Coking coal producers are pushing customers to move to a shorter term pricing mechanism that could see annual contracts replaced with quarterly sales and index pricing, similar to incremental changes in the iron ore market, analysts said Tuesday.

BHP Billiton Ltd., the world’s largest coking coal producer through its
BHP Billiton Mitsubishi Alliance, or BMA, is expected to entice
consumers to accept a degree of quarterly pricing, offering discounts
for various different annual-quarterly splits, Goldman Sachs JBWere
said in a note.

Japanese steel mills are likely to resist such moves because of rising
spot market prices and concerns about moving away from a decades-old
system offering much valued stability.

Negotiations between Australian suppliers and major buyers in India and
Japan “should get serious during face-to-face meetings scheduled for
the next two weeks,” GSJBW said.

Two analysts said there was market talk of BMA offering US$200 a metric
ton for annual contracts, and US$180/ton for a quarterly pricing period
to encourage consumers to move away from the old system that often sees
buyers and sellers locked in fraught and lengthy negotiations.

These price levels compare with a price settlement of US$125/ton for the 2009-10 contract period ending March 31.

BHP has long made no secret of its desire to move away from the annual
pricing of bulk commodities, instead favoring a short-term reference
system–or indexing–the company says is more transparent.

Separately, Canadian diversified miner Teck Resources Ltd. (TCK) said
Tuesday it expects a move away from the annual pricing structure, in
part to reflect new major importer China’s tendency to buy on the spot
market.

“China stepped in as a big buyer last year, and it tends to buy on the
spot market. That alone is going to push us to a shorter pricing
cycle,” said a Teck spokesman, who declined to comment on shorter-cycle
sales to other customers.

Last year, China emerged as a major coking coal importer after a number
of domestic mines were shut due to a safety clampdown and lower coal
prices, turning the country into a surprise net importer at a time of
flagging demand elsewhere.

China accounted for about 20% of Teck’s 2009 coking coal sales, which
totaled 19.77 million metric tons, and the company expects strong
exports to continue this year, a spokesman said.

“We…expect that a portion of our sales volume in 2010 will be priced
on a shorter pricing cycle as opposed to the traditional coal year. A
shorter pricing cycle would create more frequent adjustments to coal
prices during the year,” Teck said in its fourth quarter results
statement.

Source: Dow Jones

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