Wednesday February 24, 2010

Steelmakers say no to BHP coal price hike plan

Japanese users say the US$200 per tonne cost is too high

TOKYO: Japanese steelmakers have rejected a proposed 55% coking coal price hike in the April-June quarter from BHP Billiton, the world’s biggest diversified miner, the Nikkei business daily reported on Tuesday.

BHP has offered US$200 per tonne for the quarter, a sharp hike from the same period a year ago as it seeks to move to a pricing system that responds more rapidly to market conditions.

But Japanese steelmakers say the price is too high and they cannot evaluate it unless an annual contract is offered, the newspaper said without citing sources.

BHP had not yet made an offer on an annual contract price, it said.

Nippon Steel Corp, the world’s second-biggest steelmaker, and JFE Holdings Inc, the sixth largest, declined to comment on the report. BHP also declined to comment.

“BHP is exceptionally bullish about the metallurgical coal markets so the near US$200 a tonne price isn’t a surprise. But negotiations could drag on this year because of BHP’s proposal to shorten the contract period,” said a commodities analyst at a major investment bank who declined to be identified.

Miners working at a mine in Changzhi, China. Mining companies aim to raise coal prices for the first time in two years. — Reuters

Media reports said that BHP in January had asked Japanese mills to switch to quarterly price contracts from annual, or at a minimum negotiate prices for half of their expected volumes quarterly and the rest in six-month or annual contracts.

While spot coking coal has recently been traded at about US$220-US$230 a tonne, Merrill Lynch said in a Feb 17 report that BHP was likely to set its annual coking coal contract price at about US$240, due to ongoing market tightness and supply disruptions.

It added that BHP was likely to price its shorter-term contracts at a discount of as much as 20% at about US$200 a tonne.

Mining companies aim to raise coal prices for the first time in two years as spot prices for steel raw materials have surged on the back of expanded steel output in China and across Asia amid a government-incentive backed consumption boom.

Japanese steel mills have rejected quarterly pricing, saying that would hurt the business of manufacturers, their biggest customers. — Reuters

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