H2 Green Steel reassures steel buyers by securing Vale, Rio Tinto iron ore pellets

Swedish hydrogen-based steel developer H2 Green Steel has secured scarce volumes of high quality iron ore pellets from Vale and Rio Tinto, providing some reassurance to buyers already making forward purchases of lower carbon emissions flat steel.

The global seaborne direct reduction (DR) pellet market was estimated to account for around 40 million mt in 2022 by Vale, with related pellets delivered mainly to the Persian Gulf and the Americas.

Tightness in global pellet markets had abated by late 2022, and with more US DR pellets supplies planned, the market viewed H2 GS’s prospects in securing iron ore more favorably when the industry gathered at a conference in Stockholm early May.

Rio Tinto will supply IOC pellets from Canada and also offtake H2 GS’s green hot-briquetted iron (HBI) product during the initial steelmaking ramp-up, while Vale will supply DR pellets from Tubarao in Brazil, according to the Swedish developer. H2 GS implied that IOC pellets will take up a larger share of its needs.

Recent accords will enable Rio Tinto and Cargill to each have green HBI for sale to end-users from projects in the Nordics. Cargill agreed an offtake from Blastr’s Finnish DRI and steel project, which is currently deciding between Norway and the UK for a pellet plant.

H2 GS was unable to secure long-term pellet supplies from Sweden’s LKAB, the world’s second largest pellet producer with around 28 million mt/year of capacity. State-owned LKAB operates iron ore mines close to Boden.

LKAB is supplying green pellets to its HYBRIT joint venture DRI pilot plant in Lulea, which plans to develop a commercial green hydrogen DRI plant ahead of H2 GS.

LKAB is ongoing a strategy transformation as demand for DR pellets surges from 2025, becoming a key enabler of European steel decarbonization. LKAB also has plans for developing its own HBI in Sweden to remove emissions from transporting iron oxide pellets, eventually cutting out pelletizing altogether with a move to direct reduction of iron ore resources.

LKAB’s iron ore mining and pelletizing operations are in three sites with exports via Narvik and Lulea, while the company’s commitments to existing buyers such as Salzgitter and Thyssenkrupp was understood to have limited discussions with H2 GS, according to sources familiar.

European mills need more pellets as they transition to DRI from blast furnaces which also use sinter and lump. LKAB also sought to maintain supply contracts to other companies in the Atlantic and Middle East and North Africa market, as well as to SSAB, which is 100% reliant on pellets, and counts LKAB as its biggest shareholder.

Vale expects global DRI/HBI output to rise to 200 million mt by 2030, from around 130 million mt in 2022, with projects incentivized by policies and subsidies in MENA, Europe and North America.

H2 GS has signed up with Midrex for a 2.1 million mt/year DRI plant producing both hot DRI and HBI products. It plans 5 million mt/year of electric arc furnace steel production using ferrous scrap and DRI, in two phases. The company is sticking with initial output from a 2.5 million mt/year EAF starting in 2025. The DRI plant may imply demand for around 3 million mt/year of pellets at full capacity with no maintenance downtime, although there is potential for some lumps to be used instead of 100% pellets.

H2 GS is working with iron ore miner Anglo American on low-carbon steelmaking value chains, including trials of South African Kumba lump ore and Brazilian high-grade iron ore pellet feed, in an earlier joint accord.

Platts, part of S&P Global Commodity Insights, assessed contract 67.5% Fe DR pellet premiums at $59/dry mt for August, with all-in 67.5% Fe DR pellet prices in August assessed at $167.25/dmt FOB Tubarao.


Green hydrogen steel


H2 GS expects that using green hydrogen rather than natural gas will allow for production of low carbon intensity flat steel products with all-in emissions similar or below ferrous scrap-based renewable EAF steel.

H2 GS has been selling forward steel production for well over a year, signing up several end-users and steel processors, as well as trader Cargill Metals, according to company statements.

BMW, Mercedes-Benz, Miele, Scania, Schaeffler, Kloeckner, Electrolux, Marcegaglia, ZF, Steel Processing (Midlands) and Bilstein Group are among buyers agreeing to steel purchases. Pricing is understood to be based on a negotiated low-carbon premium reflecting investment costs to bring on supply, charged over flat steel indices over the related forward period.

Due to upstream mining and processing emissions from iron ore, pellet production and ferrous scrap suppliers and related logistics upstream, along with emissions from ferroalloys and other EAF inputs, H2 GS product’s will still have some associated carbon emissions, while it targets slashing carbon intensity on a Scope 1 and Scope 2 basis to a fraction of coal-based blast furnace produced steels. The company expects to cut emissions from iron ore conversion to metallics by up to 95% by using green hydrogen instead of coal.

In March 2022, ArcelorMittal said its EAF mill in Sestao, Spain, produced hot-rolled coil for Grupo Arania with 532 kg/mt of CO2 of finished steel on a life-cycle Scope 1, 2 and 3 basis, with a high proportion of scrap and 100% renewable power used, setting a new reference for the flat steel business to supply low carbon certified steel. ArcelorMittal said at the time that the 532 kg of CO2 demonstrated was significantly lower than conventional coils produced via the EAF route.

The HYBRIT joint venture has already produced steel with SSAB with trials for various auto and other steel applications. ArcelorMittal has been testing 100% hydrogen DRI at a pilot in Hamburg, while other DRI plants using Midrex and Tenova HYL technology typically run on natural gas which is reformed to be high in hydrogen content. Adapting iron and steel with 100% hydrogen reduction in trials may help overcome concerns around any embrittlement and limitations on steel properties and tolerances.

Thyssenkrupp Nucera will supply alkaline-based electrolysis technology to Boden, providing more than 700 MW of capacity with the DRI module designed to run exclusively with on-site produced green hydrogen.

Author Hector Forster