Russian metallurgical company Metalloinvest to build the world’s largest HBI iron plant

Russian metallurgical company Metalloinvest to build the world’s largest HBI iron plant
The metals business is boom as economies around are in the middle of a synchronised recovery. Leading Russian iron producer Metalloinvest just signed off on a deal to build the world's largest hot briquetted iron plant to cater to the growing demand.
By bne IntelliNews October 21, 2021

Leading Russian metallurgical company Metalloinvest signed off on a deal with a consortium of companies including Austria’s Primetals Technologies GmbH and US-registered Midrex Technologies Inc., to build the world’s biggest hot briquetted iron (HBI) plant in Russia, the company said in a press release on October 21.

The agreement was signed by Nazim Efendiev, CEO of Metalloinvest; Stephen Montague, President and CEO of Midrex; Aashish Gupta, Executive Vice president of Primetals, and Etsuro Hirai, CEO of Primetals, during an official forum between Austrian and Russian governmental delegations in Vienna.

Earlier this year Mikhailovsky HBI, which was jointly established by USM and Mikhailovsky GOK (part of Metalloinvest), contracted Midrex and Primetals for another HBI plant to be built in Russia. Additional production volume will secure Metalloinvest’s leading position on global HBI market.

Nazim Efendiev, CEO of Metalloinvest, said: “Two new facilities will double joint production capacity of USM and Metalloinvest – from 4.6 to 9 million tons of HBI per year. This will strengthen our position as a leading provider of this crucial element in the transition to greener steel production. That is a significant milestone in the global steel industry’s decarbonisation efforts. We highly appreciate the expertise of our partners Primetals and Midrex, and we are looking forward to jointly implementing the project according to our tight deadlines”.

The plant will be the company’s fourth HBI facility and is located at the Lebedinsky GOK in Gubkin, in the Belgorod region of Russia. The new plant, which will have a production capacity of 2.08mn tonnes of HBI per year, making it the largest in the world. HBI is a low-carbon raw material used for steel production in electric furnaces.

“HBI helps steel producers to reduce the carbon footprint of their products while increasing its competitiveness. Together with Alisher Usmanov’s companies, we are creating the basis for the development and steady movement forward of the European green metallurgy," Etsuro Hirai, CEO of Primetals Technologies Austria said referring to Usmanov, who is the largest shareholder in Metalloinvest. 

Under the terms of the contract Primetals Technologies and Midrex will be responsible for the design, production and installation of equipment, with the plant scheduled to begin operations in 2025. Plant can be converted to use up to 100% hydrogen as a reducing agent, which would further cut CO2 emissions.

The Midrex Plant produces high-quality HBI from iron ore pellets using the natural gas-based Midrex Direct Reduction Process (Midrex NG) - the most environmentally friendly technology for ore-based ironmaking. By replacing natural gas with green hydrogen, there is potential to further decrease carbon emissions in the future. The contracted plant is capable of being converted in the future to use up to 100% hydrogen as a reducing agent.

Compared to traditional ironmaking technologies, the carbon footprint of a Midrex NG plant is reduced by more than 50% compared with blast furnace ironmaking. By replacing natural gas with green hydrogen, there is potential to further decrease carbon emissions in the future. The contracted plant is capable of being converted in the future to use up to 100% hydrogen as a reducing agent.

Metalloinvest has been having a great year as iron ore prices soared to nine-year highs on the bank of a post-coronavirus driven commodities boom.

In August Metalloinvest reported a 65% y/y growth in revenues to $5bn for 1H21 under IFRS, with Russia accounting for 37% of total revenues. Ebitda soared 175% y/y to $2.9bn, due to improvements in operating efficiencies. In the reporting period Metalloinvest reached an all-time record Ebitda margin of 61% (up by 24.5 percentage points year on year) and showed a net income jump of 308% y/y to $2.2bn. 

The company has also been working to improve its corporate governance and improve its ESG profile. In October Metalloinvest hired Alexander Blumhardt and Manfred Grundke, two top managers of the global construction materials producing group Knauf, to serve on the board as independent directors as part of the adaptation of international best practises. Grundke will also chair the newly created Sustainability Committee of the board, the company said.

The improving management and financial position of the company has been recognised by the ratings agencies. As reported by bne IntelliNews, Fitch Ratings has upgraded ratings on Metalloinvest to investment grade in June, ahead of the company’s possible IPO. That was followed in September by Standard & Poor's which also upgraded the corporate credit rating on Russian iron ore miner Metalloinvest to ‘BBB-’ with a stable outlook from ‘BB+’/positive, due to the company's conservative financial policy and strong credit metrics, supported by continuous efforts in debt reduction and competitive cost positioning, the agency said.

Thanks to the upgrades Metalloinvest is now the only privately owned metallurgical company in Russia with an investment grade rating.

While the commodities boom has cooled somewhat recently business is still and demand strong as economies around the world are still growing strongly. Metalloinvest said the new plant is a response to the growing demand for hot briquetted iron in Russia, Europe, Asia and the Middle East.

HBI contains more than 90% iron, maintains its chemical structure, has a metallisation degree of over 93%, and a density exceeding 5.0 g/cm3, making it ideal for the production of steel in electric-arc furnaces and converters.

HBI produced at LGOK contains almost no phosphorus or sulphur, which reflects the high quality of the steel from the production process. Given the low composition of these elements, the briquettes are well suited for transport by rail or sea. The energy efficiency of HBI production is twice the level of pig iron, which gives HBI significant competitive advantages.

“Above all, HBI is a more environmentally friendly product, as greenhouse gas emissions from its production are almost twice as low as the traditional blast furnace method,” the company added.

Investors are watching the company closely, as it may take advantage of the good market conditions to float thanks to the current enthusiasm for Russian equity that has caused an IPO boom . 

Ivan Streshinsky, the general director of USM Holding that controls Metalloinvest, did not rule an IPO out during a recent interview with Kommersant, but the owners remain uncommitted so far. “We are considering the IPO option and will consider it when a convenient moment arises when it turns out to be really necessary,” he said in the interview.

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