Higher-priced coking coal probably will impact the steel industry’s transition to greener production methods as well as the value-based pricing of iron ore. Higher-priced coking coal increases the price of producing steel via blast furnaces, both in absolute terms and when compared with other routes. This typically leads to higher steel prices as raw material price is undergone. It might also accelerate the green transition in steelmaking as emerging green technologies, including hydrogen reduction, would become more competitive weighed against established production methods sooner. The requirement to reline or rebuild blast furnaces roughly every ten to 15 years at a cost that varies between $100 million and $300 million presents steelmakers with clear decision points, so that they should appraise the expense of emerging technologies, including hydrogen-based direct reduced iron, and select to exchange their blast furnaces.
Increased coke prices would also modify the value-based pricing of iron ore. Prices many different qualities of iron ore products depend upon their iron content in addition to their chemical (mainly phosphorus, alumina, and silica content) and physical composition (lumps versus fines versus pellets). Lower-quality iron ores require more energy to reduce, bringing about higher coke rates from the blast furnace. Higher coking coal prices improve the cost penalty incurred by steelmakers, bringing about high price penalties for low-grade iron ores. This can affect overall iron ore price dynamics in 2 different ways, with respect to the degree of total iron ore demand. In a scenario, if total demand for iron ore may be met solely with high-grade iron ores, it is likely that benchmark iron ore prices will remain steady. However, price reduced prices for lower-grade ore would increase significantly, potentially pushing producers with this material out of the market. In the alternative scenario, if low-grade ore is needed to meet overall demand, both benchmark iron ore prices and discounts could increase significantly, to ensure that low-grade producers would continue in industry since the marginal suppliers.
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