Kobe Steel, Ltd. signed a letter of intent with Shijiazhuang Iron & Steel Co. Ltd (Shigang) with the aim to establish a joint venture company that will produce direct reduced iron using a coal-based process in Hebei Province, China. Japanese trading firms Mitsui & Co., Ltd. and Sojitz Corporation also are planning to participate in the venture.

Under the letter of intent, the four companies will conduct a detailed feasibility study to set up the joint venture business. As defined in the letter of intent, partners Shigang and Kobe Steel will supply the plant, technology and operating services, Mitsui will provide product marketing, and Sojitz will provide plant supply support. They partners plan to sign a final agreement later this year and begin plant operations in spring 2008.

The joint venture will be the world's first commercial FastMelt Plant, which combines FastMet and CDM to produce molten pig iron. Developed by Kobe Steel and subsidiary Midrex Technologies, Inc., the FastMelt process uses steaming coal as the reductant to produce direct reduced iron (DRI). A coal-based DRI melter (CDM) then melts the DRI and separates the slag from the hot metal, resulting in pig iron of the same quality as that made in blast furnaces.

Most of the pig iron made by the 500,000 tonnes per year facility will be supplied to Shigang, where the FastMet/CDM plant is to replace an aging mini blast furnace. As the FastMet/CDM Process does not use coke or sintered iron ore, operating costs should be reduced by roughly 30% in comparison to conventional mini blast furnaces. The new process, which emits less air pollution, should also help to lessen the environmental burden for the Shigang facility, which is located within the city of Shijiazhuang. The Japanese partners will receive a minor portion of the pig iron for outside sale.

In China, where 272.5 million tons of crude steel were produced in 2004, it is estimated that over 100 million tons of pig iron were made by mini blast furnaces smaller than 1,000 cubic meters. To rein in the overheating economy and curb air pollution, the Chinese government is undertaking measures to control overinvestment. It is setting out a policy that bans the construction of new mini blast furnaces of 1,000 cubic meters or less. Among small to medium-sized steelmakers, growing demand is anticipated for new ironmaking processes that do not require the use of coke, such as the FastMelt Process. In addition, direct reduction ironmaking has been designated as an encouraged industry under the Foreign Investment Guide Catalogue, and will enjoy preferential treatment in joint venture approval, taxes and other measures.

Viewed as a model plant, the joint venture with Shigang will serve to further promote the marketing of the energy-efficient, coal-based FastMet/CDM Process.