Higher-priced coking coal is likely to affect the steel industry’s transition to greener production methods along with the value-based pricing of iron ore. Higher-priced coking coal enhances the price of producing steel via blast furnaces, both in absolute terms and in accordance with other routes. This typically contributes to higher steel prices as raw material cost is passed through. It would also accelerate the hole transition in steelmaking as emerging green technologies, like hydrogen reduction, would be competitive in contrast to established production methods sooner. The requirement to reline or rebuild blast furnaces roughly every ten to 15 years at a price that varies between $100 million and $300 million presents steelmakers with clear decision points, in order that they will have to assess the expense of emerging technologies, like hydrogen-based direct reduced iron, and decide to switch their blast furnaces.
Increased coke prices would also affect the value-based pricing of iron ore. Prices many different qualities of iron ore products rely upon their iron content along with their chemical (mainly phosphorus, alumina, and silica content) and physical composition (lumps versus fines versus pellets). Lower-quality iron ores require more energy to cut back, leading to higher coke rates from the blast furnace. Higher coking coal prices increase the cost penalty suffered by steelmakers, leading to higher price penalties for low-grade iron ores. This can affect overall iron ore price dynamics in two other ways, with regards to the degree of total iron ore demand. A single scenario, if total need for iron ore could be met solely with high-grade iron ores, it’s likely that benchmark iron ore prices will remain steady. However, price discounts for lower-grade ore would increase significantly, potentially pushing producers of this material from the market. In a alternative scenario, if low-grade ore is required to meet overall demand, both benchmark iron ore prices and discounts could increase significantly, in order that low-grade producers would stay in the market because marginal suppliers.
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