Higher-priced coking coal is likely to affect the steel industry’s transition to greener production methods and also the value-based pricing of iron ore. Higher-priced coking coal enhances the tariff of producing steel via blast furnaces, in absolute terms and when compared with other routes. This typically leads to higher steel prices as raw material prices are undergone. It might also accelerate the green transition in steelmaking as emerging green technologies, including hydrogen reduction, would be competitive in comparison with 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 need to assess the cost of emerging technologies, for example hydrogen-based direct reduced iron, and decide to exchange their blast furnaces.
Increased coke prices would also impact the value-based pricing of iron ore. Prices for several 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, bringing about higher coke rates in the blast furnace. Higher coking coal prices raise the cost penalty suffered by steelmakers, bringing about high price penalties for low-grade iron ores. This might affect overall iron ore price dynamics by 50 percent different methods, based on the a higher level total iron ore demand. In 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 stay steady. However, price reduced prices for lower-grade ore would increase significantly, potentially pushing producers with this material out from the market. In a alternative scenario, if low-grade ore is necessary to meet overall demand, both benchmark iron ore prices and discounts could increase significantly, to ensure that low-grade producers would continue in industry because marginal suppliers.
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