Stainless steels are widely used in various sectors depending on their high corrosion-resistance, high heat conductivity, formability and visual appearance. Stainless steel sheets are produced by hot rolling, cold rolling, heat treatments followed by descaling and pickling processes in acid tanks, respectively. While cold rolled stainless steel sheets are subjected to continuous heat treatment in order to provide the desired mechanical properties, high temperature oxides are formed on the surface of the sheet. These high temperature oxides dissolve in the acid solution during the descaling and pickling processes. The oxides, which become saturated and mechanically dissolved, begin to accumulate in the form of sludge at the bottom of the acid solution. This accumulated sludge is considered harmful to the environment and is disposed in various ways and becomes a financial burden. However, there are valuable compounds in this sludge containing iron and nickel, depending on the alloy. The aim of this study includes the recovery of the metals in the sludge formed by the pickling process after the heat treatment of the cold rolled stainless steel sheet by a direct reduction process. In the present study, a composite pellet was produced by mixing varying amounts of sludge, fine mill scale, coke and reagents to adjust basicity. Then the pellets were reduced at 1400 oC for 30 minutes to produce iron nuggets the products were visually observed and reduction values were calculated and compared.