Direct Reduction (DR) Pellets and Green Steel – Who are the Industry Leaders?
- Noel Ong
- 1 day ago
- 23 min read
As the world race towards a 'Green Energy" revolution, I think that investors need to also start to think about what is a sustainable and establish-able shift to the "Low-Emission" conversation. I am a fan of renewable energy but I don't think that renewable energy is the answer to powering cities and civilisation. Similarly, I think the solution to a cleaner energy or environment is going to be solved with electric vehicles.
One of the most prolific contributor to "global pollution" is heavy industry like steel making and I think this is where retail investors can participate in the upcoming upside, if you understand the dynamics that have been happening in the sector.
The "Holy Grail" in the steel making and iron ore processing world is the production and commercialisation of high grade feedstock for Direct Reduction steelmaking. The concept of "Green Steel", if this is even a term that can be used, will require these products to be the feedstock. The path to Green Steel, at the moment, is about the production of Direct Reduction (DR) pellets or the new kid on the playground, Briquettes.
The idea of Direct Reduction steelmaking is the main game for the iron ore industry and that is why companies like Vale spent two decades researching and optimising what they call Iron Ore Briquettes in conjunction with the better know Direct Reduction Pellets.
Hence, to begin this conversation of Green Steel, we need to understand that the key is to separate true commercial Direct Reduction (DR) pellet producers from companies that are still at magnetite concentrate / feasibility / “DR-grade potential” stage.
A lot of ASX juniors talk about “DR-grade concentrate,” but very few have actually delivered commercial Direct Reduction (DR) pellets into the market. From my research, the only participants in this area are the big boys of the iron ore and steel making stakeholders.
The research for this Samso Insights simply sums up the following:
“The global DR pellet market is not large in terms of the number of producers. Companies like Vale, LKAB and Cleveland-Cliffs dominate supply, not because of scale alone, but because they can consistently deliver the high-grade iron units required for direct reduction steelmaking.”
The dominant players sit in a very small number with Vale, LKRB and Cleveland-Cliffs Inc as these three dominant players in a sector that looks like its going to drive the new generation of iron ore-steel making industry. To highlight what the industry leaders think of creating "cleaner steel making feedstocks", companies like Vale pent two decades going down this direction and they opened their first briquette plant in the early 2000s (Figure 1).
Figure 1: Vale Operations. (source: Vale)
Iron Ore Briquettes are a new product developed by Vale over the course of almost 20 years. It is a mixture of iron ore and a binder solution, which holds the particles together and gives the product strength. It is one of the ingredients used in steel production, replacing sinter, pellets or lump ore in blast furnaces.
Figure 2: Iron Briquettes developed by Vale. (source: Vale)
These iron ore briquettes (Figure 2) emit less carbon dioxide than traditional agglomeration processes (pelletizing and sintering). It can reduce CO2 emissions in the steelmaking chain by up to 10%. One of the major incentive for producing these briquettes is that it reduce emission of sulphur dioxide and nitrogen oxide and does not require the use of water to make them.
Direct Reduction Pellets vs Vale’s Iron Ore Briquettes – Two Different Paths to the Green Steel Market
I think before we get into all the details of the Samso Insight, lets try and understand a bit more about the difference in SR pellets and Iron ore briquettes. At this moment, my understanding of the the future of low-emission steelmaking, is pretty much all about on Direct Reduction (DR) pellets. My view is still new and I am learning as I do my research and for me, at this moment, DR pellets are the established feedstock for gas-based and hydrogen-based ironmaking routes. I think for those in the industry, they are already well versed with that Vale S.A. is also developing another pathway through its iron ore briquettes. Unfortunately, for the new investors into this sector, iron ore is not as simple as it appears.
Both products aim to supply steelmakers with high-grade iron units (Figure 3). The difference is in how they are made, how they are used, and where they sit in the commercial maturity curve.
Figure 3: The Art of making Green Steel - A diagrammatic representation of how the potential flow sheet of Green Steel production will look like. (source: Midrex)
DR Pellets – The Proven Industrial Standard
DR pellets (Figure 4) are a well-established product in the steel industry. They are produced by taking beneficiated iron ore concentrate, rolling the material into small spherical pellets, and then heat-hardening them in a pellet plant. The result is a consistent product with strong physical properties, high iron grade, and low impurities.
Figure 4: Direct Reduced Iron (DRI) is a critical metallic feed used in Electric Arc Furnace (EAF) and Induction Furnace (IF) steelmaking.. (source: Caspian Steel)
These qualities matter because direct reduction furnaces require feedstock that can maintain integrity during processing while allowing efficient reduction from iron oxide to metallic iron. That is why producers such as LKAB, Cleveland-Cliffs Inc. and Vale have long supplied pellet markets tied to premium steelmaking routes.
From a Samso perspective, DR pellets are the benchmark product. They already have operating plants, customer acceptance, logistics systems, and a clear market pathway.
Vale’s Iron Ore Briquettes – A Newer Feedstock Option
Vale’s briquettes approach the same market need from a different angle. Instead of forming pellets and firing them at high temperature, Vale compresses high-grade iron ore fines with binder technology at lower temperatures into dense briquetted blocks (Figure 2).
The practical implication is that the manufacturing route may reduce some of the emissions and processing steps associated with traditional pelletising. Vale has positioned this product as a lower-emission iron unit that can be used initially in blast furnace operations, while also being developed for future direct reduction applications.
This is an important distinction. Briquettes are not yet the global benchmark in the same way pellets are, but they represent an attempt to create another qualifying feedstock for steelmakers seeking lower-carbon pathways.
The Real Difference
The simplest way to frame it is this:
DR pellets are the established industrial solution.
Vale briquettes are an emerging alternative solution.
Pellets have decades of operating history and broad customer acceptance. Briquettes are earlier in the adoption cycle and still building commercial credibility through customer trials and scale-up programs. This is kind of looking at Pepsi when they first came on the scene when Coca Cola was already the accepted :-)
For investors, we have to firstly understand what these small round things are and decide if its important for the investing community. We need to understand if the future market may focus less on whether the material is round like a pellet or block-shaped like a briquette, and more on whether it delivers:
high iron grade
low impurities
strong handling performance
efficient reduction in the furnace
lower overall emissions
The Samso View on DR Pellets vs. Iron Ore Briquettes.
This is where many market narratives become too narrow. Saying the future belongs only to DR pellets may miss the broader picture.
The real opportunity is likely to sit in premium DR-grade iron units, whether they come as pellets, briquettes, or another engineered feedstock that meets furnace specifications.
That means the investment question is not simply who can make pellets. It is who can reliably supply steelmakers with the right iron product for the next generation of steelmaking.
DR pellets probably will continue to be the established commercial benchmark for direct reduction steelmaking. This thought is kind of the logical pathway, for now. Vale’s briquettes do offer an alternative approach, aiming for the same market with a different production method. Ultimately, the long-term success might depend more on performance, cost, and emissions profile than on the product's form.
What is more important is that the steel making industry will have a lot more need for multiple products that can achieve the same result of a reduction in emission.
Vale and the Commercial Reality of DR Pellets
When the market talks about Direct Reduction (DR) pellets, readers and those wanting to understand the future of iron ore need to be clear that DR pellets are not a theoretical product category (Figure 5). It already exists at scale, and one of the clearest global examples is Vale S.A.. Vale sits among the major producers of premium iron ore pellets and has built a product suite aligned with the growing demand for lower-emission steelmaking feedstock.
Figure 5: Vale Iron Operations are expansive and with the recent tragedy, the social importance has taken a new level of assurances. The Vale DNA is now deep in operating with Health and Safety leadership and producing products that serves the global community. (source: Vale)
The importance of Vale starts with geology. Its Carajás operations in northern Brazil are globally recognised for very high-grade iron ore, commonly referenced around the mid-to-high 60% Fe range depending on product stream. That ore quality gives Vale a natural advantage when producing premium concentrates and pellet feed suitable for DR pathways.
High iron grade (and lack of certain impurities - see Samso Insight "Direct Reduction Iron – The Iron Ore Opportunity Investors May Be Missing" ) matters because direct reduction furnaces require cleaner feed with lower impurity levels than many traditional blast furnace products. Vale disclosures regularly position its high-grade ores and pellets as part of the decarbonisation pathway for steel customers.
Figure 6: Vale business overview as shown in its Form 20-F (Annual Report 31 December 2024) submission to the United States Securities and Exchange Commission. (source: Vale)
The scale of Vale's operation gives me a clear view that the company has and is very serious in making the pellets/briquettes and they do this through a network of pelletising plants, including the long-established Tubarão complex in Espírito Santo, Brazil (see Figure 7).
Pelletising takes fine iron concentrate and upgrades it into hardened spherical pellets with consistent size, strength and chemistry (Figure 3). That consistency is important because DRI plants need reliable feedstock that can move efficiently through shaft furnaces without breakdown or excessive fines generation.
Vale’s commercial relevance is not limited to production volume. Geography also matters. The company has long supplied pellet markets into regions where direct reduction steelmaking is already established, particularly the Middle East, where natural gas-based
DRI plants have operated for decades, and increasingly Europe, where decarbonisation policy is accelerating demand for premium DR feedstocks. Vale has also publicly announced partnerships and studies linked to HBI and green iron hubs in Saudi Arabia, the UAE and Oman, reinforcing its role as more than just a bulk ore exporter.
Vale´s Tubarão complex - Vitória, Espírito Santo, Brazil.
Vale´s Tubarão complex is located in Vitória on Brazil’s southeastern coast, Tubarão is far more than a shipping terminal (Figure 7). It is one of the operational hearts of Vale’s iron ore system.
Figure 7: Location of Vale´s Tubarão complex
The complex is home to the largest production facility of iron ore pellets in the world and covers an area of 14,000 km2. Housing eight of Vale’s pellet plants, the complex produces more than 20 million tonnes of pellets each year (Figure 8).
This is where inland production meets the seaborne market, where raw tonnes become premium products, and where logistics scale becomes a competitive advantage that is difficult to replicate. In other words, this is the upmarket industrial hub of Brazil's version of Western Australia's Port Headland.
Figure 8: Briquette Plant at Tubarão. (source: Vale)
The best way to understand Tubarão is that the mines provide the resource base, and Tubarão provide the commercial engine. It is where scale, engineering and logistics come together to create durable advantage. It is also where the end products are shipped out (Figure 9).
Tubarão allow Vale to be the kitchen that makes its products. At Tubarão products are blended differently, pellet output can serve changing markets, and new technologies such as briquetting can be added into an existing industrial footprint.
Figure 9: Briquette being shipped at Por of Açu. (source: Vale)
Pilbara ores are typically blended so that customers get exactly what they want and this is effectively the same at Tubarão.
It includes the largest rail yard in Latin America and features operational units, an administrative building, cafeterias, bank branches, and a post office.
This is the distinction many investors miss. Not all iron ore tonnes are equal. Bulk fines shipped into blast furnaces are one market. Premium DR pellets are another market entirely. The second category demands ore quality, processing capability, customer qualification and long-term logistics reliability. Vale has all four.
From a Samso perspective, Vale demonstrates what a commercial DR pellet business actually looks like. It starts with the right orebody, but it does not end there. It requires beneficiation, pellet plants, technical acceptance by steelmakers, and access to customers already operating DRI or HBI pathways.
LKAB – Sweden’s Magnetite Advantage in the Direct Reduction Pellet Market
In Europe, LKAB has built a different model based on magnetite ore, and that distinction is highly relevant when discussing Direct Reduction (DR) pellets.
LKAB is one of Europe’s most established iron ore companies, operating large magnetite deposits in northern Sweden, centred around the well-known mining districts of Kiruna and Malmberget. These are long-life assets that have supplied the European steel industry for generations. What makes LKAB particularly important in the DR pellet discussion is that the company is not simply selling ore. It has developed a business built around upgraded pellet products, many of which are tailored for premium steelmaking routes.
Figure 10: Drilling rigs under ground. (source: LKAB)
Unlike bulk fines producers, LKAB’s model focuses on beneficiation and pelletisation. Remember that the beneficiation process is one of the major requirements with magnetite ores as they are generally lower in grade when that are in the host rocks such as banded Iron Formations. For companies like LKAB, the magnetite ore is concentrated and then processed into pellets with high iron content and consistent metallurgical properties.
When magnetite is processed and concentrated, the pathway naturally lends itself to creating premium products rather than low-margin raw fines.
DR steelmaking using the Direct reduction plants require feedstock with:
high iron grade
low gangue and impurities
strong physical integrity
consistent reducibility in shaft furnaces
These are specifications that premium pellet producers can meet more reliably than many bulk ore suppliers.
Figure 11: LKAB’s iron ore pellets and fines are highly enriched and contribute to lower environmental impact than the alternatives. (source: LKAB)
LKAB has taken an innovative step in collaborating with Swedish steelmaking companies in constructing a global unique pilot facility for fossil-free steelmaking (Figure 12). In the pilot plant a new process for direct reduction ironmaking will be tested in using hydrogen instead of natural gas.
Figure 12: LKAB, SSAB and Vattenfall have formed a joint venture called HYBRIT Development AB and will apply specialist knowledge in their respective areas to develop a future method of steelmaking. (source: LKAB)
The collaboration is placing at the centre of Europe’s decarbonisation story. Readers should take the significant narrative as an indication of the future of DR pellets. A company like LKAB does not take a role as a major participant in Sweden’s move toward fossil-free steel through initiatives such as the HYBRIT Project, a collaboration involving hydrogen-based ironmaking and steel production, if this is not viewed as the future of DR pellets and SR steelmaking. This is a smart move by LKAB to place itself in a strategic position because DR pellets are one of the key feedstocks for hydrogen direct reduction.
The initiative has the potential to lower Sweden's total carbon dioxide emissions by ten percent and Finland's by seven percent. It is considered crucial for Sweden's ability to achieve the goals outlined in the Paris Agreement. LKAB is responsible for several stages of the HYBRIT programme, which is a significant driver for the company.
"We are developing our own pellet process and the direct reduction process, drawing from our 50 years of experience selling pellets to customers who produce direct reduction iron.
Regarding pilot studies, we've gained substantial experience through customer discussions and have a finely tuned organization, having operated an experimental blast furnace in Luleå for the past 20 years. Over the years, studies on reducing CO2 emissions have also been conducted there," states Magnus Tottie.
Mineral Resources in 2026 – What Does LKAB Control?
LKAB’s core resource base sits in northern Sweden and includes the famous Kiruna, Malmberget, and Svappavaara mining districts. These are globally recognised magnetite systems with long mine lives and ongoing extensions.
The most publicised number in recent years has been the Per Geijer deposit, located near Kiruna, where LKAB announced one of Europe’s largest known rare earth oxide resources. While this is strategically important, the backbone of the company remains iron ore.
For iron ore, LKAB historically reports hundreds of millions of tonnes of proven and probable reserves, supported by a broader mineral resource inventory extending well beyond that through continued exploration and mine depth extensions.
The Kiruna orebody itself is one of the most significant underground iron ore deposits globally and has been mined for more than a century, with continuing drilling showing extensions at depth.
How Much Pellets Are They Selling Globally?
For 2025 results reported in early 2026, LKAB stated:
Total deliveries: 25.8 million tonnes
Production: 25.9 million tonnes
Historically, pellets make up the dominant portion of LKAB’s sales mix. Recent market reporting indicates pellet share has ranged around 85–90% of total shipments, depending on quarter and product mix.
Using that range, LKAB’s pellet sales in the latest operating year likely equate to approximately:
22 to 23 million tonnes of pellets annually
That places LKAB among the major premium pellet suppliers globally.
Cleveland-Cliffs Inc. – The North American Model for DR-Grade Pellet Production
To this point, we have established that we have a Direct Reduction (DR) pellet hub in Brazil with Vale and in Sweden with LKAB and now we turn our attention to North America, where, Cleveland-Cliffs Inc. has built a different but equally important position. The company is one of the few large-scale producers in the United States with the resource base, pelletising infrastructure and downstream integration to supply DR-grade pellets into the evolving low-emission steelmaking market.
Figure 13: Toledo- Direct Reduction Plant (source: Cliffs)
Cleveland-Cliffs is a vertically integrated business that integrates mining, pellet production, hot briquetted iron (HBI), and steelmaking. What I am finding now is that companies like Vale, LKAB and Cliffs are all making some form of vertical integration in their business and I am not seeing the same for the likes of Rio Tinto, BHP and Fortescue. An interesting thought.
Cliffs has a true vertical integration as they are just not selling raw ore, Cleveland-Cliffs transforms domestic iron ore resources into engineered feedstock products tailored for higher-value industrial applications. Vale and LKAB are creating value adding products but they don't appear to have gone the whole way to steelmaking. In some way, LKAB and the HYBRIT collaboration may their way on taking that next step.
The company’s iron ore operations are centred around the Mesabi Range in Minnesota and additional assets in Michigan (Figure 14). These districts have supplied the US steel industry for generations. Over time, the lower-grade taconite ores of the region required beneficiation and pelletising, which led to the development of one of the world’s most mature pellet industries. That legacy infrastructure is now strategically useful in the era of decarbonisation.
Figure 14: Cliffs Operations in North America. (source: Cliffs)
Cleveland Cliffs is the largest producer of iron ore in the United States . The company operates the Northshore and United mines in the Mesabi Range that produce ~9 Mt/y of BF pellets. Most iron ore mines in the Mesabi Range are centred around the town of Hibbing, including the United mine, however, Northshore is 70 km away at the north-eastern end of the geological formation (See Figure 14).
There are three main players in this region and that is Cliffs, US Steel and ArcelorMittal. Cliffs is by far the biggest player and in 2020, Cliffs had bought over part of the ArcelorMittal steel plant in its expansion.
Figure 15: North America Iron Ore Ownership Landscape. (source: CRU)
Cleveland Cliff Iron Ore Production
AS you can see if Figure 16, Cleveland-Cliffs have had a steady level of iron ore production. Iron concentrate from Cliffs’ Northshore mine is railed 75 km to a 5.5 Mt/y pelletising plant at the port in Silver Bay on Lake Superior (Figure 15). The pelletising plant completed a $90 million upgrade in August 2019, which now allows the plant to produce up to 3.5 Mt/y of low-silica DR pellets.
The remaining 2 Mt/y capacity is still dedicated to Blast Furnace (BF) pellet production, making it the only facility in the country able to produce both DR and BF pellets. Around 2.7–2.8 Mt/y of the new DR pellets will be shipped to Cliffs’ new $830 million DRI plant currently under construction in Toledo, Ohio. From the middle of 2020, the plant will produce 1.9 Mt/y of HBI for use in EAFs.
Figure 16: Cleveland Cliffs iron ore production up to 2019. (source: CRU)
Cliffs also owns the only operational mine in the Marquette Range, Tilden (Figure 14 and 15), which produces 8 Mt/y of BF pellets that are railed 26 km north to Marquette on the south shore of Lake Superior.
Product from Tilden is sold to Algoma's steelworks at Sault Ste. Marie in Canada and to AK Steel’s Dearborn works in Detroit. The adjacent 5.5 Mt/y Empire mine, also owned by Cliffs, was idled indefinitely in August 2016.
Why Is America Not a Global Iron Ore Supplier?
There is a mutual dependence and, consequently, a capacity connection between steelmakers around the Great Lakes and US iron ore producers. The cost of transporting iron ore in and out of the Great Lakes is prohibitively high for significant trade with the rest of the world. As a result, the USA remains a very minor player in the global seaborne iron ore market.
In 2019, seaborne iron ore exports are projected to be around 3 Mt, representing approximately 0.2% of global seaborne trade. Due to its substantial share of pellet production, the country holds a slightly more significant position in the seaborne pellet market, with about a 3% market share.
Ferrexpo plc – Ukraine’s Premium Pellet Producer and Its Relevance to the DR Pellet Market
Ferrexpo has built its business around premium iron ore pellets, and in recent years has increasingly positioned itself toward the DR-grade pellet segment.
Ferrexpo’s operations are centred in central Ukraine, anchored by the Poltava Mining complex near Horishni Plavni (Figure 17). The company mines magnetite iron ore, beneficiates it into concentrate, and then converts that concentrate into pellets.
Figure 17: Ferrexpo’s FPM mine. (source: Cliffs)
The FPM orebody is a banded iron formation (BIF)-style magnetite deposit, which means the raw ore generally requires beneficiation before it becomes saleable.
The company’s pellets have historically been sold into blast furnace markets, but at a premium due to their quality. Over time, Ferrexpo has progressively increased pellet grade and reduced impurity levels, moving its product mix closer to what DR markets require.
Ferrexpo has traditionally supplied Europe, the Middle East and parts of Asia. Its location gave it logistical relevance into European steel markets, particularly as Europe began moving toward lower-emission steelmaking.
ArcelorMittal – Understanding the Pellet Business Inside a Global Steel Giant
ArcelorMittal is one of the world’s largest integrated steel groups with mining operations that feed its own steelmaking network (Figure 18). That means its pellet business should be viewed through a different lens. Pellets for ArcelorMittal are not just a commodity product for sale. They are also a strategic input into its broader steelmaking system.
Figure 18: Overview of ArcelorMittal principal Mining Operations. (source: ArcelorMittal)
Bahrain Steel – A Strategic Pellet Producer Built for the Middle East DRI Market
The Middle East has long been one of the natural homes of Direct Reduced Iron (DRI) production as it has abundant and competitively priced natural gas which historically made gas-based direct reduction more attractive than the traditional blast furnace route.
That gave countries such as Bahrain, Saudi Arabia, UAE, Oman and Qatar a "natural" advantage in DRI steelmaking.
For a pellet producer, being located close to that demand centre matters and being able to deliver the pellets with low shipment cost is a good business.
This is where Bahrain Steel sits.
The Business Model – Import Ore, Upgrade Feedstock, Supply DRI Markets
Unlike Vale or LKAB, Bahrain Steel’s model is not based on mining ore domestically. Bahrain has no large native iron ore resource base.
Instead, the company imports iron ore feed, processes it through pelletising facilities, and supplies pellets designed for direct reduction steelmaking customers.
That is an important distinction. Bahrain Steel is essentially a strategic converter of global ore into regional steel feedstock.
MIDREX – The Technology That Helped Create the DR Pellet Market
When investors talk about Direct Reduction (DR) pellets, they often focus on the mining companies producing the feedstock. That is only half the story. The other half belongs to the technology that created demand for those pellets in the first place. Few names are more important in that conversation than Midrex Technologies, Inc..
MIDREX is not a miner, and it does not sell iron ore pellets. What it has done over the last five decades is far more strategic (Figure 19). MIDREX developed and commercialised one of the world’s leading Direct Reduced Iron (DRI) processes, a system that converts iron ore pellets or lump ore into metallic iron using reducing gas rather than traditional blast furnace coke. Today, MIDREX technology is one of the foundations of the modern low-emission steelmaking narrative.
Figure 19: The MIDREX® Process (source: MIDREX)
MIDREX is a global company, with headquarters and research and technology development centre located in Charlotte, NC, USA, and offices in the United Kingdom, China, India, and Dubai. MIDREX is wholly owned by Kobe Steel, Ltd.
Where It Started
The MIDREX journey commenced in the 1960s when Donald Beggs (Figure 20), part of the Surface Combustion division at Midland-Ross in the U.S., envisioned utilizing reformed natural gas to reduce iron ore without melting it. The inaugural commercial MIDREX plant launched in Portland, Oregon, in 1969. This marked a pivotal achievement, proving that iron ore could be transformed into metallic iron without using the blast furnace method.
Figure 20: Donald Beggs, head of Surface Combustion’s R&D Group, conceives the idea for the MIDREX® Process (source: MIDREX)
From a Samso perspective, this was one of those industrial moments that does not always make mainstream headlines but quietly changes the direction of an industry.
How It Became Global
By the 1970s and 1980s, MIDREX technology expanded across regions where natural gas was abundant and competitively priced, particularly the Middle East, Latin America and parts of Asia. Over time, plant capacities increased, operating efficiency improved, and new products such as Hot Briquetted Iron (HBI) were added.
When MIDREX later became part of Kobe Steel, Ltd., the business to commercialise and globalise the technology took a step up.
The Green Steel Relevance
The modern market often uses the phrase “green steel.” Whether one likes the term or not, the practical pathway usually comes back to lower-emission ironmaking. MIDREX is central to that discussion because the process can use natural gas today and is increasingly being adapted toward hydrogen-based reduction in future configurations.
MIDREX states its plants produce a large share of the world’s low-CO2 DRI. That makes the company relevant not just historically, but strategically in the decarbonisation era.
The Samso View on MIDREX.
If Vale, LKAB and Cliffs represent the supply side of DR pellets, MIDREX represents the demand engine.
This is an important distinction for investors because the majority of investors in the ASX don't think much past the term "Iron Ore" when they decide to "invest. I think the new revolution of the iron ore sector is more to do with some alignment with "Green Steel". To be in the space of "Green Steel" it is important to understand that DR pellets are not valuable because they are round, hard iron balls. They are valuable because technologies like MIDREX created an industrial process that needs them.
That means any serious study of DR pellets should also study MIDREX.
The pellet market and the direct reduction market are linked businesses. One cannot scale effectively without the other.
Clean Insert for Your Insight
Business solutions like "MIDREX" help create the commercial market for DR pellets by proving that iron ore could be reduced into metallic iron using gas-based shaft furnaces rather than blast furnaces. As direct reduction expands, the strategic importance of premium pellet feedstock rises with it.
The Samso Conclusion
As a keen investor in the ASX, I am always looking for the next trend and like most retail investors, the only advantage I have is to "try" an identify the edge. My favourite is still tungsten but I cannot see any reasonable entry as I struggle to identify a good project that is not full of "hot air" or what I call Sugar Honey Ice Tea. Gold opportunities in the small cap sector are still rare as most have kind of "moved". The next best thing is to put some hard earned cash into gold producers and that leaves lots of time to think about what is the next exciting aspect of investing.
Hence, my thoughts have recently been looking at the iron ore sector as the sleeping giant. For those readers that are still here reading, I think the small cap iron ore players, and there are very few, is the hidden jewel. In 2018 I discovered Champion Iron Limited (ASX: CIA) and in the early 2020s, I was not able to take on the Fenix Resources Limited (ASX: FEX), a case of opportunity cost, so when the Iron Bear Resources Limited (ASX: IBR) story came up, I was sold. This is not a Samso Insight about any of these companies but the three stories that I have mentioned are examples of small cap iron ore stories that retail investors could have participated. Hence, these stories are out there, one just need to understand what is the upside other than high-grade iron as a bulk commodity story.
As the global trend moves to the "low-emission world, I think a discussion is now starting to rise within this boring iron ore sector. When you realise that a giant like Vale is leading the world in the process to provide a cleaner steel making process, investors should and need to take notice. Investors need to realise that the Iron Ore or Steel Making sector has been moving into a new narrative and this is where opportunities will be created.
Most investors in the iron ore sector would never have thought of DR steelmaking when they are considering "investing" in iron ore equities as there was never a thought of anything other than iron ore equals steel making. On top of the lack of realising what DR Steel Making is, I am sure that the terminology of DR pellets would never have graced the lips of most investors as well. Personally, I only came across this terminology recently.
This Samso Insight is about highlighting who are the main players of DR Pellets and who will be controlling the next phase of the iron ore sector. Can you imagine that the next phase of the iron ore industry will no longer be about finding the iron ore and shipping greater than 60% Fe content, but instead about whether your ore body can be made into high-grade and clean DR pellets so that steel makers can make "Green Steel".
We are in the age of carbon credits with so called third-world nations making revenue from their pristine forests. Green is good and forested regions such as Sarawak in East Malaysia are making more from Carn Credits than their traditional logging industry.
The future of low-emission steelmaking will likely reward companies that can deliver premium iron units at scale. Vale already operates in that market today. For investors assessing new iron ore stories that talk about DR-grade potential, Vale is a useful benchmark because it shows the difference between having a concept and having a functioning commercial supply chain.
The main aspect of this DR pellets story is to identify those that can and those that are using the term to promote. This is the most important part of this story.
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