Background: The Cornerstone Plan 2.0 poses a question on how iron resources should adapt in terms of variety and form to the low-carbon transformation trend in the steel production process in the future.
Objective: The Cornerstone Plan was proposed at the beginning of 2022, with the aim of addressing the issue of resource scarcity in the steel industry chain, effectively altering the composition of iron resource sources in our country, and placing the initiative regarding steel issues in our own hands.
Intermediate Objective: The Cornerstone Plan proposes to realistically change the source of our country's iron resources and fundamentally solve the resource bottleneck in the steel industry chain within the span of two to three "Five-Year Plans". The initial goal is: by 2025, domestic iron ore concentrate output, steel scrap consumption, and production of Chinese-owned overseas mines should reach 370 million mt, 300 million mt, and 220 million mt respectively, up 100 million mt, 70 million mt, and 100 million mt compared to 2020.
Implementing Entities: There are two main types of implementing entities. The first is steel corporate groups or consortiums led by these corporations, such as Ansteel, Baowu, Shougang, HBIS, and Jianlong.
The second is international metal mining groups with a main business in metal resource development and investment operations, and possessing a national mission for metal resource security, such as China Mineral Resources Group and China Minmetals Corporation.
Progress: When initially mentioned in version 1.0, it was explicitly stated that the supply of domestically produced iron ore concentrates would increase by 100 million mt to 370 million mt by 2025. However, in Cornerstone Plan, the details regarding the increase and completion time have been downplayed or are no longer mentioned.
The objectives and completion timeline set in version 1.0 were quite aggressive, posing numerous challenges in their implementation. Domestic mining is hindered by a severe depletion of existing projects' resources, and it also grapples with a multitude of influences such as accidents, safety issues, environmental protection standards, and approval processes, making it difficult to increase output. As high-quality resources are being exploited first, new projects typically face the challenge of increasing mining depths, with many mines located 1000 meters below the ground. This results in heightened mining difficulties and rising investment and operating costs.
Cornerstone Plan2.0：
Possibly considering the less than satisfactory progress of version 1.0 and in the context of the overarching decarbonization trend, version 2.0 was first proposed in June 2023.
On June 13, at the 2023 Annual Meeting of the Steel Industry Low Carbon Work Advancement Committee and the Green Low Carbon Technology Exchange Conference of the Steel Industry, He Wenbo, Secretary of the Party Committee and Executive Chairman of the China Iron and Steel Industry Association, stated that as the global steel industry gains deeper understanding and recognition of the low carbon development direction, it is no longer enough to merely examine the total amount of resources. Currently, parties are planning an upgrade to the Cornerstone Plan, or the so-called Cornerstone Plan 2.0, mainly to study and deploy how future resources (primarily iron resources) in terms of types and forms can adapt to the trend of low-carbon transformation in the steel process. It is necessary to lay out standards in the resource field, including direct reduced iron, steel scrap, etc., all aimed at the large-scale production of low carbon emission steel, and to make preparations in advance.
Cornerstone Plan 2.0 continues to address the issue of sourcing steel raw materials, particularly the distribution of iron resources, but the focus has shifted from total volume to variety. It primarily seeks to research and implement how future resources (especially iron resources) can adapt their types and forms to accommodate the trend of low-carbon transformation in steel production processes.
As the share of pellet usage rises, more domestic ores will be used for pellet feed production.
Currently, Shougang Jingtang United Iron & Steel has a relatively high pellet ratio in China. In 2022, its pellet ratio was basically stable at 60%, with the maximum ratio having reached 70%. According to their plan, by 2030, the pellet ratio at Jingtang will reach 80%.
Shougang Jingtang is equipped with the most advanced pellet equipment, a belt sintering machine, with an annual pellet production capacity approaching 10 million mt. This equipment has high compatibility with pellet feed, capable of using both magnetic and hematite concentrates, and can produce both acidic and basic pellets. The quality of the pellets produced is high, meeting the quality requirements of large blast furnaces for pellets.
As decarbonization deepens, China's demand for pellets will undoubtedly rise.
- Firstly, the pellet ratio in Chinese blast furnaces is currently less than 20%, leaving a lot of room for increase. Many large steel mills have explicitly stated in their carbon-neutral plans that they intend to increase the proportion of pellet use.
- Secondly, it is expected that China will construct more pellet production facilities in the future, ensuring the supply of pellets. More outdated vertical furnace capacities will be phased out, and the capacities of more advanced rotary kilns and belt roasting machines will rapidly increase. This trend not only guarantees the volume of pellet supply but also enhances the quality of pellets produced domestically in China.
- Lastly, a trend towards larger blast furnaces is observed in China. Thanks to capacity replacement policies, more and more small and outdated blast furnaces are being replaced with large ones. To ensure the smooth operation of these larger furnaces, steel mills need to increase the proportion of pellet use.
The trend of using domestic iron ore to produce direct reduced iron powder is on the rise.
Utilizing DRI in electric furnaces is one of the primary methods for steel mills to reduce carbon emissions.
HBIS Group's 600,000-mt DRI facility commenced production in May of this year, and it will further add a new capacity of 3.2 million mt in the future. Currently, the primary sources of direct reduced iron powder are Hebei and Shanxi.
In China, DRI powder is typically produced by further grinding and processing blast furnace concentrates. The iron content in the DRI powder must be at least 68%, while the content of silicon dioxide needs to be kept below 2-3%.
In China, the average iron grade of domestic ROM is less than 30%, requiring processing to concentrates of 63% to 65% or even higher for utilization. These processed concentrates can be used for sintering or pelletizing. However, not all Chinese concentrates can be processed into DRI powder in the future.
- Firstly, the supply of domestic concentrates is limited, and the existing capacity has been fully utilized. Even with the encouragement of the Cornerstone Plan, it is difficult to significantly increase the supply of concentrates domestically, mainly due to the severe depletion of existing resources.
- Secondly, whether concentrates can be used to produce DRI powder depends on their quality. Despite the high iron content in concentrates produced in our country, they typically contain high levels of silicon and sulfur. Some regions' iron ore even contains high levels of vanadium, titanium, boron, magnesium, and the like. Some concentrates are polymetallic ores. Whether these impurities can be removed to meet the standards for DRI powder is yet to be determined.
- Furthermore, the nature, structure, and embedding grain size of the ore also affect its suitability for DRI powder production.
- Finally, the key issue is whether future DRI companies can afford to pay a high premium, which is the crucial factor for the transformation of domestic ore production into DRI powder in China.
In Summary: Rather than battling against layers of earth thousands of meters deep, delving deeper into the improvement of mining techniques may be one of the best paths towards maximizing the value of domestic mining resources in the future.
As the Cornerstone Plan transitions from 1.0 to 2.0, it recognizes that new projects face difficulties in deep mining depths, high investment costs, significant mining challenges, and long construction cycles. Instead of contending with kilometers-deep strata, delving into process improvements might be one of the optimal paths towards maximizing the value of domestic minerals in the future.
The supply of domestically produced concentrates in China is limited, and in the future, there will be various choices to make: whether to produce sinter feed, pellet feed, DRI powder, or high-purity concentrates. The key factors behind this choice involve the state of resources, the cost-benefit ratio of the company, the premium that downstream consumers are willing to pay, and the maximum profit that mining companies can gain.
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