Australia’s Iron Ore Industry Faces Challenges in Decarbonizing Steel

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A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) warns that Australia’s iron ore industry is at risk of losing ground to other countries as they move to meet growing global demand for green iron.

The report states that the quality of the ore from Australia’s primary iron ore-producing region, the Pilbara, mainly falls below direct reduction-grade (DR-grade), making it currently ill-suited to low-carbon steel production.

It leaves Australia open to growing competition from places such as Brazil and Africa, which have abundant high-grade ore reserves. In addition, the Middle East is already a hub for DRI-based steelmaking using natural gas and is well placed to switch to green hydrogen produced using the region’s abundant solar resources.

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The report argues that Australia has numerous advantages in leading the global steel sector into a low-carbon future, particularly renewable energy resources, good infrastructure and a stable investment environment. However, it says that the country must act quickly to address the challenges posed by its low-quality ore and the high cost of shipping green hydrogen.

The report calls for Australia to focus on using green hydrogen in domestic industrial sectors where it makes sense to do so, such as in producing value-added products like green iron. It also says that the country must accelerate research and development that will allow using Pilbara iron ores in low-carbon ironmaking using DRI processes.

“Because of the scale of Australian iron ore exports, the global steel sector will need Australian iron ore to be heavily involved in decarbonization if net zero global steel emissions are to be achieved,” says Soroush Basirat, Energy Finance Analyst, Steel Sector and the report’s co-author. 

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“However, our report shows that Australia has to address these challenges if it is to remain the global iron ore leader in a decarbonising world and not lose out amid growing demand for low-carbon iron and steel,” Basirat added. 

The report’s findings come at a time when the global steel industry is under increasing pressure to decarbonize. The International Energy Agency (IEA) has said that the steel sector must reduce emissions by 80% by 2050 if the world is to achieve net zero emissions by that date.

The shift to DRI-based steelmaking using green hydrogen is seen as one of the key ways to decarbonize the steel industry. However, the high cost of green hydrogen is a major barrier to its widespread adoption.

The IEEFA report says that Australia has the potential to be a major producer of green hydrogen, but it needs to address the cost challenge. The report calls for the government to provide financial support for research and development into green hydrogen production and to create a regulatory framework that encourages investment in the sector.