Implications Of Higher-Priced Coke For The Steel And Iron Ore Markets

Higher-priced coking coal is likely to get a new steel industry’s transition to greener production methods plus the value-based pricing of iron ore. Higher-priced coking coal increases the expense of producing steel via blast furnaces, both in absolute terms and compared to other routes. This typically brings about higher steel prices as raw material cost is passed through. It would also accelerate the green transition in steelmaking as emerging green technologies, like hydrogen reduction, would be competitive in contrast to established production methods sooner. The necessity to reline or rebuild blast furnaces roughly every ten to fifteen years at a cost that varies between $100 million and $300 million presents steelmakers with clear decision points, in order that they should appraise the cost of emerging technologies, such as hydrogen-based direct reduced iron, and judge to exchange their blast furnaces.

Increased coke prices would also modify the value-based pricing of iron ore. Prices for different qualities of iron ore products rely upon their iron content and chemical (mainly phosphorus, alumina, and silica content) and physical composition (lumps versus fines versus pellets). Lower-quality iron ores want more energy to scale back, resulting in higher coke rates within the blast furnace. Higher coking coal prices improve the cost penalty suffered by steelmakers, ultimately causing higher price penalties for low-grade iron ores. This could affect overall iron ore price dynamics by 50 % different ways, with regards to the amount of total iron ore demand. A single scenario, if total demand for iron ore can be met solely with high-grade iron ores, it’s likely that benchmark iron ore prices will remain steady. However, price reductions in price for lower-grade ore would increase significantly, potentially pushing producers on this material out of the market. In an alternative scenario, if low-grade ore is needed to meet overall demand, both benchmark iron ore prices and discounts could increase significantly, to ensure low-grade producers would stay in industry as the marginal suppliers.

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