MELBOURNE Australia is positioned to meet strong demand from China for green iron, Fortescue said on Wednesday, as it readies a pilot plant to begin production of the product using renewable energy next year.

The world's fourth-largest iron ore miner will use green electricity from solar farms at its Christmas Creek operations in Western Australia, to produce 1,500 tonnes per year of high purity green iron.

The company expects the first production in 2025 and will allocate A$50 million (US$34 million, or RM147.55 million) for the project, as demand from China looks set to jump, Mark Hutchinson, head of the company's green energy division, told an analyst call after the company's results.

"What's become quite evident in China...is their insatiable demand for green products...and that's why we're putting so much effort into our green iron plants in Christmas Creek," Hutchinson said.

"Within 12 months, we will show the world that it is possible to make green iron metal...(from) Pilbara-based iron ore with hydrogen as a reducing agent derived from the sun, and in the future, the wind," he added.

The production of steel from renewable energy is not expected to be commercially viable until well into the next decade. Existing processes require higher purity iron ore than hematite endowments typically found in Australia, which accounts for just under half of the world's seaborne supply of the raw material.

Fortescue is testing a number of different paths to produce green iron, the key to which is renewable energy costs, which remain high in many countries like Australia.

"Our first step is proving the technology with the lower- to mid-grade hematite out of the Pilbara, because that is the step that really hasn't been done yet economically," chief executive officer Dino Otranto said.

Longer term, there is not sufficient high grade iron ore around the world to support decarbonising the global steel industry, he said.

"So, the world needs to solve low- to mid-grade iron ores. And for Australia, where we hold a preeminent position in this space, we see endless opportunities to develop a green iron metal industry here in Australia."

In the longer term, Fortescue plans to convert its iron ore into green iron metal, accounting for around 100 million tonnes, or a bit more, of its hematite operations. This would allow it to have more rail capacity to ship out its high-grade magnetite iron ore, Otranto said.

  - Reuters