BHP takes big cut in Japan coal price

HARD on the heels of steep declines in iron ore prices, BHP Billiton has been hit by steep falls in the price of coal sold into the Japanese market.

By InvestSMART · 14 Sep 2012

By InvestSMART ·
14 Sep 2012

Comments

HARD on the heels of steep declines in iron ore prices, BHP Billiton has been hit by steep falls in the price of coal sold into the Japanese market.

The latest blow comes amid weak demand in the all-important Chinese market.

BHP this week entered into contractual sales of good-quality coking coal at $US170 a tonne for the December quarter in Japan, down 25 per cent, while it has reportedly agreed on spot export coal shipments at less than $US150 a tonne.

The sales are of good quality, so-called "hard" coking coal, which is a premium product highly sought after by steel producers.

Traditionally, Japanese steel companies have been willing to pay a premium price for quality Australian imports, signalling that suppliers of lesser-quality coals will be forced to settle for lower prices.

The price fall for deliveries in the December quarter into Japan represent the continued correction of coking coal prices after they surged to $US330 a tonne on the back of supply shortages following widespread floods in Queensland in late 2010.

In the September quarter, for example, BHP Billiton supplied key Japanese steel mills at around $US225 a tonne, and has now agreed to a further 25 per cent price cut for shipments in the December quarter, reflecting concerns about the extent of the downturn in demand from China.

Other major coking coal producers are moving to follow the BHP pricing lead in Japan, IHS McCloskey reported this week, bypassing the recent benchmark price leader, Anglo Coal, which has been slow to settle for December quarter shipments amid the continued decline in coal prices.

The BHP settlement in Japan took place against the backdrop of a build-up in stocks at its Queensland mines, which it has been seeking to offload. At the same time, there has been increasing caution that the slowdown in Chinese demand could prove to be extended, lasting well into 2013 for both coking and thermal coals.

"BHP has clearly been motivated into pro-activity by a growing level of unsold tonnes, with a number of key customers opting to defer monthly shipments for August and September, reflecting dipping steel demand and prices," IHS McCloskey reported.

The settlement has also reinstated BHP and Nippon Steel as the traditional price setters in the Japanese market.

The settlements in Japan have taken place against the backdrop of spot sales by BHP into China at around $US140/5 a tonne, McCloskey reported this week.

These prices for coking coal compare with recent spot export sales of thermal coal from Hunter Valley producers at around $US95 a tonne. Thermal coal is typically used to generate electricity.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What happened to BHP's coking coal prices for deliveries into Japan in the December quarter?

BHP agreed contractual sales of good‑quality “hard” coking coal into Japan at about US$170 a tonne for the December quarter — roughly a 25% cut from the September quarter level when it was supplying around US$225 a tonne. The company has also reportedly done spot export coal shipments at under US$150 a tonne.

Why did coking coal prices fall so sharply after earlier gains?

The article says prices are correcting after a prior surge to about US$330 a tonne following Queensland floods in late 2010. The recent falls are being driven mainly by weak demand from China, a build‑up of stocks at Queensland mines, and customers deferring shipments — all of which pushed sellers to cut prices.

How does premium hard coking coal differ from thermal coal and how do their prices compare?

Hard coking coal is a premium product used by steel producers and typically commands higher prices than thermal coal, which is used to generate electricity. The article reports hard coking coal sales into Japan around US$170 a tonne (with some spot sales below US$150), while recent spot export sales of thermal coal from Hunter Valley producers were around US$95 a tonne.

Are other coal producers matching BHP’s price cuts in Japan?

Yes. IHS McCloskey reported that other major coking coal producers are following BHP’s pricing lead in Japan. Anglo Coal, the recent benchmark price leader, has been slower to settle for December‑quarter shipments, but the market is moving in line with BHP’s settlement.

What does the BHP‑Nippon Steel settlement mean for price leadership in the Japanese market?

The article notes the settlement has reinstated BHP and Nippon Steel as the traditional price setters in the Japanese coking coal market, signaling that their agreed prices are again influencing broader market pricing in Japan.

How is Chinese demand affecting coal markets and what is the outlook?

Weak and potentially prolonged weakness in Chinese steel and coal demand is a key factor behind the recent price falls. The article highlights caution that the slowdown could extend well into 2013 for both coking and thermal coals, which would keep downward pressure on prices.

What role do stock levels at Queensland mines play in BHP’s pricing decisions?

BHP has built up stocks at its Queensland mines and has been seeking to offload unsold tonnes. That inventory build‑up, together with customers deferring shipments, pushed BHP to be proactive on pricing to reduce its unsold inventory.

What market indicators should everyday investors watch if they follow coal and mining stocks?

Based on the article, investors should track: coking coal contract and spot prices in Japan and China, demand trends from Chinese steelmakers, stock or inventory levels at Australian mines (Queensland), settlements and price leadership among major suppliers (BHP, Nippon Steel, Anglo Coal), and disruptions to supply (for example floods). These indicators can signal price pressure or recovery in coal markets.