Can Australia keep pace in the evolving green iron market?

Green iron could generate $295 billion per year for Australia, three times the current value of iron ore exports, while also creating thousands of jobs. The government has announced a $1 billion Green Iron Investment Fund to support this transition. However, achieving this will not be easy, as Australia must compete with other players in this growing market. So far, Australia has been slow to act compared with other regions. 

In 2024, new joint venture Tosyali-SULB announced plans for the world’s largest direct reduced iron (DRI) plant. Last month, the company awarded an order to Midrex and SMS Group for the development of the DRI complex. Initially aiming for an annual production capacity of 8.1 million tonnes (Mt) of DRI for export, Tosyali-SULB plans to start with a first-phase capacity of 2.5Mt.

This is just one among many plans to expand DRI-based iron and steelmaking across the Middle East & North Africa (MENA) region.

The new DRI complex will feature Midrex Flex technology, enabling the production of green iron by gradually replacing fossil gas with hydrogen. This transition is critical for decarbonising the green steel industry in MENA, a global hub for gas-based DRI production.

While some EU steelmakers remain hesitant about importing green iron from regions with more favourable production conditions, Tosyali-SULB is taking a bold step on the supply side of this emerging market. Strengthening collaboration between end users and producers will be essential for building a robust green iron and steel value chain. 

First movers are significantly expanding operations in key regions like MENA. Vale, the world’s second-largest iron ore miner and a leader in high-grade iron ore production, is solidifying its position through the development of Mega Hubs in Oman, Saudi Arabia and the UAE. These hubs are designed to boost production of iron ore concentrate and agglomerates co-located with DRI plants, positioning Vale as a dominant supplier in the region.

In January, Vale took a major step forward by signing a land reservation agreement to establish a Mega Hub in Ras Al Khair Industrial City in Saudi Arabia. This facility is expected to produce 12Mt of cold briquetted iron ore (CBI). Vale previously secured an offtake agreement to supply 4Mt of agglomerates for the future ESSAR Group facility in Saudi Arabia, further cementing its strategic presence. The company has revealed that it expects to make two final investment decisions relating to its Mega Hubs plans in 2025.

In Oman, Vale already operates a pelletising facility with an annual capacity of 9Mt and is progressing with plans to produce 12.6Mt of iron ore concentrate in collaboration with Jinnan Steel & Iron Group as part of the broader Mega Hub strategy. These initiatives underscore Vale’s rapid progress in efforts to reduce Scope 3 emissions, especially compared to its Australian counterparts, who have been slower to respond.

The green iron market is expanding rapidly, yet Australia – the world’s largest iron ore producer – is failing to capitalise on this transition. Adapting some of MENA’s key strategies could accelerate Australia’s progress. Despite having world-class renewable energy potential, iron ore reserves suitable for DRI production, and access to gas, Australia doesn’t produce DRI at commercial scale and remains focused on small-scale pilot projects.

One major challenge is access to sufficient gas supplies, given Australia’s LNG export sector uses over 80% of total gas production. This has fuelled high domestic gas prices and supply shortages on the east coast, undermining the competitiveness of gas-based manufacturers and forcing some industrial facilities to close. Market conditions are also tightening on the west coast, pushing prices to levels that may cause demand destruction among existing industries and inhibit new gas-intensive industrial investment. There is an urgent need for a more balanced energy policy to support domestic industries.

Iran, one of the world’s largest gas producers, produced 252 billion cubic metres (bcm) of fossil gas in 2023. It also played a significant role in global DRI production, contributing 33.4Mt in 2023 – equivalent to 36% of all gas-based DRI output. Unlike Australia, which produced 152bcm of gas, Iran retains nearly all of its production for domestic use, while Australia exports a substantial share as LNG.

In this tight market, the most advanced commercial-scale DRI projects announced in Australia, such as POSCO’s Port Hedland HBI plant, may face major gas supply challenges before transitioning to green hydrogen. Securing adequate feedstock and energy remains a key risk, underscoring the broader uncertainties in scaling up low-carbon iron production in Australia. 

A recent study indicates that Australia faces significant challenges producing gas-based DRI or hot briquetted iron (HBI) competitively due to its higher gas prices compared to regions like MENA, Canada and the US, where lower-cost gas allows for more cost-effective production.

MENA established itself as a DRI hub decades ago, leveraging gas-based technology and abundant, low-cost energy to remain competitive in steel production. Today, the region is laying the foundation for a hydrogen economy, gradually transitioning towards hydrogen-based processes even in its steel sector.

With industrial decarbonisation progressing rapidly, the long-term role of gas-based ironmaking in Australia is becoming increasingly uncertain. Relying on fossil fuel technologies increases investment risks, as steel sector end-users are shifting away from feedstocks with high embedded carbon dioxide (CO2) emissions.

A study by Wood on POSCO’s planned Port Hedland HBI plant reveals that, in its base case scenario, total Scope 1 and 2 CO2 emissions would reach 0.70 tonnes of CO2-equivalent per tonne of HBI (tHBI), with 0.55tCO2e/tHBI from fossil gas consumption alone. This far exceeds what could be considered low-emission production. For the first phase of the project, the plan is to use gas-flexible Midrex Flex technology, and the study highlights that switching from fossil gas to hydrogen could reduce Scope 1 and 2 emissions by 57%.

Australian iron ore miners have often claimed that the quality of their in-situ ores is not suitable for DRI production, and they are exploring solutions to enable the use of low-to-mid-grade ores. Studies show that the emerging technological pathways – such as using a smelter after iron ore reduction to remove impurities – will be crucial in decarbonising iron and steelmaking. 

However, Australia cannot afford to overlook proven technologies already operating worldwide. Delaying billion-dollar projects until new pathways progress beyond pilot and small-scale trials risks falling behind in the global transition.

Projects like Fortescue’s Christmas Creek green iron initiative and NeoSmelt are making progress, but to secure a foothold in the market, Australia needs more large-scale commercial projects backed by magnetite mines and available technologies. Opening up new iron ore mines can be a decade-long process. Accelerating investments in viable, globally adopted solutions will be essential to securing a role in the future green iron market. 

The prospect of combining South Australia’s magnetite ores with green hydrogen in DRI plants to produce truly green iron remains uncertain, particularly given the challenges at the Whyalla steel plant. Despite state government intervention to sustain the business, South Australia may face either a prolonged delay or, at worst, a permanent setback in its ambitions to produce green hydrogen at scale, leaving it exposed to gas supply and cost risks for longer.

Recent progress in MENA projects demonstrates that the technology is readily available and that, with strategic planning, natural resources can be leveraged to accelerate the transition. To keep pace with the evolving green iron market, Australia must strengthen its competitive positioning and employ its resources effectively.