BHP seeks to impose monthly contracts for coking coal supplies

Australian mining giant BHP Billiton is striking back on the issue of coking coal supply contracts, according to a report in the Italian business newspaper Il Sole 24 Ore. The group, which controls 25 percent of global coking coal supplies through its BHP-Mitsubishi Alliance joint venture (BMA), is exerting pressure on Japanese customers, in order to persuade them to adopt monthly contracts. Related reports have been circulating for a week in the Japanese media and have now been confirmed by two prominent Japanese steelmakers - Sumitomo Metals and JFE Steel. Mr Eiji Hayashida, president of JFE Steel and chairman of the Japan Iron and Steel Federation, said, "We strongly oppose such a change and we will never accept it". "Steelmakers' earnings would become unpredictable and steel-consuming companies would not be able to draw up stable production plans if prices change frequently," he added.
 
Japan Metal Bulletin has said that BHP Billiton, starting from April 1, wants monthly pricing to replace quarterly pricing for half the volume of its coal supply to the Japanese steelmakers. No one has disclosed details on the proposal, which is under negotiation, but it can be assumed that the price resets are meant to be automatic and based on an index (as for the quarterly contracts). Some analysts are skeptical whether BHP can successfully push through the desired change. "It seems very difficult to accelerate the transition to shorter-term pricing both because of cultural reasons and also because of lack of information," said analyst Andrew Harrington of Patersons Securities. In fact, quarterly resets are based on an index pricing of spot coals of different qualities, whereas no index exists for spot coking coal prices, and the source of most of the relevant data is BMA itself.
 
Meanwhile, price predictions are alarming: analysts think that, due to the floods in Australia and the strong demand from China, coal prices will rise by 35 percent over the current quarter, to $300/mt on the spot market.