This Insight considers growth prospects for direct reduced iron (DRI) and potential issues related to DRI market growth, including implications for the steel industry value-chain. Historically, DRI has been utilised primarily to supplement the scrap charge in the electric arc furnace (EAF) to produce predominantly flat products, such as hot-rolled coil, alongside or in place of pig iron. Currently, it accounts for around just 7% of the metallics feedstock used for producing carbon steel globally.
However, CRU expects that new DRI segments are emerging, driven by steel sector decarbonisation efforts. As a result, CRU forecasts that DRI will be one of the fastest growing commodities within the steel value-chain over the next decade with DRI production doubling over that period. This Insight utilises analysis and data from a recently published CRU “DRI 101” and CRU’s regularly published Metallics Market Outlook.
What is DRI?
Steelmaking requires a charge of iron-bearing material, which can be in the form of either ore-based metallics smelted from iron ore or recycled steel scrap. DRI is an ore-based metallic that is mainly consumed in an EAF for carbon steelmaking. Ore-based metallics consumption in EAF steelmaking is used to dilute impurities present in the scrap charge. DRI is produced through the direct reduction of iron ore pellets (removal of oxygen) into metallic iron by natural gas, but coal and hydrogen can also be used. Significantly, steel made with DRI has a lower carbon footprint in comparison to conventional steelmaking that uses hot metal produced via a blast furnace.
DRI can be consumed directly in steelmaking or may be briquetted into hot-briquetted iron (HBI) when being transported over long distances for steelmaking to avoid the shipping problems associated with DRI. For this reason, DRI and HBI are similar, with the terms frequently used interchangeably.
The production of DRI is geographically concentrated, largely driven by the availability of affordable natural gas, which is a major factor in determining competitiveness. In 2024, the Middle East-North Africa region and India were the dominant producers (and consumers) of DRI, accounting for 43% and 38% of global production, respectively. India's DRI production, often referred to as 'sponge iron' and primarily using coal as a reducing agent, roughly meets its domestic demand. DRI trade is limited in comparison to other commodities and is traditionally dominated by exports from Russia and Trinidad. That said, new trends are emerging. Regions with access to cheap gas, abundant iron ore, or both, such as the Middle East, are likely to have more DRI available for export, while Europe's reliance on imports has grown.
DRI’s green credentials to raise DRI demand and supply
DRI has been around for decades, but interest in it has grown significantly over recent years due to its lower carbon footprint. DRI is traditionally used in EAFs. EAFs provide a lower carbon route to steel production compared to the traditional BF-BOF route and its capacity is growing due to decarbonisation pressures on the industry.
In fact, steel produced using the traditional natural gas-DRI-EAF route is estimated to reduce CO2 from an average BF-BOF steelmaking route by between 50% and 70%, depending upon the source of electricity. Secondly, and more recently, steel production using DRI produced using ‘green’ hydrogen can reduce CO2 in steel production by even more than 70% compared to an average BF-BOF steelmaking route. As a result, global decarbonisation goals for steelmaking are expected to cause a push for zero emission ‘green DRI/HBI’, using ‘green’ hydrogen made from renewable energy.
CRU estimates that there are more than 80 DRI projects in the pipeline adding almost 200 Mt of DRI capacity over the next 15 years. There are many examples of such projects worldwide – most notably in Europe where steel producers are having to undertake a complex decision-making process as they decide between replacing legacy BF-BOF plants, or sourcing greener raw materials for their legacy plants instead. There is an incredible potential increase in the production pipeline from major steel producers worldwide with implications for capital and feedstock required. In addition, steelmaking capacity is expected to grow significantly in developing regions.
DRI pellet feed forecast is in short supply
Iron ore grade is key to the production of DRI since its high metallic content is considered important to steelmakers, with the exception being India, which produces low grade DRI. The production process begins with direct reduced iron feedstock in the form of grain-sized iron ore fines called ‘pellet feed’, which are agglomerated and processed into DR-grade pellets for DRI production. The direct reduction of DRI occurs in the ‘solid phase’ (i.e. below the melting point of iron without melting the pellets), meaning that the resultant DRI retains many of the physical characteristics of the pellet feedstock.
As a result, traditional DRI production is subject to tight operating tolerances and requires high grade pellets (and pellet feed) which must meet specific requirements, such as low impurity levels – particularly alumina, phosphorous and sulphur. However, this requires high grade iron ore, which CRU forecasts to be in relatively short supply if all the DRI projects in the pipeline proceed in the future.
In the long run, decarbonisation cannot rely on EAF alone
The EAF is presently the primary steelmaking process for utilising DRI, resulting in steel with lower emissions. In fact, over the last decade, global DRI demand has grown much faster than EAF production because of growth from India and the Middle East, alongside increased flat rolled EAF output in the USA. Looking ahead, scrap supply is limited and may restrict EAF growth. Although notionally an EAF could charge 80% DRI reducing scrap requirements, the biggest limitation on DRI use in the EAF is likely to be the availability of high-grade iron ore to produce the quality needed. As a result of these obstacles, the EAF alone cannot achieve full steel decarbonisation because it cannot replace all Blast Furnace-Basic Oxygen Furnace (BF-BOF) production.
One nascent technology option to fulfil steel sector decarbonisation targets as an alternative to EAF production is a new method of steelmaking using DRI that is not subject to the problems associated with tight tolerances in the EAF. This has arisen from recent breakthroughs in ‘green steelmaking’ which have raised DRI’s potential use in electric smelting in combination with hydrogen and the BOF steelmaking process. The DRI-ESF (electric smelting furnace) or DRI-SAF (submerged arc furnace) is purposely built to produce low-emission steel by processing DRI but is also flexible enough to utilise different forms of iron ore feed, including low-grade pellets. Furthermore, it is less capital-intensive as steel producers can retain the BOF and casters.
When this technology becomes commercially viable, CRU expects this will further increase the demand for low-grade DRI. However, this process may not become commercial until the 2030s. Therefore, this technology may act to plug any potential gap created by insufficient high-grade pellet feed and/or scrap required in the EAF.
Important decisions about the supply-chain are required
In conclusion, due to its decarbonisation credentials DRI demand is expected to increase at a rate considerably higher than that for crude steel, making it one of the stand-out business sectors of the steel industry in the coming decade. This will have important consequences for the industry. DRI production and trade requirements are expected to rise. DRI prices are forecast to rise relative to scrap and in the future ‘green DRI’ may command a premium. However, there remain considerable uncertainties over government policies, technology breakthroughs and feedstock requirements. It also follows that DRI growth prospects will necessitate important technology choice decisions for steel mills and feedstock producers over investment requirements as steel mills carefully evaluate their options for adopting green technology.
CRU has considerable expertise and services, including consulting services, covering the steel value chain – including DRI. For more information please also refer to CRU’s regular Metallics Market Outlook and a recently published CRU ‘DRI 101’ report.
