Middle East conflict threatens iron ore pellet supplies to regional DRI plants: IEEFA

Escalating conflict in the Middle East could disrupt critical iron ore pellet supplies to steel producers across the region, threatening production at direct reduced iron facilities that depend on material from two key plants in Bahrain and Oman, according to the Institute for Energy Economics and Financial Analysis.

The risk lies in potential disruptions to the supply chain serving Vale's 9 million mt/year pelletizing plant in Oman and Bahrain Steel's facility with capacity of around 12 million mt/year, which provide DR-grade pellets to DRI producers across the Middle East and North Africa.

In addition these two, a new 6 million mt/year pelletizing plant owned by Jindal Steel at Sohar, Oman, is currently in its ramp-up phase.

"The conflict could significantly disrupt the supply of DR-grade iron ore concentrate to the two major pelletizing facilities in the region, which provide critical pellet feed to many DRI producers across MENA region," Soroush Basirat, Energy Finance Analyst, Global Steel, at IEEFA, told Platts March 3. "Any disruption would likely trigger domino effects, creating volatility in both DRI and downstream steel production across the region."

Vale and Bahrain Steel did not reply to Platts' request for comment.

Supply chain exposure

Steel producers in Saudi Arabia, Egypt, the United Arab Emirates, Qatar, Algeria and Oman face the highest exposure to potential disruptions, as they rely heavily on pellets from the Bahrain and Oman facilities.

If the pelletizing plants cannot import iron ore concentrate or export finished pellets, production across the regional supply chain would be severely affected, Basirat said.

Echoing his comments on the potential impact, market sources contacted by Platts on March 3-4 added that regional iron and steel operations typically hold about one month of raw-material inventory.

Bahrain Steel sources more than 80% of its DR-grade concentrate from Brazil, with the remainder coming from Canada, Chile and other suppliers, while Vale's Oman plant imports all its concentrate from Brazil.

The seaborne DR-grade pellet market remains extremely tight, with limited flexibility to switch suppliers quickly and no surplus capacity available to offset major disruptions, according to Basirat .

Bahrain Steel's facility sits within the Persian Gulf, presenting logistical challenges under conflict conditions. Vale's Sohar plant may be better positioned to maintain operations, though delivering finished pellets to end users inside the Persian Gulf would remain highly challenging, IEEFA said.

While Iran ranks as the world's second-largest DRI producer, most of its output is consumed domestically, limiting any direct impact on seaborne markets, Basirat said.

Iran has exported iron ore pellets and concentrate in recent years, but the majority has gone to China and India, with only limited volumes supplied to MENA producers. Iran's mining, concentration and pelletizing operations are vertically integrated and largely domestic, limiting its exposure to external disruptions.

According to the latest Midrex data seen by Platts, Iran exported 1.3 million mt of DRI out of 34.1 million mt of output in 2024.

Platts, part of S&P Global Energy, assessed the 67% Fe iron ore pellet feed at $126.3/dmt CFR Middle East on March 5, up 1.15 cents/dmt on the day.