FEATURE: The demise of Venezuela's once thriving HBI industry

Banner Image

Current global steel market dynamics should have presented the Venezuelan hot-briquetted iron industry with a golden opportunity.  

That is, if only Venezuela's HBI industry was in a position to take advantage of such a scenario. Global metals supply has been dented by Russia's war with Ukraine, the use of direct-reduced iron and HBI combined with hydrogen are emerging as a key route for steel decarbonization and research has shown HBI utilization in blast furnaces lessens the rate of coke usage while enhancing quality and stretching hot metal production.

With a reported installed capacity of 6.9 million mt/year, the Venezuelan HBI sector certainly should be a hot topic. However, the story is quite the opposite.

Venezuela's five HBI producers – Orinoco Iron, Venprecar, BriqVen, Comsigua and Ferrominera – have been operating at less than 10% of their installed capacities after being restarted in September 2021 following a nearly year-long hiatus. Any supply they can offer has been focused mainly on the domestic market or used to repay debts to former trading partners, sources said.  

Sanctions hit hard 

Venezuela's production of HBI, iron ore and steel have been hampered for years in the wake of US sanctions imposed on the country's oil sector in 2019. The sanctions disrupted raw material supply and natural gas and energy production. The government struggled as financing dwindled and an economic crisis engulfed the nation.

With the sanctionsin effect, shipping companies stopped sending vessels to Venezuela and removed all remaining ships from the country by Sept. 4, 2019.  

"No one was willing to take the risk of remaining in Venezuela and possibly suffering retaliation from the US," one source said. 

Moreover, Venezuela'sdomestic issues were further spelling the end of its HBI export activity.  

Venezuela was formerly the world's largest exporter of HBI, but in 2019 it exported less than 400,000 mt, sources estimated, compared with about 7 million mt roughly a decade before, in 2008. Venezuelan HBI had been exported to 36 destinations, with Mexico and European its most frequent destinations.   

Apart from large HBI producers Russia and the US, suppliers in Malaysia, India, Iran and Libya usually export surplus material to regional markets. 

Trade and pricing decisions 

With the start of the Russia Ukraine war in late February, buyers from Oman, India, Mexico, Poland, UK and Slovenia were checking Venezuela's ability to send 30,000 mt HBI cargoes, with traditional suppliers in Malaysia and the US booked for several months ahead.  

"I spoke to Venezuelan companies, and they said the financial debt to China was very high, so all their HBI availability was booked for them, but a long time ago," one agent said. 

The agent added that it's been over a year since regular trades have been reported involving Venezuelan HBI, with European traders refusing to entertain deal with corruption "and the demands for prepayments ranging from 80%-100% of the cargo value." 

Since 2019, trade and pricing decisions related to HBI have been centralized with the Corporacion Venezolana de Guayana, or CVG, which is controlled directly by Venezuela's office of the president. A fixed-price mechanism was implemented by government authorities, in which a $260-$265/mt FOB range was considered for standard-quality cargoes with 88.3% Fe content. 

However, given the lack of appropriate raw material, HBI Fe content has widely varied among producers and dropped constantly over the years.

Historically, HBI was usually negotiated at a discount to Turkish imported scrap, but it has lagged behind in recent years due to a dearth of negotiations.

S&P Global Commodity Insights clarifies Venezuelan HBI FOB assessment

A doomed industry? 

Many market participants question whether there is hope for the Venezuelan HBI industry to return to its former global stature.  

The premises on which it was established remain the same: Plentiful natural gas, large iron ore reserves, a well-situated river, the Orinoco, with access to the Atlantic Ocean and specialized labor.  

"However, by the time the industry was nationalized, in May 2009, the sector gradually deteriorated amid poor management, coupled with government officials placed in positions without technical knowledge," a source familiar with the government's role in the industry's operations said. 

The construction of a second 3 million mt/year pellet line by Venezuela's sole iron ore producer, Ferrominera Orinoco, headed by China's Metallurgical Group (MCC Group), did not take into consideration that DR-grade pellets production was the exclusive goal.  

"HBI is made of DR-grade pellets exclusively," the source said. "But they built a blast furnace pellets facility." 

The direct consequence, he added, was a 40% reduction in general HBI production. Plus, FMO's iron ore has high phosphorus content, which ultimately reduces HBI quality.  

"It would be naturally sold at a discount to Metalloinvest/ArcelorMittal's Texas Corpus Christi material," another source said. Metalloinvest and AM are the largest producers in Russia and US, respectively.

Over the years, sources said experienced labor working at the facilities left Ciudad Guayana looking for better work and living conditions elsewhere. Venezuela's electricity grid also has deteriorated, supplying only one third of the industry needs.  

Moreover, "Venezuela has gas supply from natural wells and associated petroleum gas," one of the market sources said, adding that HBI producers can only take the gas from oil wells because their production units are located far from natural gas wells. 

 "This means that if we pump oil, we have gas. If we do not pump oil, we do not have gas," he added. 

However, state oil company PDVSA has seen output plummet after the imposition of sanctions and is unlikely to rebound for years and skittish foreign investors are not expected to infuse the much-needed cash into the nation's crumbling oil fields, upgraders, pipelines, refineries and ports. 

The Orinoco, which gives access to the Atlantic Ocean hasn't been dredged for years – which means its draft is too low and logistics another issue for the sector.

"Vessels are unable to load full cargoes, causing a considerable hike in freight levels, as Handymax and Supramax vessels are forced to depart short-loaded, or top-off could be needed," one source said.  

Ultimately, facilities have been slowly dismantled and sold as scrap metal for neighboring countries and most recently to Turkey. And a billion dollar revival plan by the government, announced several times in past years but without a detailed program, seems by far an impossible move. 

"You can't look to Venezuela as a quick response to HBI supply; it would take decades to reestablish the industry there," one observer said.  

Tags

  • Metals & Mining

Related content

News

Italian battery market slowed in first quarter: ANIE

Battery additions down from Q4 2023 Number of installations increases Lithium hydroxide contract softens Italian additions of battery storage capacity in the first quarter declined by 8% quarter on quarter, and were below Q1 2023 levels, industry group ANIE Federazione said in its latest report June 6. Additions across the first quarter totaled 440 MW, down 38 MW from Q4 2024 and significantly below the 594 MW installed in the same period of last year, ANIE data showed. The association attributed the fall to a sharp decline in the residential segment, despite an overall increase in the number of installations as the last beneficiaries of the Superbonus scheme were still receiving credits, according to ANIE. Large-scale utilities offset the drop, with four standalone batteries of 70-88 MW capacity coming into operation during the first quarter. Italy had 593,330 battery installations as of March 31, totaling 3.9 GW of capacity and capable of injecting 7.9 GWh. Italy’s Energy and Climate Plan has set a target of 6 GW by 2030. Almost the entirety of this is lithium-based and is connected to solar PV plants, and 98% of them have capacity of less than 20 kW. Platts, part of S&P Global Commodity Insights, last assessed lithium hydroxide, used in batteries, at $14,000/mt CIF North Asia June 7, after averaging $14,414/mt throughout May. Lombardy is the region with the largest number of systems installed (108,590), followed by Veneto (76,094) and Emilia-Romagna (57,486). Platts Connect: News & Insights (spglobal.com)

News

Walkabout Resources ships first graphite concentrate from Lindi Jumbo in Tanzania

Concentrate shipped to Wogen Pacific under offtake First sale part of larger order from European end-customer Lindi Jumbo to produce 40,000 mt/year of graphite concentrate Graphite miner Walkabout Resources has produced and shipped the first consignment of on-specification graphite concentrate from the Lindi Jumbo graphite mine in Tanzania, it said June 7. The concentrate, bagged in early May , is being shipped from Dar es Salaam for sale to commodity trader Wogen Pacific under an exclusive five-year sales, purchase and marketing agreement signed in July 2023 , the company said in a statement, adding that the first sale was part of a larger order from an end-customer in Europe. “We now have the opportunity to engage with more end-users as we continue to demonstrate we have a viable product and that we are serious contenders in development of non-Chinese graphite supply,” Walkabout CEO Andrew Cunningham said. The company said the relatively small shipment volume was due to limited plant availability and utilization during the commissioning and early ramp-up phase. It had commissioned all sections of the plant, with the commissioning team focused on improving plant performance, availability and utilization with the aim of running the entire circuit on a more continuous basis, while steadily increasing throughput to reach the planned production volume of 40,000 mt/year, it said. Once the throughput targets have been met, it will focus on the end-to-end optimization of processing circuits to consistently achieve customer product specifications, it said. Currently, any product not meeting specification was reprocessed as determined by the Lindi Jumbo on-site laboratory, the company said. Meanwhile, Walkabout said the mid-May US government announcement of the future imposition of a 25% tariff on Chinese natural graphite had added to market concerns over the security of supply chains after China imposed graphite export restrictions. As a result, there appears to be a widening gap between Chinese domestic and ex-China graphite prices, it said, adding that it had experienced the effect of this in the sales orders received to date. Demand for graphite is currently being driven by the lithium-ion battery market, it said. Platts, part of S&P Global Commodity Insights, assessed natural flake graphite at $420/mt FOB China June 6, down 2.3% since it was launched on March 18. The price reflects the spot value of natural flake graphite with 94%-95% carbon content and minus 100 mesh size delivered to Qingdao port. Platts Connect: News & Insights (spglobal.com)

News

'No speed limits' - German energy sector calls for simpler regulation

BDEW congress sees progress, challenges Focus on renewables, grids, decarbonization Eur721 bil investment needed for 2030 goals Germany's energy industry is calling for simpler regulation to get infrastructure projects off the ground, speakers said at the annual congress of utility association BDEW June 5-6 in Berlin. Sector stakeholders noted progress such as record solar capacity deployment, faster permitting of high-voltage projects as well as framework decisions for a hydrogen pipeline grid, but still regulation was slowing down development. "When it comes to the energy transition we can't afford any speed limits," said Manon van Beek, CEO of Dutch-German grid operator Tennet. The company foresees the need to invest Eur160 billion in the Netherlands and Germany between 2024 and 2033. Returning to overhead cables for the next few high-voltage projects into the 2030s could save Eur20 billion versus costly undergrounding of cables, as currently required, the Tennet CEO said. Tennet in 2023 started construction on the Eur10 billion SuedLink, Germany's single biggest energy transition infrastructure project, set to ease North-South grid bottlenecks from 2028. ET funding proposal Germany needs to invest Eur721 billion in energy transition projects to meet 2030 climate targets, the BDEW said in a joint study with municipal utility association VKU and consultancy Deloitte. The sector is proposing an Energy Transition Fund starting with Eur30 billion to Eur50 billion. "We need a bureaucracy diet," BDEW managing director Kerstin Andreas said, noting over 15,000 norms and regulations specific to the energy sector. "Feasibility must take center stage and complexity must be reduced," she said, opening the congress with the slogan "make it easy together." The association, represents over 2,000 German energy sector companies, used the event to elect EWE's CEO Stefan Dohler as its new president. "We want to make the energy transition a success. At the same time, security of supply must be guaranteed at all times -- and for this we will need backup capacities in the form of hydrogen-capable power plants, combined heat and power plants, and energy storage facilities," Dohler said. Grid expansion and the transition in the transport and heating sector are the key focus for the coming years. "In order to master this extremely demanding transformation process, we need stable framework conditions, a reduction in bureaucracy, and an acceleration of planning and approval processes," the BDEW president said. Required investment to meet 2030 climate targets Eur billions Generation (renewables, H2-ready gas turbines) 353 Transmission grid, pipelines (power, gas) 141 Distribution grids (power, gas) 140 District heating 32 Green gases 23 Energy storage 17 Hydrogen core grid 15 Source: BDEW energy transition monitor (June 2024) Market distortions Elsewhere, faster expansion of solar and wind and slower growth in new energy demand is leading to a sharp rise in hourly negative prices during times of oversupply. The CEO of developer BayWa r.e., Matthias Taft, noted "distortions in the power market" and said more flexibility was needed. "Large batteries don't need subsidies but a clear framework for market integration," Taft said. According to analysts at S&P Global Commodity Insights, the number of negative hourly prices across 10 Western European markets so far this year has quadrupled to over 1,200 hours compared to the same period in 2023, with Iberia a key driver. Some 30 GW of battery storage will be online by the end of 2024, up tenfold since 2019, according to Commodity Insights. Platts Connect: News & Insights (spglobal.com)

News

US hybrid EV market accelerates while battery-electric sales cool

BEV sales up 5%, hybrids up 50% year on year North American lithium investment grows in 2024 While US battery electric vehicle (BEV) sales growth was stagnant in Q1 2024 year on year, a market shake up and better flexibility for consumers drove strong growth in plug-in hybrid electric vehicles (PHEV), according to S&P Global Commodity Insights. In the US, BEV sales are the highest among passenger light duty electric vehicle technology, making up 7.1% of LDVs sold in Q1 2024 and plug-in hybrids accounted for 2.3% of cars sold in the same period, up from 1.6% a year before. The increase in hybrids pushed PHEV sales up 50% year on year in the quarter, while BEVs saw only a 5% increase in Q1. PHEVs flexibility can enable an easier transition for many consumers looking to move off of internal combustion engine vehicles. Fuel type flexibility addresses range anxiety and concerns around charging infrastructure, said Suzanna Massingue, Low Carbon Transportation Analyst at Commodity Insights. “As people in the US gain more awareness of EVs, PHEVs can be a viable first option for the journey away from ICE vehicles,” Massingue said. In the US, Q1 total EV sales totaled 350,572 units, a 22% increase year on year, according to Commodity Insights data. The share of electric and hybrid electric vehicle sales declined in first quarter total US light-duty vehicle sales, according to a May 14 US Energy Information Administration report. The decline was driven by a decrease in BEV sales, which fell from 8.1% to a 7% share of total LDV sales quarter on quarter, the first BEV market share decline since the second quarter of 2020, the EIA said. LDV sales are “highly seasonal” and tend to level off in the first quarter, the EIA stated. Vehicle pricing is a “huge factor” in consumer decision making, particularly as EVs in the US market continue to be more expensive against ICE vehicles, Massingue said. The EV industry is currently facing high rates of inflation, supply chain tensions and a potentially consequential election, she said. “In more mature EV markets, government subsidies have helped to bridge the gap and bring price parity between ICEs and EVs,” Massingue said. “The tax credits brought by the IRA have been criticized for their lack of clarity and limited applicability to vehicles on the market currently, i.e. too few PEVs available today are eligible for the tax rebates.” Manufacturers announced adjustments to EV production and sales strategies to meet the current market circumstances and buyers’ affordability, she said. Tesla sped up the rollout of its new line of cheaper EVs , the company said during its earnings report. The company posted its weakest quarterly financial results in years in Q1 amid slowed sales growth. Mercedes-Benz executives said they are expecting plug-in hybrid electrics to “play an important role” in current market conditions. The company overall saw a decline in EV sales by about 2% year on year, driven by a drop of approximately 4,000 BEV sales, or an 8% drop, according to the company’s Q1 results. Meanwhile, PHEV sales increased by about 3,000, or 6%. North American lithium supply The bullish PHEV trend in the US could lend further support to North America’s burgeoning upstream battery metal supply chain, which saw positive updates to project developments announced at the end of Q1 and into the second quarter. For instance, Sayona Mining said in April it would continue the operational ramp-up of lithium-bearing spodumene concentrate production at its North American Lithium asset in Quebec after completing a strategic review that initially put the project’s near-term future in doubt due to declining lithium prices. NAL is the continent’s only operating spodumene mine. In the US, Ioneer said April 15 that construction activities could begin at its Rhyolite Ridge lithium mining project in Nevada by the end of the year, with potential production start up in 2027, if it receives approval through the US Bureau of Land Management’s Environmental Impact Statement. Lithium Americas also received a conditional commitment from the US Department of Energy in March for a $2.26 billion loan that, if successfully closed, would cover most of the remaining capital needed to start major construction of the Thacker Pass lithium project in Nevada by the end of the year. Regarding North American EV production capacity, Honda now plans to build multiple facilities in Ontario by 2028 that will include the production of EVs, batteries and certain battery materials, thus establishing ownership of its own midstream and downstream EV battery supply chain in the Canadian province, the Japanese automaker said April 25. Platts Connect: News & Insights (spglobal.com)