BHP Hikes Coking Coal Price

Melbourne-based BHP Billion said coking coal contracts would be based on shorter-term market prices, a pricing system that could be extended to iron ore trading

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(Caixin Online) Australia's BHP Billiton, the world's biggest exporter of coking coal, announced that it has reached agreements with customers in Europe, China, India and Japan on major supply contracts of coking coal, with higher than expected price rises.

Melbourne-based BHP said the contracts would be based on shorter-term market prices, marking its ambition to adopt short-term pricing based on spot markets for commodity trading.

According to Japanese media, major Japanese steel makers including Nippon Steel Corp. and JFE Holdings Inc. have agreed with BHP to raise coal prices for April to June deliveries to US$ 200 per ton, up 55 percent from 2009.

Previously, steel companies in Japan and South Korea imported coking coal from Australia under long term contracts with annual benchmark prices, a system similar to the iron ore trade. In 2008, benchmark prices for Australia coking coal exports rose 200 percent to US$ 300 per ton, and in 2009, the price dropped 57 percent due to the financial crisis.

Backed by abundant coal reserves, China hasn't been deeply involved in international coal trading and price negotiation in the past. However, with increasing steel production, the country became a net importer of coking coal for the first time last year.

BHP has actively advocated a more flexible index pricing mechanism for coking coal and iron ore trading, under which price for contract supplies fluctuates based on market price indexes. Analysts believe that the breakthrough of coking coal pricing will help BHP extend the model to iron ore price negotiations.

Chinese steel makers have started this year's iron ore price talks with the top three ore suppliers, Australia's BHP, Rio Tinto and Brazil's Vale, in early February. The talks are expected to be concluded by April 1. However, Deng Qiling, chairman of China Iron and Steel Association, said recently that this year's talks have been quite tough and that the short term will not yield much progress.

Full article in Chinese: http://business.caing.com/2010-03-08/100123515.html