Cliffs Eyes Captive Mines as Relief to High Met Coal Prices

“We are benefiting from our existing multi-year contracts with suppliers and also the supply from our own coal production operations,” a company spokeswoman said.

“If the coal market does not improve over the next year, we may conceivably begin to realize impacts, and we will look to mitigate as much as possible with our own coal production,” she added.

Cliffs operates a coal mine in Princeton, W.Va. The company also operates coke plants in Monessen, Pa.; Warren, Ohio; and Follansbee, W.Va. (The latter is also known as Mountain State Carbon.)

Metallurgical coal is heated into coke in coke ovens. It is different from thermal coal, which is used for heating and power generation.

Coke is necessary raw material in steel production via the integrated route – in which iron ore and coke are combined in blast furnaces to produce liquid iron.

There is effectively no spot market for iron ore in the U.S. because there are only two integrated steelmakers left – Cliffs and Pittsburgh-based U.S. Steel, and both own their own iron ore mines.

U.S. Steel declined to provide comment for this article.

While there might be little in the way of merchant iron ore sales in the U.S., iron ore prices abroad – where there is a spot market – have fallen from approximately $200 per metric tonne in July to roughly $100 per tonne more recently.

Iron ore and metallurgical coal prices – because both are primarily used for steelmaking – tend to trend in the same direction.

That correlation has broken down in recent months. Metallurgical coal prices have soared because China has banned imports of Australian coking coal. Also, the border between China and Mongolia – the latter is a potential alternate to Australia for met coal – was tightly restricted because of a COVID-19 in Mongolia.

The result: Metallurgical coal prices hit an all-time high of $603 per dry metric tonne in August of this year, more than three times higher than a three-year low of $178 per dry metric tonne recorded in August 2020.

It’s not immediately clear what, if any impact, higher met coal prices might have on the U.S. market. Electric arc furnace (EAF) mills, which don’t require coke, account for approximately 70% of U.S. production. But the number is more balanced when it comes to sheet, where integrated mills still have a strong position. In long products, in contrast, EAF mills account for the vast majority of production.

By Michael Cowden, Michael@SteelMarketUpdate.com