THE great dream of Australian resources has always been to progress much further up the value stream.

With abundant supplies of iron ore, coal and energy, it has always seemed strange for Australia to export the raw commodities and re-import the finished products once all of the value has been added by foreigners.

Yesterday's announcement by Rio Tinto that it is putting its Kwinana HIsmelt plant on care and maintenance shows that as a country we are continuing down the "quarry and farm" model that has dominated Australian thinking for more than a century.

With the notable exception of what remains of our local steel industry in Bluescope and OneSteel, of course.

The most spectacular implosion of this dream happened between 1998 and 2000 when BHP Billiton's hot briquetted iron plant near Port Hedland was rapidly written off at a cost of $2.5 billion.

In comparison with that ill-fated project, the $1 billion HIsmelt facility at Kwinana has always been seen as a much more innovative and successful project.

The process itself is different, with iron fines and non-coking coals directly injected into a molten iron bath to produce a high quality iron product.

For more than 20 years Rio and its partners Nucor, Mitsubishi and Shougang have said the HIsmelt process would prove to be an efficient replacement for the traditional blast furnace method of iron making, which once fired up needs to keep running at full pelt.

Instead the 4.5kg iron ingots, or "pigs" produced by the HIsmelt process can be used when required as a feed stock to produce steel along with scrap metal in electric "mini-mills".

The big picture was that eventually Kwinana would become a huge world iron province, churning out massive quantities of pig iron to feed Asian mills.

Today that value-adding dream has largely been reduced to a forlorn and distant hope as the HIsmelt plant is packed in mothballs, having never even approached its annual production target of 800,000 tonnes.

It is a bitter pill to swallow, particularly at the same time as Rio Tinto is negotiating a $28 billion tie up with Chinalco which would give the Chinese giant a 15 per cent direct stake in Rio's Hamersley Iron in the Pilbara.

That is because the really great thing about HIsmelt was that it greatly increased Rio Tinto's reserves of Australian iron ore. Estimates went as high as doubling some of Rio's iron ore reserves as more than a billion tonnes of phosphorous-contaminated ore from Hamersley Iron suddenly became usable.

Even at current spot prices that are sliding under $US90 a tonne, that is a serious amount of extra value, not counting the value and employment added during the HIsmelt process.

HIsmelt renders that contaminated ore useful by removing the phosphorous as it produces high quality pig iron for electric arc furnaces.

HIsmelt also has some serious green credentials, reducing by around 20 per cent the amount of energy used and the carbon emissions in producing a given tonne of steel.

The process also directly reduces demand for coke and sinter and emissions of environmental pollutants such as sulphur and nitrogen oxides and dioxins.

By allowing for the use of nuclear generators to power electric mini-mills in markets such as Japan, the carbon intensity of steel produced is reduced even further.

Rio has claimed the HIsmelt process of fusing contaminated ore with low-quality thermal coal and incinerating them at 1480 degrees Celsius is about 25 per cent cheaper than the traditional alternatives because it does not need a coke oven or pellet-making facilities.

Which makes it a sad day when the Kwinana direct smelting plant is closed due to a global slump in iron ore and pig iron prices rather than any problems with the process or technology.

Of course, it is always possible that the Kwinana HIsmelt plant will one day come out of mothballs but the history of plants coming out of care and maintenance in Australia is not particularly rosy.

What is more likely is that the HIsmelt technology will be employed directly in steel plants around the world as steelmakers search for a more efficient and flexible answer to the traditional blast furnace.

Even that presupposes a recovery in the world's appetite for iron ore and pig iron, which looks to be a long way off given the rapid and synchronised economic slowdown at the moment.

Perhaps the best Australia can hope for is that one day we can export the phosphorous-contaminated ore to be used in HIsmelt smelters in China, Japan and India.

Source:http://www.news.com.au