July 2021
China officially announced that its carbon dioxide emissions will peak by 2030 before striving to achieve carbon neutrality by 2060. According to statistics from the International Energy Agency, global energy-related carbon emissions in 2020 totalled 31.5Bt, with China holding the largest global share at 9.45Bt. China's steel carbon emissions account for more than 60% of global steel carbon emissions, and the steel industry's carbon emissions account for about 15% of the country's total emissions, according to the China Metallurgical Association.

The Chinese government expects that carbon emissions from the steel industry will peak by 2025 and achieve a 30% reduction (~420Mt) from that peak by 2030. There will be a substantial decline by 2035 and the steel industry in China is expected to be decarbonized significantly by 2060. This transition will boost demand for direct feed iron ore products—pellet and lump—as China's steel industry tries to lift pellet ratio in blast furnaces to 30% by 2025, up from 17% in 2020.


Pellet vs Sinter

The blast furnace charge is composed of sinter, pellet, and lump. Each blast furnace must determine the ratio of various charge according to different production conditions to achieve the targets of environmentally friendly and low-cost production.

The comprehensive metallurgical properties of sinter are better than that of pellets. The disadvantages of pellets are high expansion rate and low crush strength. At present, some blast furnaces in North America and Europe use 100% self-fluxing pellets. The metallurgical properties can fully meet the requirements of blast furnace ironmaking, and good blast furnace production performance  has also been achieved.

The energy consumption of the pelletizing process is two-thirds of that of sintering, the environmental protection cost is low, the iron grade is 5-9% higher than that of sintering (under the same conditions of raw material grade and alkalinity).

The investment cost in pellets is 30-50% higher than that in sintering, but the operational cost will be reduced in large-scale production.


Current Status in China

China produced 888Mt of pig iron and 1,053Mt crude steel in 2021, of which ~967Mt was from BOF method, accounting for 91.8% of total crude steel output. Over the long term, it will remain reliant on BF/BOF steel to keep its steel making juggernaut rolling. AME estimates that pig iron ore will remain ~900Mt over long term.

As we know carbon emissions mainly comes from coke and pulverized coal utilised in the blast furnace. Reducing the coke consumption has become one of the important realization methods to cut carbon emissions. The coke consumption can be reduced mainly by increasing the Fe grade of the iron ore into the furnace, as well is the use of larger blast furnaces which have greater thermal efficiency. Therefore, increasing pellets to replace part of sintered ore has become one of the main focus points. In China, 70-80% of the blast furnace charge is sinter, 15% is pellets and 5-10% is lump ore, while steel producers in the EU and US have been able to reduce the coke consumption by increasing the proportion of pellets to ~90% for blast furnace.


China’s Domestic Production

China’s proportion of pellets in the blast furnace charge was only around 13% in 2017, but it has gradually grown, reaching 17% at the of 2020. Pellet production in China during the same period was 110Mt in 2017 and jumped to ~182Mt in 2020. Chinese pellet production is expected to reach 208Mt in 2025, a CAGR rate of 2.7%. It is estimated that pellet capacity at the end of 2020 was 250Mt and an additional 100Mt will be added by 2023.

However, the main factor restricting the increase in pellet output is the shortage of available raw material. The increased concentrate supply from Chinese domestic iron ore will be limited over the long term due to reserve limitation and environmental issues, even although China’s NDRC is encouraging domestic iron ore producers and end users to boost domestic exploration. Fines from Australia and Brazil is mainly utilised for sintering, and the amount of iron ore fines suitable for pelletizing and imported finished pellets is relatively small.



Imports from the Global Pellet Market

Compared with the global iron ore market, pellet volumes from the seaborne market are relatively small. AME estimates that a total of 150–160Mt pellet was available on the seaborne market annually. China imported ~45Mt of pellet in 2020, accounting for 28% of global pellet trade. Vale, the largest pellet producer in the world, is currently subject to operation disruptions due to the ongoing impacts of the dam collapse as well as the Covid-19 pandemic.




Pellet demand in China is expected to see a significant increase as China’s steel industry tries to lift pellet ratios in blast furnaces to 30% by 2025, up from 17% in 2020. It is estimated that carbon emissions will be reduced by approximately 40Mt if pellet consumption reaches the target. However, AME estimates that the total of 430–450Mt of pellet is required to meet the target if pig iron production maintained at 900Mt in China. Considering China's domestic production and global supply constraints, AME does not expect that China can achieve the 30% of pellet in the blast furnace burden by 2025.

Alternatively, EAF has been used to reduce carbon emissions in Europe and US. China‘s Ministry of Industry and Information Technology set out a target to increase scrap steel for recycling to 300Mt by 2025, up from 230Mt in 2020, accounting for 30% of crude steel production. Key targets increasing EAF steel output to over 15% of the country’s total and scarp use in steelmaking to 30% by 2025.

Moreover, using direct reduced iron (DRI) in EAF to make higher quality steel than using scrap steel is an energy-saving and environmentally friendly process of introducing clean iron units into the melt. DRI contains less harmful impurities, which is very beneficial for smelting high-grade steel. However, China's DRI production is less than 1Mtpa as the process requires large supplies of low-cost natural gas or LNG to be economic.

Recently, China’s HBIS Group announced that it will build a hydrogen based DRI plant with an annual output of 1.2Mtpa in Zhangjiakou City, Hebei Province. Compared with the traditional BF/BOF process, carbon dioxide emissions will be reduced by 40% to 60%.

The first stage of 600kt is planned to be put into operation at the end of 2021. After completion, it will be the world's first industrialized production plant using hydrogen-rich gas to DRI. The second stage of an additional 600kt will use hydrogen as reducing gas generated by electrolyze water using wind energy, solar energy and other renewable energy realizing non-fossil energy smelting.