Rohan Somwanshi: Hello, and welcome to the latest edition of Commodities Focus Podcast, brought to you by S&P Global Commodity Insights. In the world where industries are chasing decarbonization, the focus falls on emission-intensive sectors like steel. So the steel industry is finding ways cut back on their emissions, and that’s where direct reduced iron, mostly known as DRI, comes into the picture. So this product provides a great opportunity for steelmakers to lower their carbon emissions’ intensity. Today, we’ll throw a spotlight on the, probably most important DRI market in the world right now, that is India, and we’ll discuss talking trends and themes including demand and supply fundamentals in India’s DRI market. To make things more colorful here a bit, we will also bring in our expert’s views on cost-benefit analysis on DRI, and how different industry stakeholders work, and on the importance of them, and what we have done to capture this and reflect this in an increasingly important market.
I am Rohan Somwanshi, managing editor at Commodity Insights, and I’m joined today by a couple of amazing experts in Asian metals markets. My colleagues, Fred Wang, senior Editor for Asian Iron Ore, and Sumita Layek, senior editor, coking coal. Welcome to the podcast, Fred and Sumita. So direct reduced Iron, this is also known as sponge iron, is actually playing a greater role in India’s steel industry. And DRI now has a huge market share in India’s overall steel production landscape. DRI now accounts for about 33% of India’s total steel output. So basically, what happens during DRI production actually, I can give you, and it’s a process to reduce iron ore using coal or natural gas. And this DRI product acts as a substitute for ferrous scrap in steelmaking. So that’s a quick gist there, but let’s talk about the demand-supply conditions. Taking discussion to Fred, how is the demand and supply for this market like, Fred?
Fred Wang: Thanks very much, Rohan, and I’m glad to join this podcast with everyone here. I’m looking at this India DRI market. It is characterized by a rapid growth, driven by mainly India’s steel production targets and the ongoing shift towards more sustainable steelmaking practices. India actually being one of the largest producers of iron ore globally, the Indian government has set a target of achieving crude steel capacity of 300 million tons by 2030, which is a couple of years away. And there is expected to further boost the demand for DRI with steelmakers looking for efficient and cost-effective raw materials. The expectation for India this year is, production volume is around 15 million metric ton of sponge iron, aiming 80 million by another four to five years by 2030. The expected growth rate is around 15% every year.
And we see that the production of DRI involves the reduction of iron ore in solid form, which is relatively more environmentally friendly as compared to traditional blast furnace methods that emit significant amounts of carbon dioxide. So in India, particularly Raipur in the State of Chhattisgarh, the India DRI industry has witnessed some of the very substantial growth due to rising steel demand in various sectors. Just to name a few, construction, automotive, manufacturing, and investments in production technology. As these sectors evolve, DRI is expected to play a more crucial role in meeting the country’s steel production goals, and at the same time, address some of the environmental concerns. So the ongoing investments in DRI technology and its applications in steelmaking will underscore it’s significance in the industrial landscape in India, and that will help to make it a vital area for investment and development in the coming years as well.
Rohan Somwanshi: Yeah. So thanks, Fred, for diving into the Indian DRI fundamentals. Sumita, now bringing you into this conversation, what is your take on India’s DRI landscape?
Sumita Layek: Many thanks, Rohan, for your question. DRI has been playing a very important role in India’s steel industry, especially in India’s so-called secondary steelmaking units, which are spread throughout the country. However, DRI is most prominently used in the central or eastern parts, which is the steelmaking belt of the country. And as such, we see more DRI production from that region as well. This is of course due to the abundant reserves of iron ore in the region and the proximity to the iron ore mines. In the eastern part, the most prominent states producing DRI are Chhattisgarh and Odisha, and even for DRI trade, Raipur in Chhattisgarh and Rourkela in Odisha are not important.
Raipur over time has emerged as the significant center for DRI trade. It has also emerged as a hub for the secondary steelmaking industry. Raipur has the second-highest number of induction furnaces in the country, but it’s the biggest user of DRI in its induction furnaces, compared to other places where scrap is more highly used. DRI production and trade is going to remain prominent in Raipur in the years to come, as the cities away from ports, and thus scrap is unlikely to become a substitute for DRI. Also, as the broader conversation moves towards decarbonizations, DRI’s importance in the Indian steel industry is likely to become even higher.
Rohan Somwanshi: Thanks, Sumita. Fred, but there are many categories of DRI in the market. So if you could walk us through the types of DRI available in the markets.
Fred Wang: Yeah, of course, Rohan. So DRI’s primary use will be in the steelmaking process, particularly in induction furnaces, Ifs, and electric arc furnaces, EAFs. So DRI can be used directly in IFs and EAFs, or further processed into HBI for enhanced handling and transportation. So looking at the versatility of DRI makes it suitable for various steel grades, catering to some of the sectors mentioned earlier, manufacturing, construction, automotive, in which these demand centers require high quality steel products. And additionally, with the global steel industry moving towards decarbonization, DRI in India is gaining traction as a low-carbon alternative. And the DRI in the EAF route also looks appealing because it could significantly reduce carbon emissions as compared to conventional steel making methods.
Two of the key feedstock pathways that we see in this market comprise pellet DRI and cold DRI, where the main difference lies within the reducing agent used in the direct reduction process. So pellet DRI typically uses iron ore pellets as feedstock, while cold DRI uses iron ore fines or lump. Percentage-wise, pellet DRI accounts for more than 70% of the DRI production volume, which also require more capital, and also being more energy intensive, while the remaining of the percentage mainly lies within cold DRI, which have relatively lower capital cost. And also, typically, pellet DRI is more suitable for countries with abundant natural gas resources, cold DRI is preferred in countries with relatively limited natural gas, but ample coal reserves.
Rohan Somwanshi: Thanks, Fred. But maybe I can bring Sumita into this conversation, and what’s proportion of EAF and induction furnace in India? Because it is totally different market than other western markets.
Sumita Layek: Good question, Rohan. So in reality, there are very few electric arc furnaces in the country compared to induction furnaces, that run in thousands and are spread across the country. Now, how much is the industry trying to move towards EAF is an important question, but I don’t think we have a very encouraging answer as of now. If I speak about the integrated steel players, Tata Steel has decided to come up with several electric arc furnaces in the country. It has planned at least first three in Haryana, Gujarat and Chennai, where there is a lot of domestic scrap generation. Having said that, if you speak about the induction furnace producers in Chhattisgarh or Odisha or rest of the country, they are mostly trying to increase the capacity in their induction furnaces rather than moving to EAF. And also if you speak about the life cycle of induction furnaces, it’ll be, for the next couple of decades, very similar to the blast furnace route. So I think IFs are going to remain important and very significant for a long time in future. And EAFs are not going to replace them anytime soon.
Rohan Somwanshi: Thanks, Sumita. So now we have a glimpse into this mega steel hub and Raipur, but Sumita, who are the key stakeholders in Indian DRI market, and what’s the importance of them in the DRI industry?
Sumita Layek: Sure. I think the DRI industry in India, and especially Raipur, is very well established. It has the second highest DRI production capacity, and the highest induction furnace production capacity. So you have the DRI producers, steel producers, iron ore mining companies, and a very active trading community supporting the industry. I think it is also important to mention that the National Steel Policy 2017, that aims to achieve 300 million ton of crude steel capacity by 2030, everyone in the industry, including the integrated steel producers and the government, agree that that goal will not be possible without the contribution of the secondary steel industry. While the operations of the top five integrated steel producers are very different from the hundreds of induction furnaces across the country, they have equal importance. And by that, DRI industry is very significant.
Rohan Somwanshi: Thanks, Sumita. So the one thing that drives every business is unit economics. We talk about Raipur, but that actually also applies for the DRI industry. So if we look at the costs and benefits for producing DRI in India, I think one of the advantages of using DRI probably would be, it’s more cost-effective option versus imported scrap. And this turns out especially true when iron ore and coal prices are low. So this makes DRI a viable choice for steel producers, and we actually have optimal resources to back up DRI. We all know India has abundant reserves of iron ore coal, and these are the primary raw materials for DRI production. So this ensures a steady supply of raw materials for DRI plants. And from environmental perspective, DRI production has a lower impact if we compare to traditional blast furnace iron making. So kind of a win-win here because producing DRI aligns with India’s push towards green steel production.
But there might be some quality issues that may then lead to technical hurdles for steel producers who are using DRI. And that depends on the type and materials of the feedstock. And also to note here is an increasing availability and use of steel scrap in India. So that also plays into the DRI demand picture. So as I said, steel demand would continue to grow in India, and relative DRI demand is also increasing. But what would be an interesting thing to see is what Indian government is doing. They are exploring alternative steelmaking methods, including hydrogen use for DRI production. That really brings those emissions down, but using hydrogen may also require higher grade iron ore, which typically India is not known for. So if industry improves the quality of iron ore through beneficiation, and that will lead to higher metal hot output, and that will also reduce production costs, and probably ultimately ensure raw material security for DRI plants.
But still, there are some challenges, like tailing disposal, transportation cost, and this is something industry really needs to take care of. And considering all these factors, all these market dynamics and industry needs, [inaudible 00:12:01] has launched a daily, Pellet-based, Indian, domestic DRI spot price assessment on an Ex Works Raipur, Chhattisgarh basis. Fred, could you share a bit more on what this assessment is and the rationale for the launch?
Fred Wang: Yeah, sure, Rohan. As we know, India is one of the largest producer of DRI in the world, and there are expectations for the production of DRI in India to grow, alongside the increase of the additional steelmaking capacities in India. So from what we have discussed earlier, we have launched this assessment, which seeks to reflect the spot prices in this increasingly important market. This daily price assessment captures daily spot prices through trades, bids, offers, and tradable levels for pellet DRI, of ranging volume from 100 metric tons to 5,000 metric ton, on an Ex Works Raipur basis, in rupees per metric ton, as at the 5:30 PM Singapore time stamp. There will also be a USD-per-metric-ton conversion to strike a comparison with the seaborne and international markets.
Rohan Somwanshi: Thanks, Fred. We now got a really good glimpse into this fascinating world of DRI, and how India is right at the top of this sector. So that brings our conversation to close. Thank you, Fred and Sumita, for joining us today on this podcast. Our listeners can expect more information on this from the links mentioned in our show notes. This Commodities Focus podcast was produced by digital editors Shikha Singh and Dipthi Bhatt. Thank you for listening.
