Japanese Steel Makers Pushing for Changing Over Coking Coal Contract Price Settlement

A wave of recent developments is indicative of the possibility of an imminent change in the 45-year old Coking Coal contract price mechanism among Japanese steel makers and Australian Coking Coal suppliers.

Negotiations between Australian Coking Coal miners and Japanese steel producers over deciding the contract price for the coal for the second quarter of the current year have halted as the steel makers in Japan were pushing to move away from the hitherto quarterly fixed price terms to some flexible pricing mechanism, which will insulate the steel makers from the abrupt price volatility for the coal due the occasional supply disruptions in Australia. As a case in point, the recent Debbie cyclone had triggered significant Coking Coal price upswings by creating supply disruptions.

In fact, Coking Coal supply contract prices between Australian miners and Japanese steel producers are regarded as the benchmark prices across the world.

The bid for a change-over in the pricing mechanism by the Japanese steel makers garnered support from BHP Billiton, the only Australian Coking Coal miners, the rest opposed the move. The steel producers advocated a pricing based on the monthly average of the daily spot prices of the coal. Among the steel makers, there are also some who want index-based pricing.

However, if the talks resume, there is a chance of the quarterly price for the coal to be set at USD 195/MnT for the second quarter of 2017, according to a source. The price is approximately equivalent to the average Coking Coal price during Mar’17 to May’17.

Source: CoalMint Research