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Spread - iron ore to sponge and pellet
What it is
Sponge iron is direct-reduced iron made from ore using coal, and pellets are agglomerated beneficiated fines. The spread between ore cost and sponge or pellet realisation is the merchant producer's entire margin
Induction and electric furnace steelmaking is the demand base, and freight radius to steel clusters limits how far product travels
Impact on industries
- Captive iron ore is the decisive advantage - it converts the largest input from a market price into a production cost
- Beneficiation creates pellet demand by making low-grade fines usable, extending reserves and improving furnace productivity downstream
- Merchant market shrinks as integrated steel producers insource sponge and pellet capacity, so the addressable market narrows structurally
- Coal-based reduction carries carbon liability as CBAM extends through the chain, and freight economics keep the business regional