operating cost are not that above the blast furnace, is when capital costs are incorporated. Thus in the absence of low raw materials and low gas prices, the EAF is competitive in many locations. Indeed with low scrap prices, especially at low parts of the economic cycle, the EAF has a competitive advantage over the blast furnace. Clearly, energy and labour costs are important for integrated steel facilities.

Mini mills with DRI facilities enjoy lower production costs than scrap-based producers but transport costs can significantly shift relative competitiveness. It also varies with the value of scrap that is very sensitive to demand.

In the USA EAF and minimills represents 40 per cent of steel production.

Thus EAF are replacing traditional BF and open hearth furnaces (most notably in China) and these will be largely phased out within ten years. Some 90 per cent of demand for merchant DRI is from North America and East Asia (excluding Japan) where EAF are growing rapidly. European and other regions, will rely on domestic scrap.

With this growth, in the Pacific and Indian Ocean basins, DRI production capacity has doubled in just five years to account for more than half of world capacity.


Worldwide, some 30 per cent of steel produced is from recycled iron.

Asia, imported semi-finished steel often cheaper than local scrap with breakeven at around US$150 to US$160 per tonne.

DRI Substitution with scrap

While HBI/DRI is primarily to lower residuals (and enabling use of lower grade scrap), most EAF production of long products does not require low residual feed. However growing demand for flat and sheet steel requires low residual ferrous feed which has promoted DRI demand. Growth in USA has promoted demand for DRI from imports (South America and local DRI).

Important to note that HBI/DRI is produced at higher operating costs, with lower yields, longer tap times and high electricity costs. Because of its cost, HBI is not a substitute for scrap, but effectively a diluent to lower the level of tramp elements. Though there is a correlation that could be drawn but relatively fixed in price, at $145 tonne it may represent 15 to 20 per cent of the charge and increasing to 30 per cent at $135 per tonne.

Generally DRI is at a lower price than high quality scrap and below that of pig iron. Pig iron suppliers are contingent on outlooks for blast furnaces in CIS and China – many scheduled to close for environmental reasons. Thus while pig iron is used, it is progressively being displaced by DRI promoting further growth.

DRI competes only with higher grades of scrap. So only where scrap is in limited supply, such as in developing countries, is it competitive. Nevertheless, when there is a big premium of quality scrap over lower grades, say around $30 per tonne, DRI enables the use of lower quality steel or scrap. Of course, DRI is a commodity product, with a defined cost structure and hence stable price. It therefore provides for some cost stabilisation for steel producers to counter the more volatile scrap market, particularly at the bottom end. Not only stabilising cost, DRI, with its defined quality.

Even in use, DRI helps the performance of the EAF and sometimes even the blast furnace.

The price of quality scrap is independent of iron values unlike that of low quality scrap – a function of economic conditions. The fast growth of EAF has promoted a shortage of quality scrap and price volatility in the low quality scrap supply. This volatility is reflected in the demand for DRI. This is particularly true in Asian region (excluding Japan) where scrap is scarce and relatively expensive and often imported from North America and Europe.

In Asia however, DRI also used for long products as higher costs of production makes DRI competitive with scrap steel. This steel demand is limited. The question is what is the scrap situation? Some evidence suggests no shortage with exports of scrap from Europe and even the USA.

Merchants supply currently around 4 mtpa of scrap (world shipments was around 7 Mtpa) today out of some 34 million production, but will increase three- to four-fold in by year 2000 to around 12 to 16 mtpa. Most growth from Latin America.

The future for DRI

There are 40 projects on the drawing board around the world with 40 per cent in the Middle East and the Asia Pacific region but most are for captive markets. The increase if actualised would represent an increased production capacity of 80 million tonnes. A realistic projections if for only one-half of around 40 Mtpa to be built. Some 8 Mtpa of capacity is nearing completion and a further 8 Mtpa while not under construction, but for which agreements have been struck.

Steel mills will increasingly use their own DRI production facilities with around 50 per cent of facilities that have at least commenced construction producing DRI for sale at arms length – a stark contrast to just 10 years ago when less than 10 per cent of production was for sale. Indeed it is worth noting that around 90 per cent of production from projects with firm commitments, will be sold at arms-length, ie. merchant sale. Now, what of the future?

Eight months ago, CRU, at AIC’s Third Asian Steel Summit in Hong Kong on June last year, came to a rather detailed conclusion that by including AUSI, An Feng Kingstream, but not including Mt Gibson or Mineralogy, the market needs no new capacity. And that was before the Asian economic slump took effect! They argued that the DRI market is on the verge of becoming a buyer's market. In their terms, "….the DRI market will be burdened by too much of a good thing."

New technology

New direct smelting process notably HIsmelt could supersede DRI production for EAFs. The company has spent some $30 million in research on its HIsmelt direct smelting pilot project. HIsmelt aims to have a $1bn project in operation producing up to 3 million tonnes of iron per year. It would be using coal from eastern States or from Indonesia.

Generally with natural gas in limited supply, there is a move to using coal and fines to produce liquid products that would represent the third phase in steel production. Kobe Steel in Japan have a process at laboratory stage that can produce molten iron (in other words avoiding the EAF) in 5 minutes that is very low in carbon. It uses coal and iron fines

For DRI specifically bulletEAFs and mini mills will continue to develop at expense of open hearth and some integrated blast furnace. bulletBatch production will move to continuous charging. bulletProcesses will develop to use fines instead of requiring their prior pelletisation. bulletProcessing are being designed using fluidised bed reactors that avoid the gas reformer. bulletThin slab casting will develop. An interesting prospect is for the integration of DRI and direct smelting. It may well develop that that DRI may become a component feedstock.

However, while direct smelt may be the next technology, it is at least five years away. I suspect that even BHP may have the capacity to incorporate that technology with its HBI investment. In fact it may turnout to be an excellent complement as present indications are that DRI could become a component feedstock for direct smelters.

So in conclusion, I began on a negative note. Let me end with a positive one. The Government of WA in 1993 set an objective for iron production in our State:

"That by the time the 3 billionth tonne production figure has passed, that at least 20% by value of product would be in a processed or value added form."

The BHP HBI project alone will achieve around one-half of the target!

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