This exactly. Requiring 9 smelting's worth of fuel to get one ingot is ridiculous. Sure, most people eventually have more fuel than they know what to do with, but by then, they probably also have more iron than they know what to do with.
Don't get me wrong, the tool/armor recycling idea is nice, but it should give back more like one full ingot per item, not 1/9th of an ingot.
They really need to give nuggets some other purpose, or they are just going to be regarded as a completely superfluous addition.