Baowu's work is understood to be separate to the partnership it struck in November with industrial gases giant Linde, which is investigating the creation of infrastructure for housing and transporting liquid hydrogen within China.

Rather than produce liquid metal by heating iron ore and coking coal in blast furnaces, steel can be produced through the direct reduced iron method by using hydrogen as a reductant.

Baowu hopes to outpace the work being done by Swedish steel maker SSAB, which is aiming to have a demonstration plant making steel with hydrogen by 2025 with a view to selling carbon-free steel "on a broad scale" by 2035.

Baowu also last year struck a partnership with one of its biggest iron ore suppliers, Rio Tinto, investigating ways to reduce emissions in steel-making.

Like rival iron ore miner Fortescue Metals Group, Rio is studying ways to become a hydrogen producer, and its enormous water entitlements in Canada mean it has more chance of entering the sector than most miners.

British government climate adviser professor Julia King last year told The Australian Financial Review that hydrogen substitution in steel making was technically possible.

But she said hopes for hydrogen to be the carbon-free solution for myriad other uses would ensure the gas would not be cheap for steel makers, who would also probably need to invest in new steel manufacturing infrastructure if they were to make the switch to hydrogen.


Professor King said on a visit to Melbourne last year: ''How quickly it will happen will depend on the economics and what support governments are prepared to offer and also on the scale of replacement of infrastructure and facilities in the steel industry, which I imagine is not hugely fast.

''That is the hydrogen we may need to replace gas heating in people's homes; the hydrogen we may need to replace gas in the firing of kilns in the ceramics industry, in brick making. There is an awful lot we are going to need (hydrogen for).

''It is not going to be a cheap fuel, so the replacement that is going to be used in steel making is, I imagine, going to make steel making more expensive."

Australian miners are betting that hard coking coal produced in Queensland's Bowen Basin and the Illawarra region of NSW remains in strong demand for a long time, partly because of its superior quality but also because of a shortage of supply.

South32 chief executive Graham Kerr last month told investors that the superior quality of Australian coking coal would be increasingly in demand amid efforts to make traditional steel blast furnaces more efficient.

''I wouldn't be bearish on (coking) coal of all the commodities. I think medium to long term it probably has more upside than what we currently forecast,'' he said on February 12.

A decision to push ahead with development of Eagle Downs would mean Baowu has finally extracted something positive from its disastrous $1.4 billion acquisition of ASX-listed Aquila Resources in 2014.

That acquisition was mostly focused on a new iron ore mine and rail project, which has since been mothballed.