Feature: Russia's hot-briquetted, direct-reduced iron capacity set to double

Russia's hot-briquetted iron and direct-reduced iron capacity is set to more than double over the next five years to over 17 million mt/year, according to projects in the pipeline, meaning the country's production or procurement of DR-grade pellets needed to feed new HBI and DRI furnaces will also have to double.

Alexey Kulichenko, the chief financial officer of Severstal, told analysts during a call Feb. 18 that the Russian mining and steel company will be considering developing its HBI production during its next strategic cycle, following on from the completion of its current 2019-23 five-year program.

Kulichenko didn't give any further details, saying that Severstal will present its strategy beyond 2023 in June.

With that, Russia is looking to become a significant producer of HBI/DRI leaping from a sole player market to that shared among three or four big companies later this decade.

In addition to its 8 million mt/year HBI/DRI capacity envisaged for 2022 – a sum of 4.8 million mt/year of HBI and 3.2 million mt/year DRI – Russia's sole maker of these products Metalloinvest will add in 2024 to mid-2025 two more furnaces with the combined HBI output of 4.16 million mt/year.

Steel major NLMK intends to build a 2.5 million mt/year HBI complex by 2027. And Ecolant, a company affiliated to steel pipe and railway wheel producer OMK, has just broken ground on a 2.5 million mt/year DRI and 1.8 million mt/year electric arc furnace steelmaking complex in Vyksa, the Nizhniy Novgorod oblast. The DRI-EAF plant should be up and running in 2025.

S&P Global Platts estimates that if all these projects get completed, they will bring Russia's HBI/DRI capacity to 17.1 million-17.2 million mt/year by 2027. More than twice the capacity available now, but not including a potential addition from Severstal, given lack of details on volume and timeline.

Pellet question

Establishing greater HBI capacity will necessitate a corresponding increase in DR-grade pellet demand. But at this point it is not clear whether the country will seek self-sufficiency in DR-grade pellets or whether some quality issues with iron ore concentrate or simply with its quantity will make Russia reliant on imports, the sources of which are also not that plentiful.

Severstal's only pellet producer, Karelsky Okatysh, in Karelia, northwestern Russia, makes high-quality iron ore pellets with an iron concentration of up to 67%, Several said in its 2021 report.

Last year, Okatysh made 11.6 million mt of pellets, of which 37% (4.25 million mt) were sold to third parties with the remainder used by Severstal's flagship Cherepovets Iron and Steel Works, or CherMK.

Severstal declined to specify whether there was any DR-grade tonnage within that total or even the share of 67% iron-rich material, saying the information is commercially sensitive.

"Not all pellets with 67% Fe content are DR-grade pellets. If at the same time they have low cold strength and a high gangue content, such pellets will be sticking together when reduced in a DRI shaft furnace, and for that reason they are no good," one industry source told Platts.

"DRI is made of DR-grade pellets exclusively," the source said. "These cannot be mixed with blast furnace pellets, and must have minimum gangue, maximal strength and low sticking index."

A representative of Metalloinvest, the only Russian company producing DR-grade pellets on a big scale and since recently for sale too (with 200,000 mt offered to the market in 2021), said that aside from high iron content, a silicon dioxide presence as low as possible is also important when it comes to DR-grade material. The best DR-grade pellet chemistry Metalloinvest has achieved so far is 68% Fe and 1.4% SiO2.

Mining expansions

Quality aside, the quantity of mining and pelletizing might have to go up too to support companies' HBI ambitions, especially if they want minimal reliance on supply chains that are out of their control.

As it takes 1.32 mt and 1.5 mt of pellets to make a ton of DRI and a ton of HBI, respectively, the total amount of pellets needed to supply that future HBI/DRI production is 24.75 million mt/year – this is about 120% more than what was made in Russia in 2021, Platts estimated.

Metalloinvest does not disclose its DR-grade output and only gives the total pellet figure, but its last year's 3.28 million mt DRI and 4.47 million mt HBI production implies that the company had to produce 11 million mt DR-grade pellet feed, Platts estimated.

So far, NLMK has made a pledge to expand its Stoilensky iron ore mining operations in the Belgorod oblast, where it aims to bring ore extraction to 67 million mt, up from 43 million mt/y in 2020-21, increasing its total annual capacity for concentrate and pellets to 30 million mt and 17 million mt, respectively. New pellets will have iron content exceeding 70%, compared with 65% in blast furnace pellets Stoilensky makes today.

Last year, NLMK produced 11 million mt of saleable concentrate and 7.7 million mt of pellets, both almost entirely consumed by NLMK-owned Novolipetsk steelworks.

It is not clear whether the volumes of concentrate at Severstal's disposal will be enough to ensure Severstal's self-sufficiency in DR-grade pellets; currently three quarters (13.8 million mt) of its processed iron ore are destined for CherMK and the mill has plans to grow steel production by 1 million mt/year in the next couple of years meaning more iron ore going into blast furnaces.

That said, Severstal plans to vigorously develop its Yakovlevsky Rudnik, also in Belgorod. In 2022, Yakovlevsky is expected to deliver 3.9 million mt of direct shipping ore, 70% more than the 2.4 million mt mined in 2021, according to Kulichenko.

This alone is able to increase Severstal's iron ore production by 8.5% this year, even if throughputs at the other two iron ore miners -- Karelsky Okatysh and Olcon -- will remain stable, Platts estimates.

The Ecolant project does not provide for captive iron ore mining, but will instead source pellets -- up to 3.5 million mt/year -- from the domestic market .