Higher-priced coking coal is likely to get a new steel industry’s transition to greener production methods and also the value-based pricing of iron ore. Higher-priced coking coal raises the expense of producing steel via blast furnaces, in absolute terms and when compared with other routes. This typically results in higher steel prices as raw material prices are undergone. It will also accelerate the pin transition in steelmaking as emerging green technologies, such as hydrogen reduction, would be competitive in contrast to established production methods sooner. The need to reline or rebuild blast furnaces roughly every ten to fifteen years at a price that varies between $100 million and $300 million presents steelmakers with clear decision points, so they really will likely need to measure the cost of emerging technologies, including hydrogen-based direct reduced iron, and decide to replace their blast furnaces.
Increased coke prices would also modify the value-based pricing of iron ore. Prices for various qualities of iron ore products depend on 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, leading to higher coke rates inside the blast furnace. Higher coking coal prices improve the cost penalty suffered by steelmakers, resulting in higher price penalties for low-grade iron ores. This could affect overall iron ore price dynamics in 2 different ways, with regards to the level of total iron ore demand. In one scenario, if total interest in iron ore can be met solely with high-grade iron ores, chances are that benchmark iron ore prices will remain steady. However, price reductions for lower-grade ore would increase significantly, potentially pushing producers of the material out of your market. In a 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 remain in the marketplace since the marginal suppliers.
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