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Encouraging outlook for Indian DRI production

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Between them, electric-arc furnaces and induction furnaces contributed 57% of India’s crude steel production of 101.4 million tonnes in 2017. But as the country aims for steelmaking capacity and production targets of 300 million tonnes per year and 255 million tonnes, respectively, by 2030-31, the share of electric steelmaking is forecast to fall to 40%. Even so, the combined capacity of EAFs and IFs will require major expansion by 48 million tonnes to 120 million tonnes in the next 12 years to meet India’s ambitious targets. As those producers are increasingly using direct reduced iron (DRI) and reducing their reliance on imported steel scrap, the profitable merchant sponge iron manufacturers have started planning for capacity expansion. 

For example, Tata Sponge Iron, a subsidiary of Tata Steel, which is operating a 390,000 tpy coal-based plant at full capacity in Orissa’s Keonjhar district, has received crucial clearances from the Ministry of Environment and Forest to expand capacity by 35,000 tonnes. In recent times, JSW Steel commissioned a 1.2 million tpy Corex gas-based Midrex DRI plant at Vijaynagar in Karnataka. A shortage of natural gas has led Jindal Steel & Power to use synthesized gas as reductant to run a 1.8 milion tpy sponge iron unit at Angul in Orissa.

Denied priority allocation of natural gas, which is enjoyed by fertilizer and power plants, the country’s three natural-gas-based DRI plants – of which two are owned by JSW and one by Essar – on some days only get 3% to 5% of their requirements from the government pipeline. Even so, the gas-based segment of the DRI industry, with capacity of 12.6 million tpy was able to lift production by a hefty 79.47% to 7.032 million tonnes in 2016-17, from 3.92 million tonnes in the previous year, by using imported gas and the fuel bought from the local Reliance Industries. Indications are available from the government that higher levels of imports and domestic production will ease the natural gas supply situation, giving relief to sponge iron manufacturers. 

Robust DRI industry
India’s steel secretary Aruna Sharma wants a “robust” DRI industry. At the same time, she wants coal-based sponge iron makers to function in a way that will not cause further harm to the environment. In spite of the government laying down strict norms for their operation, about 315 units using coal as reductant continue to foul the atmosphere. The problem units are often small units running a 100 tonne per day kiln. They are also not equipped with waste heat recovery boilers to produce power and consequently have unacceptable levels of carbon emissions.
The small coal-based units make ordinary DRI, which fetches lower prices than the sponge iron produced by gas-based units or technologically advanced ones like Tata Sponge. Many of the small sponge iron makers in the country are swing producers who become active in good times like now. They stopped production in July 2015 when steel, and along with that sponge iron prices, collapsed, but they have come back to life more recently. 

As a signatory to the Paris Agreement on climate change, India, which accounts for over 4% of global emissions, will have to reduce its carbon footprint by 33-35% by 2030 from the 2005 level. As was expected, in pursuit of that goal the government has decided to come down hard on the metals sector, including DRI units and induction furnaces. At a recent meeting with the press in Kolkata, India’s steel minister Birender Singh said: “We are making good progress in making the operation of DRI and IFs environment friendly. Not only that, we want sponge iron of uniform high quality for the benefit of secondary [electric] steel sector and to reduce its dependence on imported scrap.” 

Standards laid down by the Bureau of Indian Standards (BIS) demand that the quality of steel made by electric steelmakers will have to be at par with BF-BOF route producers. Compliance with BIS standards is essential for electric steelmakers to be able to bid for government steel orders. 

The country’s ‘national steel policy’ enacted in May 2017 highlights the desirability of upgrading the “coal-based DRI capacity... to gas-based route” and at the same time restoring “domestic gas supply to the steel sector,” including the three operating natural-gas-based plants with aggregate capacity of 9.6 million tpy. The policy further says that the steel ministry will evaluate “options... in coordination with the ministry of petroleum and natural gas for restoration of domestic gas supply to the steel sector.” 

Deependra Kashiva, executive director of the Sponge Iron Manufacturers Association (SIMA), says: “Laying of the gas pipeline between Jagdishpur in Uttar Pradesh and port city of Haldia in West Bengal that is to go through Orissa and Jharkhand will be completed by December 2020. That will create condition for migration of many coal-based DRI units in the eastern part of India to making sponge iron by using gas.” There is a major concentration of DRI plants in iron-ore and coal-rich eastern India. 

Sharma says the steel policy has projected a likely sponge iron capacity of 114 million tpy by 2030, when annual domestic demand for the intermediate product will be 80 million tonnes. On the basis of environmental considerations, and also on the assumption that there will be considerable improvement in domestic gas supply, the share of gas-based DRI capacity will be 30% of the industry total in 2030. According to SIMA, in the industry’s present capacity of 48.63 million tonnes, coal- based units have a share of 36.03 million tonnes and the rest is owned by gas-based plants. 

Kashiva says: “As the Indian steel industry’s operation is required to become more and more environment friendly, I don’t see a future for the small-capacity coal-based DRI units without waste- heat-recovery boilers. They have relatively high production costs since they are required to buy power from the grid, unlike the ones with 350 tonnes per day kilns. The future is, however, bright for large-capacity plants, which will be required to supply growing amounts of sponge iron to [electric] steelmakers.” 

But in order to create the ideal growth conditions for the industry, Coal India Limited, the country’s government-owned monopoly producer of the fuel should reserve “high grades of non-coking coal good for metallurgical applications for DRI units,” says Kashiva. Similarly, the government-owned NMDC, which is India’s largest merchant producer of iron ore, has to be more accommodating of the requirements of DRI industry, he says. 

The country already has some owners of iron ore mines, who downstream make sponge iron and also steel, thereby enjoying the cost advantage that such integration offers. Tata Sponge Iron is a good example which, by being a subsidiary of Tata Steel, gets iron ore that is high in iron content and low in gangue content from the latter’s mine in Joda in Orissa. This, and also the use of good-quality coal from within India and imported from South Africa, enables Tata Sponge to make the best-quality sponge iron. The company reminds that electric steelmakers have a distinct preference for DRI over steel scrap, which has higher levels of tramp elements. 

Industry officials say that, emboldened by the good showing of the steel industry in the past two years and the government commitment to provide a “positive policy environment” to promote electric steelmaking, quite a few induction-furnace groups are readying plans to set up captive DRI units. If hot DRI from captive units is transferred to furnaces, then the energy consumption in electric steelmaking gets reduced by 16% to 20%. A spokesperson for the Indian Chamber of Commerce says that ideally the backward integration for induction furnaces should go beyond DRI to pellet production.

Pellet production
Sharma accords a high priority to promote domestic use of pellets as well as their export. She argues that in the process of mining and handling of iron ore, fines generation amounts to around 70%, making it essential to beneficiate and agglomerate to make sintered products and pellets. Over the years, Indian steelmakers have exercised the easy option of using high grades of lump ore, leaving the fines to accumulate at mine heads after some quantities of exports. According to RK Sharma, director general of Federation of Indian Mineral Industries, around 150 million tonnes of fines at mine sites are causing environmental hazards and need “rapid evacuation.” 

A point of concern for the government is India’s low (35%) use of its pellet-making capacity of around 90 million tpy. In the first place, growth in capacity was aided by the government reducing the import duty from 7.5% to 2.5% on pellet-making machines. Since a sure way of improving capacity use will be to create the ideal conditions for exports, New Delhi also abolished the 5% export duty on pellets in January 2016.

Steel secretary Sharma says: “We have made export of iron ore lump and fines with up to 58% iron content duty free. Let better grades of ore fines be converted into pellets and sold in the world market. Value addition to fines is the mantra.” This could be seen as her response to the mining industry’s plea to extend export duty waiver to ore with up to 62% iron content. 

Steel groups such as Tata Steel and Steel Authority of India Limited are hopeful that the government will soon redeem the commitment made in the steel policy that suitable “regulatory changes” will be made to ensure “utilization of low grade fines” piled up at their mines. Captive mine owners will get relief if they are allowed to engage third parties to remove accumulated fines for beneficiation, agglomeration and pellet production. This will become possible if the present ownership condition of captive mines, which forbids sale of minerals, is tweaked. 

“Hopefully, the government will bring about the regulatory changes quickly to give relief to captive mine owners that will also result in boosting pellet production. Maybe under the expected new dispensation, steel groups will be required to buy back pellets to be made from its fines for use in their blast furnaces. The steel policy foresees charge mix in blast furnaces in 2030 will be in the ratio of 60% sinter, 25% pellets and 15% lump ore. So the focus will be on growing the use of fines,” says the Chamber of Commerce spokesperson. 

Essar Steel and also Brahmani River Pellets are transferring iron ore from mines to their pellet plants a few hundred kilometres away through underground slurry pipelines running through more than one state at almost one-fifth the costs involved in rail or road transportation.
 
Moreover, slurry pipeline operation is highly environmentally friendly and it eliminates wastage of ore involved in overground transportation. Seeing the operational success of the two groups, the government has decided to extend a helping hand to the industry in “timely completion of ongoing slurry pipeline projects.”

By: Kunal Bose

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