BHP Signs Quarterly Coal Deal with Japan based Steelmaker

Submitted by Jim Thesiger on 8 March, 2010 - 03:16

The leading exporter of coking coal- BHP Billiton (BHP) have signed a deal with Japanese company JFE Holdings, which is the second largest mill of that country on Friday according to which the Australia based miner will supply it an unknown amount of ingredients for steel production for which JFE Holdings will be paying close to the asking price of BHP Billiton which was $US200 per tonne. It is to be mentioned that this rate is close to the current spot price which is $US220 per tonne and 55 percent above than the contract price of 2008-09 ($US129 per tonne). It is understood that BHP Billiton, which is asking for a more flexible arrangements on the short term basis for iron ore and coal have offered as much as $US240 per tonne at a yearly basis, an offer that includes $US40 per tonne discount in an attempt to make the quarterly deal more attractive.

Although it is still to be clear whether the price is applicable for the entire amount of the agreement, the numbers are going to buoy the smaller producers who were waiting to see the result of the BHP talks. It is to be mentioned that the BHP-Mitsubishi alliance is capable to generate as much as 60 million tonnes per year from the Bowen Basin mines. The reports regarding the price settlement was termed as speculation by BHP spokeswoman Samantha Evans on Sunday. However, JFE all but confirmed the deal in Tokyo which according to the spokeswomen cannot be considered as an indication that the largest exporter of coal is moving towards quarterly contracts.

The latest development can be seen as an important one due to the fact that this is the first time a Japan based steelmaker is willing to move away from the annual contract system to something that tracks the spot (market) rate more closely. The smaller producers and their buyers have used the annual negotiation between a lead buyer and lead seller as the benchmark for their agreements.

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