This paper describes an investigation into the prereduction of hematite fines in a fluidized-bed reactor as a means by which they can be prepared for direct smelting in a transferred-arc plasma furnace. It is shown that the hematite is reduced to magnetite at 1000°C, the degree of reduction being limited by the inherent shortcomings of a single-stage reactor in which both the gasification and the reduction reactions have to occur. Methods by which the degree of reduction can be increased are suggested. The gasification process was studied in some detail, and three different reducing agents are compared. The dominating effect of the Boudouard reaction on the behaviour of the fluidized bed is illustrated. Non-coking coals of high reactivity are best suited to this process, a finding that would complement the trend away from coke as a metallurgical reducing agent.