Hard on the heels of news of offers flying to and fro in the steel industry for 2010 iron ore pricing, BHP is reported to have struck an innovative new short term contract with a big Japanese steel mill that contains a 55% price rise for hard coking coal.
Media reports over the week said BHP won the increase from the big Japanese steel group, JFE Steel, which will pay $US200 a tonne for the three months starting April 1.
The news came after China revealed that it would be aiming at a minimum growth target this year of 8%, with consumer inflation held to around 3%.
That was expected; what probably wasn’t was the stronger than expected coal price settlement from BHP, to go with a high price rise for iron ore.
The coal will come from the central Queensland mines of its 50% associate, BHP Mitsubishi Alliance.
That’s up from the $US129 a tonne set in the contract which expires at the end of this month.
It’s the first time a three-month supply accord for the steelmaking ingredient has been agreed to in price talks.
BHP has been pressing for the mills to accept shorter term pricing arrangements for iron ore and coal
The reports said that the contract arrangements from July have not been agreed to, but BHP is said to want some sort of rollover arrangement with the price linked to spot prices.
The Japanese company told Reuters it wanted to move to a yearly contract arrangement from July.
It is trying to shorten its contracts to link pricing and tonnages to the market.
For the buyer, it allows them to take advantage of any short term dips in price, and to better manager volumes according to forward orders and production.
Coking coal and iron-ore suppliers have traditionally held annual talks with steelmakers to fix benchmark contract prices for the 12 months from April 1, which is the start of the Japanese financial year.
The arrangements also cover pricing and tonnages for thermal coal from the power, cement and other consumers in Japan, Korea, Taiwan and China.
Japan is the biggest coking coal buyer in the world and the second largest purchaser of iron ore after China.
The deal for a 55% price rise is very bullish and a sign of just how tight the coking coal market looks, especially in Asia.
Spot coking coal prices have risen sharply to about $US220-$2US40 a tonne after a drop in China’s domestic production forced Chinese steelmakers to import more coal from Indonesia, Australia and North America.
China imported about 30 million tonnes of coking coal in 2009.
Some analysts see that falling this year, but prices will be maintained by the country’s decision to continue a rapid pace of economic growth.
China’s now formal setting of an 8% growth target for 2010 was always expected, along with commitments to set a low inflation rate (this time 3%), promise to investment in more productive assets and to ‘do better’ for the less well off and vaguely promise some sort of political change.
But it means little change in spending, although the rate of growth in outlays will fall as the year goes on.
Bank lending will fall as well and will be aimed at productive projects (whatever that means).
In many respects it’s steady as she goes in China this year.
