Rio Tinto (RIO) has partnered with BHP Group (BHP) and BlueScope to establish a groundbreaking electric smelting furnace (ESF) pilot plant in Western Australia, marking a significant step in the effort to decarbonize steel production. This collaboration, known as NeoSmelt, will facilitate the processing of iron from the Pilbara region, utilizing electric technology to replace traditional blast furnace methods. Given that steel production contributes approximately 8% of global carbon emissions, the project is timely and essential as the industry seeks sustainable solutions to reduce its environmental impact.
The NeoSmelt initiative combines the expertise of RIO and BHP in iron ore extraction with BlueScope’s operational knowledge concerning ESF technology; BlueScope operates the only ESF capable of processing direct reduced iron (DRI) in New Zealand. Woodside Energy will also participate as an equal equity partner, providing energy for the pilot plant once commercial arrangements are finalized. The facility aims to optimize the production of iron, supplying molten iron suitable for use in basic oxygen steelmaking processes. By converting iron ore to DRI and utilizing the ESF, the project anticipates reducing carbon dioxide emissions by up to 80% compared to conventional steel production methods.
The pilot plant is projected to produce between 30,000 and 40,000 tons of molten iron annually. Initial operations will utilize natural gas to convert iron ore into DRI, with a future goal of employing lower-carbon hydrogen technology. The Western Australian government has pledged A$75 million towards the project, which is expected to commence feasibility studies in early 2025, leading to a final investment decision in 2026 and operational start-up anticipated in 2028. The focus on cleaner production methods highlights the industry’s commitment to reducing greenhouse gas emissions in the steel sector.
Steelmaking’s significant contribution to global greenhouse gas emissions has prompted numerous industry efforts aimed at emission reduction. In 2023, steelmaking represented 69% of Rio Tinto’s Scope 3 emissions, and the company is targeting a 15% reduction in Scope 1 and 2 emissions by 2025 and a 50% reduction by 2030, alongside an ambitious goal for net-zero emissions by 2050. RIO achieved a 6% decrease in Scope 1 and 2 emissions relative to its 2018 baseline as of 2023, with a capital budget of $5-$6 billion allocated for decarbonization efforts from 2022 to 2030.
Other players in the industry, such as Fortescue Ltd., have also set ambitious targets to eliminate fossil fuels, aiming for Real Zero terrestrial emissions by 2030 and Net Zero Scope 3 emissions by 2040. Fortescue allocated $6.2 billion toward decarbonizing its Pilbara operations and projected a spending range of $700-$900 million for fiscal 2025, reflecting broad sectoral moves towards reduced carbon footprints. Similarly, BHP is on track to achieve net-zero Scope 3 emissions by 2050 and has reported a 32% reduction in operational GHG emissions for fiscal 2024 compared to 2020 levels. With an anticipated $4 billion investment towards operational decarbonization by fiscal 2030, BHP is also pursuing advancements in steel production technology aimed at decreasing emission intensity.
Vale S.A. is another major player targeting significant reductions in emissions, planning to invest at least $2 billion to decrease its direct and indirect carbon emissions by 33% by 2030 from 2017 levels and aiming for carbon neutrality by 2050. Together with ongoing commitments to streamline supply chain emissions, these industry-wide initiatives underline the urgency and importance of transitioning towards greener steel production. With a significant portion of emissions stemming from the steelmaking process, the collaborative efforts of mining companies to innovate and invest in low-emission technologies are pivotal in the global fight against climate change.
In addition to these initiatives, it is important to note the stock performance of involved companies. Over the past year, Rio Tinto shares have declined by 17.7%, slightly outperforming the iron mining industry, which has experienced an 18.3% drop. Currently, Rio Tinto holds a Zacks Rank of #5 (Strong Sell), reflecting some market skepticism towards its short-term prospects. These metrics will be watched closely as Rio Tinto, BHP, BlueScope, and their industry counterparts continue to advance their decarbonization strategies in the dynamic landscape of global steel production. The collaborative work exemplified by the NeoSmelt project may serve as a crucial blueprint for a more sustainable future in the industry.