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.