[OT]—Iron-ore quiz answer: Correct that the lower price of coking coal and excess capacity in blast furnaces are the reasons the quality premium for ore with >62% Fe content has declined from about $10 per 100 basis points of excess Fe (relative to the 62% benchmark) to about $2.50 per 100 basis points of excess Fe.
The explanation is as follows:
High-Fe-content iron ore requires less coking coal for the same amount of iron ore to reduce the iron into steel; however, cutting the amount of coking coal used in steelmaking becomes less important as the price of coking coal declines, so the higher-quality iron ore is worth comparatively less than when coking coal is expensive.
Additionally, high-Fe-content iron ore allows steelmaking blast furnaces to operate more efficiently, so they can produce more steel per unit of time. However, when there is excess capacity at blast furnaces, saving time is not as consequential, so the higher-quality iron ore is worth comparatively less than when blast furnaces are running at or near full capacity.
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