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Analysis: Iron ore pellet demand in Europe supported by carbon credits, met coal and coke price rise

London — Coking coal and met coke prices at relatively high levels into year-end, along with a surge over the year in EU carbon prices, may be supporting regional demand for iron ore pellets, buyers said this week.

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Related blog post - Insight: EU carbon market stages comeback in 2018

Iron ore pellets may form a significant part of higher purity iron feed and aid hot metal formation with reduced blast furnace met coke consumption. Moving consumption of pellets lower and adding more lump ore, or sintered ore to the burden mix may be limited on emissions and slag related matters, a buyer said.

Carbon prices have surged, limiting the potential for shifts in pellet use and blast furnace operations, a source said. Pellets may typically make up a third or more of iron ore burden at European blast furnaces.

Steel mills may face greater costs to cover any additional carbon dioxide emissions under the EU Emissions Trading System.

Higher PCI coal injection to reduce coke usage, and the added stability to blast furnace operations from the use of pellets are other benefits adding to demand for pellets.

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Premium coking coal prices have pressed above $200/mt FOB Australia in the fourth quarter, while spot prices for met coke exports in China neared $400/mt FOB again this month as domestic pricing and forward demand strengthened ahead of pollution cutting measures on installed capacity and coke rates.

EU carbon dioxide allowances under the EU Emissions Trading System have tracked up this year to average so far In November at around Eur19/mt from a low of under Eur8/mt in January, according to EUA futures contracts for December 2018 delivery.

A strong year for EU industrial production and activity, including higher steel demand, may have led to more demand for carbon allowances to meet future demand and cover earlier short positions.

--Hector Forster, hector.forster@spglobal.com

--Edited by Alisdair Bowles, newsdesk@spglobal.com