Coal news and updates

Global miners pushing for monthly contracts in coking coal

March 26: Having successfully persuaded steel-makers to enter into quarterly contracts, leading coking coal miners such as BHP Billiton, Anglo Coal and Peabody are now believed to be working towards introducing a monthly pricing mechanism for supply of the key raw material in steel-making, industry officials said.

"BHP is already selling half of the contracted quantities through monthly settled prices despite signing quarterly contracts with steel-makers. Now it is pushing to sell the entire contracted quantity based on a monthly pricing," the officials said.

"Ultimately, the miners are planning to bring in index-based pricing for coking coal, which is followed for steam coal," the official added.

"This is a trap by miners and once they are able to successfully introduce the index- based monthly pricing system in coking coal, the uncertainties and wide-fluctuations in prices will become the order of the day," said an official from a steel company.

The official pointed out, it has already been seen that there are wide fluctuations in prices of steam coal because of the monthly fixation of index prices.

"It has already been seen that steam coal prices fluctuate widely, especially towards the end of a particular month, based on which the index price for a month is fixed and once the same system is brought in for coking coal, similar fluctuations will be expected," the official added.

Earlier, coking coal was being supplied by miners to leading steel-makers on the basis of annual contracts. But a quarterly pricing mechanism was forcefully introduced in 2010-11. Subsequently, miners started selling half of the contracted quantities to steel- makers at a fixed price and the balance at prices fixed on a monthly basis, which varied according to movements in the spot market.

For example, the contracted price of prime hard coking coal for the January-March, 2014 quarter was fixed at $143 per ton, but BHP had offered the material for delivery in March at $118 per ton because the spot price by then had fallen to $120 per ton at the beginning of March.

"By offering a discount over the spot price even to buyers who purchase on the basis of quarterly contracts, miners were trying to lure them into accepting monthly pricing by showing this is more beneficial to them (steel-makers)," the official said.

Meanwhile, a source said that coking coal miners have already stopped selling the material on quarterly contract basis to all the private steel-makers in India. "They are offering quarterly contracts only to SAIL and RINL and a few other big steel-makers in the country," the source said.

"Right now, the leading miners are trying to influence the Japanese steel-makers to accept the monthly pricing mechanism for coking coal on the ground that this augurs well for steel-makers. Meanwhile, the largest among the coking coal miners has already made it clear that it will not sign any quarterly contract for the April-June 2014 quarter," said another steel-maker.

"Till today, it is not clear whether Japanese steel-makers will accept the bait offered by the miners, but one thing is clear that steel-makers will have to accept the bait even if they do not find it suitable. The miners, since their numbers are small and they can afford to temporarily stop supplies by joining hands, will ultimately make steel-makers accept their proposal," said a third steel-maker.

"If the Japanese steel-makers agree, then Indian steel-makers too will have to accept the monthly pricing mechanism because they will be left with no choice," the official said.

Because of a global economic slowdown, prices of coking coal had been falling continuously after touching a high of $330 per ton in the first quarter of 2011-12:

Following table provide historical contract price of coking coal: