Sunday, 07 Feb 2010
Reuters reported that top coking coal producer BHP Billiton Mitsubishi Alliance wants Japanese steel mills to accept shorter term contracts in a move that could hasten adoption of a pricing index to replace tense annual negotiations.

The Japan Metal Daily said BMA was behind a request to get Japanese steel mills to move to quarterly contracts from yearly for coking coal. Last week the daily quoted Mr Shoji Muneoka chairman of the Japan Iron and Steel Federation, as saying a miner had requested the switch, but that steel makers were opposed.

The paper said, citing unnamed sources BMA has asked both parties to agree on the price and volume 15 days before the start of each new contract period,

Analysts said the proposal could accelerate the development of a coking-coal price index, underscoring BHP effort to shift from annual talks to a transparent pricing mechanism as it has done for manganese and incrementally for iron ore.

An analyst at an investment bank, who declined to be identified said "To BHP, the annual negotiations cause a lot of angst between producers and buyers and their final goal would be the establishment of proper transparent market clearing index that can facilitate transparent pricing. In a bid to entice Japanese buyers to change their decade long buying practices, BMA has offered to sell coal to steel mills at USD 180 per tonne, compared with USD 200 a tonne for annual contracts.”

Traders and analysts said however, Japanese steel mills are likely to resist the proposal because it comes at a time of rising prices and conflicts with sales practices with key customers like automakers.

The investment bank analyst said "Japanese mills sell much of their steel to automakers on an annual basis so they will feel exposed if their raw material was charged quarterly."

BMA a joint venture between BHP Billiton and Japan Mitsubishi Corp is the world's biggest producer of coking coal a key raw material in steel making.

(Sourced from Reuters)