Higher-priced coking coal probably will affect the steel industry’s transition to greener production methods as well as the value-based pricing of iron ore. Higher-priced coking coal raises the price of producing steel via blast furnaces, in the absolute terms and compared to other routes. This typically results in higher steel prices as raw material costs are passed through. It would also accelerate the green transition in steelmaking as emerging green technologies, such as hydrogen reduction, would be competitive in comparison with 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, so they should assess the price of emerging technologies, for example hydrogen-based direct reduced iron, and decide to change their blast furnaces.
Increased coke prices would also modify the value-based pricing of iron ore. Prices for several qualities of iron ore products depend on their iron content as well as 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, ultimately causing higher coke rates in the blast furnace. Higher coking coal prices increase the cost penalty incurred by steelmakers, ultimately causing higher price penalties for low-grade iron ores. This can affect overall iron ore price dynamics by 50 percent various ways, with regards to the amount of total iron ore demand. In a single scenario, if total need for iron ore may be met solely with high-grade iron ores, it is likely that benchmark iron ore prices will continue steady. However, price reductions for lower-grade ore would increase significantly, potentially pushing producers of the material from the market. In an 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 continue in industry as the marginal suppliers.
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