Replies to post #649 on The Rising Influence of Rising Affluence

[DewDiligence]

BHP Wins 55% Price Increase in Coking Coal

http://www.businessweek.com/news/2010-03-05/bhp-wins-55-coking-coal-gain-with-three-month-accord-update2-.html

›March 05, 2010, 12:10 PM EST
By Masumi Suga and Jesse Riseborough

March 5 (Bloomberg) -- BHP Billiton Ltd., the world’s largest coking-coal exporter, won a 55 percent price increase from JFE Holdings Inc.’s steel unit as supplies of the raw material tightened with the global economic recovery.

JFE will pay $200 a metric ton for a three-month contract starting April, Eiji Okumura, a spokesman for the Tokyo-based steelmaker, said by phone today. That compares with $129 a ton for the year ending March 31, which was agreed on by Japanese steelmakers and BHP in 2009. BHP was seeking $240 this year, UBS said Feb. 18. Illtud Harri, a London-based BHP spokesman, declined to comment

It’s the first time a three-month supply accord for the steelmaking ingredient has been signed, said Jim Lennon, a commodities analyst at Macquarie Group Ltd. in London. Melbourne-based BHP has proposed Asian mills accept quarterly iron-ore supply accords instead of the customary year-long contracts, the Australian Financial Review reported March 3.

The JFE coal settlement “signals that the Japanese are moving toward the idea of flexibility of pricing,” Lennon said by phone. “It’s pretty certain that you are going to see a similar development in iron ore.”

The terms of JFE and Melbourne-based BHP’s contract due to start in July have yet to be decided, Okumura said.

Contract Options

BHP has offered customers three options for coking-coal contracts, UBS said Feb. 18. The first is for half of supplies to be priced annually and half quarterly; the second option is for supplies to be divided between quarterly and semi-annual contracts; the third is for all prices to be set every quarter.

Coking coal and iron-ore suppliers have in previous years 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 four-decade-old iron ore pricing system was fractured last year after Chinese mills failed to reach agreement with suppliers [#msg-43960884].

China is the largest importer of iron ore, also used to make steel, and Japan is the biggest coking coal buyer. Some Asian steelmakers will struggle to pass on higher costs, Morgan Stanley said March 2.

BHP, Teck Resources Ltd., Xstrata Plc, OAO Mechel, Rio Tinto Group, Alpha Natural Resources Inc., and Massey Energy Co. are among mining companies that will benefit from more frequent pricing, UBS AG wrote in a March 3 report.

Imports Surge

Chinese mills increased iron ore purchases to a record last year to meet rising steel demand fueled by the nation’s stimulus spending. Chinese coking-coal imports rose 10-fold in 2009, according to Morgan Stanley.

Annual iron-ore contract prices may soar 60 percent in 2010 as demand from steelmakers increased with the global economic recovery, Morgan Stanley said this month.

The daily cash, or spot price, for iron ore rose to the highest in more than a year this week. BHP boosted sales of iron ore based on “shorter-term reference pricing,” in the fiscal first half to 46 percent, from 30 percent, it said Jan. 20.‹

[DewDiligence]

Mining Disaster Bumps Up Price of Met Coal

http://online.wsj.com/article/SB10001424052702304703104575174391282414652.html

›APRIL 11, 2010, 5:47 P.M. ET
By MARK PETERS

Prices for metallurgical coal, a key input in steel production, jumped last week after a fatal explosion forced Massey Energy Co. to shut a West Virginia mine, squeezing an already tight market for the commodity.

The Upper Big Branch mine disaster takes supply off the market at time of strong Asian demand for the higher-quality coal and a rebound in steel production in the U.S., Brazil and Europe.

Massey was scheduled to ship 1.6 million tons of metallurgical coal from the Upper Big Branch mine this year, equal to about 3% of total U.S. production last year. The Richmond, Va., producer said Friday it will increase production at other mines, but doesn't expect to replace all of the lost production from Upper Big Branch this year. The company said it couldn't predict when the mine might reopen.

With production at the Massey mine down since late April 5, prices have risen sharply. A weekly U.S. index compiled by Energy Publishing Inc. showed spot prices for so-called high-volatility metallurgical coal at the port in Hampton Roads, Va., a major coal-shipping center, jumped 22% in the last week to $241.67 a metric ton. The Knoxville, Tenn. based publisher tracks spot deals and surveys buyers and sellers to arrive at the indexed price.

"The outlook for [metallurgical] demand continues to be pretty strong. Prices have run pretty significantly in recent days," Calyon Securities analyst David Lipschitz said Friday.

The April 5 blast at the Massey mine killed 29 workers, making the explosion the worst U.S. mining disaster in more than two decades. The disaster forced steelmakers into the spot market to secure additional tons amid concerns over near-term supplies.

Annual demand for metallurgical coal among U.S. steelmakers totals about 20 million tons, and U.S. coal producers export an additional 20 million to 40 million tons a year, said Gerard McCloskey, chairman of The McCloskey Group, a consultancy and news provider focused on the global coal industry.

Mr. McCloskey expects U.S. exports to reach 50 million tons this year amid strong global demand and weather-related supply disruptions in Australia, the world's largest coal exporter. Even before the Massey mine disaster, the market had tipped from "very tight to one where everyone can't make the steel they want to make," Mr. McCloskey said.

Indicative of the booming demand from steelmakers, U.S. producers of metallurgical coal have been taking the rare step this year of shipping coal to Asia, a trade route that previously hadn't been economical. In the meantime, mining giant BHP Billiton Ltd. managed to secure quarterly agreements with Japanese steel mills for a 55% price increase, showing the leverage that producers wield.

In the U.S., Mr. Lipschitz doesn't expect steelmakers to face shortages of metallurgical coal that will force them to cut production. Instead, the impact will be centered on pricing, with the question becoming whether steelmakers can pass through the higher costs to their customers, or if their margins will be squeezed by the higher coal prices.

Representatives of the steel industry declined to comment on the impact of the higher coal prices.‹