URSABLOG: Hot Metal News

A short article in Splash 24/7 sparked my interest today:

Abu Dhabi’s AD Ports Group has signed a memorandum of understanding (MoU) with the world’s largest producer of iron ore and nickel, Vale, to develop a mega hub on home soil at Khalifa port for industrial complexes that produce low-carbon products for the steelmaking industry for both the local and seaborne markets.

Wow! I thought. This is a big deal, especially when you consider the next paragraph:

The facility to be built will allow giant valemax vessels to call in the Middle East with a handling capacity of up to 50m tonnes of cargo per annum.

That’s about 125 laden voyages a year. Where has this come from? Where will the ships come from? Does Abu Dhabi have the steel making capacity to do this? What do they make? Where does it go to? Why haven’t I heard about steel products exports from Khalifa before? Why haven’t I heard about iron ore imports to Khalifa before? When will the Mega Hub be ready?

So I looked on the website for Abu Dhabi Ports Group (AD) and to be honest I was none the wiser. Yes there was an announcement but it seemed a little vague, and concentrated on – such is the spirit of the times – low carbon products for the steelmaking industry “with a significant reduction of CO2 emissions.”

Amongst all this there was no mention of when the work would start, let alone be completed, in fact no timescale at all except the following:

The Mega Hub initiative contributes to Vale’s commitment to reduce 15% of net Scope 3 emissions by 2035. Additionally, Vale seeks to reduce its absolute Scope 1 and 2 emissions by 33% by 2030 and achieve net zero by 2050, in line with the Paris Agreement, leading the evolution process towards sustainable mining.

Which whilst being very admirable, is hardly enlightening.

So maybe I had missed something at Khalifa? Next stop was to look at steel production in Abu Dhabi, and in particular emirates steel arkan. They make steel billets, wire rod, rebar, pipes, sheet piles, H bars and so on, apparently 3.5 million tonnes a year of the stuff, I guess mostly for the construction industry. It must be a fairly intelligent guess because they also make cement (4.6 million tonnes), concrete products and arkan bags (used for storing building materials such as cement, gypsum dry mortar and other dry chemicals).

So Khalifa must import a hell of a lot of iron ore by sea then? Well actually no. According to AXS Marine, in 2022 it was just 174,046 tonnes, which is one capesize. But what about exports of steel products? None, unless that is included in the ‘n/a’ column, which was 417,024 tonnes, the grand total of around eight supramaxes. I am not sure if these figures are entirely correct, but they are reflective of the cargoes in the open freight market. I can find no other official import or export figures, but that doesn’t mean they don’t exist somewhere.

The biggest import however is of bauxite, almost six million tonnes of it last year, and all of it coming in capesizes, and from Port Kamsar too. (For those of you that think kamsarmaxes are still the largest ships to export bauxite from Port Kamsar, think again.) Again, all of this must be used in the local construction industry because Emirates Aluminium’s Al Taweelah operation can produce 1.3 million tonnes per year, and is the world’s largest single-site producer, but there doesn’t seem to be any aluminium exports (unless it is again included in the ‘n/a’ column). 

So yes, maybe I have missed something, but nothing that big in terms of the dry bulk freight market. But the questions remain: where and how will the various metal industries in the proposed industrial complexes use 50 million tonnes worth of iron ore? And does this announcement have any chance of becoming a reality?

Being a football supporter of a team in the UK that is not backed by a Gulf state, with a tendency to mutter about unlimited resources, I suppose I could say that money can get you anything if you have enough of it. But an MoU is just that: a memorandum of understanding. It doesn’t cost much to organise (a few long-haul flights, a few press releases, a few computer graphics) and then you can bask in the glow of achievement without having to actually do anything. 

And the press release – focusing on emission reductions for another company, in another country – Vale in Brazil – looks self-serving. Scope 3 emissions are those that result from the activities of assets not owned or controlled by Vale in this case, but indirectly affect value chain.

But maybe I am being overly cynical, because in November last year three other MoUs were signed between Vale and official entities in Saudi Arabia, UAE and Oman:

Vale is to build and operate concentration and briquetting plants within the hubs to provide secure supply of high-grade agglomerated products; local parties will be responsible for the construction of the logistics infrastructure; and investors and/or clients are expected to construct and operate the direct reduction plants and offtake the HBI for the export or domestic markets, the statement said.

HBI stands for Hot Briquetted Iron, and replaces coking coal and unprocessed iron ore in blast furnaces, and can also be used in electric arc furnaces instead of scrap metal. But it is made using iron ore compacted at temperatures above 650 degrees centigrade, and these temperatures are achieved by using a lot of natural gas. The production of HBI using natural gas emits around 60% less carbon dioxide than pig iron production using a traditional blast furnace, and in the future the replacement of natural gas by hydrogen and the usage of renewable energy could totally eliminate carbon emissions. But that is a long way off. 

But follow the process: coking coal and raw iron ore are blasted to make pig iron, that is then further processed to make other steel products. HBI is created by blasting it at high temperatures using LNG and then is put in a blast furnace or electric arc furnace to then create steel products. This is not mentioned in the press release, and neither is the amount of power used to make steel products, and the emissions involved there.

So there are three things to get from all these press releases:

– Iron ore is going to moved in huge amounts to the UAE (as well as Saudi Arabia and Oman) to make HBI 

– HBI is then going to be moved around in the area to make steel products

– Natural gas is – initially, and maybe indefinitely – going to be the main energy source for both making the HBI and then processing it further down the production line

That the Middle East has an abundance of hydrocarbon resources is beyond doubt. It also has an abundance of sunshine too, and solar power generation could be developed further on otherwise unusable land. They have an abundance of otherwise unusable land that can be used for industry, perhaps using renewable power sources to create hydrogen and other carbon free fuels. It could happen.

So whilst not quite believing – if I am honest with myself – the brave new world conjured up in these rather opaque press releases, there is something interesting being created on the drawing board: port developments, ships, industry, lots of cargo, lots of energy, lots of money. 

In the controversies surrounding the FIFA World Cup, Manchester City, Paris St Germain and Newcastle, we are probably not keeping our eye on the ball about the commodity markets and the potential changes in trading patterns, trading centres and industrial centres. Dubai is turning into a serious commercial hub and it’s not all about displaced Russian companies, expat tax breaks or oil. This maritime cluster is growing, and other more established centres are taking note. This may not be news to you, but it made me think a bit more seriously about how progress towards decarbonisation may take a circuitous and not so obvious route. And it will certainly affect shipping too.

Simon Ward