Japanese push for sub-$120 per tonne Q2 coking coal settlement

Japanese steel mills are looking to push second-quarter 2014 coking coal contract settlement prices below $120 per tonne for premium hard coking coals, market sources told Steel First on Monday March 24.

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Quarterly settlement prices below $120 per tonne fob Australia for premium hard coking coals would represent a $23 discount to settlement levels of $143 fob Australia in the first quarter of the year.

Mills and producers are in negotiations, with settlements expected to be reached in early-mid April.

Historically, Australian coking coal major BHP Billiton Mitsubishi Alliance (BMA) has led the coking coal market with its quarterly benchmark negotiations with Japanese mills. However, a drive to shorter term pricing at the miner saw Anglo American make the benchmark settlement in the first quarter of 2014.

“It’s in a deadlock situation now because some Japanese mills might want to shift some of the BMA tonnages to Anglo American and can therefore demand a lower price,” a source in Japan told Steel First.

A European trader expected that benchmark prices for lower quality coals would be around $10 below settlement levels for premium material, at about $110 per tonne fob.

Domestic Chinese coking coal prices are also under pressure, with producers in Shanxi province rumoured to be contemplating further deep price cuts in April.

Traders said that they were surprised that BMA was pushing for short-term pricing with prices falling so sharply, instead of locking-in quarterly contracts at today’s price levels.

Steel First’s premium hard coking coal index was calculated at $111.03 per tonne fob Australia on Monday, down from more than $120 per tonne a month ago.

“I don’t understand why BMA wants shorter term contract in this falling market,” the source in Japan said. 

Defaults in the Chinese steel and property sectors which emerged earlier this month have further depressed demand for, and prices of, coking coal. This has made Australian producers look elsewhere to sell spot cargoes.

“The Chinese just aren’t buying a lot on spot. Any demand expressed elsewhere is being chased by the Australians,” a second European trader said.

While prices continue to fall, producers continue to mine and sell coal, instead of controlling supply.

“I haven’t heard of any hints of mine closures or stoppages yet,” the European trader said. “If we start seeing that happen, it will be a first in this cycle.”