Anglo American settles Apr-Jun coking coal at $330/mt FOB

Singapore (Platts)--4Mar2011/214 am EST/714 GMT

Anglo American has struck a deal with Japanese customers to sell coking coal at a record $330/mt FOB Australia for the April-June 2011 quarter, 46.6% higher than in the January-March quarter, market sources said Friday.

The deal comes at the same time as BHP Billiton is attempting to push through an unpopular shift from quarterly to monthly pricing.

The transactions also mark a departure from the usual negotiation procedure, as BHP normally leads and agrees the first "benchmark" deal.

Anglo American has reportedly reached contract agreements with both of Japan's largest steelmakers, Nippon Steel and JFE Steel, though this could not be confirmed directly. No official comment or confirmation could immediately be obtained from Anglo American.

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The headline price of $330/mt concerns Anglo American's flagship brand German Creek, a well-known premium low-volatile hard coking coal.

It is unclear how the company will be pricing its other coals, including Moranbah North and Dawson.

The transaction is likely to be welcomed by the steel industry, which has been universal in its rejection of BHP Billiton's proposed monthly pricing.

On the other hand, the deal commits the buyers to paying what is a historical record price for a period of three months, while those taking up BHP Billiton's offer are widely forecast to benefit from lower contract prices in May and June.

The sources did not mention how the thorny issue of carryover tonnage would be dealt with, following severe floods in Queensland.

On Thursday, BHP marketers for mines held by the BHP Billiton-Mitsubishi Alliance venture made offers to Japanese steelmakers for its top-quality hard coking coal to be sold at $300/mt FOB Australia for April sales, and at $325/mt FOB for April-June sales, several market sources said.

The deal agreed closely matches latest spot metallurgical coal prices.

Platts assessed Peak Downs Region at $330/mt FOB Australia on Thursday, while Premium Low Vol was assessed at $324/mt.

The price is 65% higher than in April-June 2010, when Anglo American agreed to sell its coking coal at $200/mt FOB.

German Creek has 71% coke strength after reaction, 19.5% volatile matter, 11% total moisture, 9% ash, 0.54% sulfur, 0.064% phosphorous and 250 ddpm fluidity.

Moranbah North has 65% CSR, 24.5% VM, 10% TM, 8.5% ash, 0.5% sulfur, 0.03% phosphorous and 1,700 ddpm fluidity.

Macquarie Commodities Research said Friday it would expect agreements with other miners at this level to follow quickly.

The price level cited is higher than market expectations but comes as a recovery in coal export volumes from flood-hit Queensland mines "has stalled recently, helping to tighten market fundamentals," it said in a note.

Macquarie is expecting met coal export losses of 10.5 million mt from Queensland over the first quarter and 16 million mt for 2011.

This situation will result in a degree of 'carryover tonnage' from Australian suppliers that will be delivered at previously agreed lower prices, resulting in realized prices "unlikely to match benchmark levels in the coming months."

The bank said that 6-7 million mt of undersupply over Q1 in the global seaborne market would likely require "heavy" destocking at stockpiles at ports and plants.

For semi-soft and PCI coals, Macquarie expects record levels as Rio Tinto and Xstrata were previously said to lock in settlements at 80% and 77.5% of the benchmark premium hard coking coal settlement, it said.

Macquarie expects the new coking coal price to push up steel production costs, with around a $70/mt quarter-on-quarter rise for pig iron, on the basis of 0.5 mt of hard coking coal and 0.2 mt of coking coal used per ton of blast furnace output.

"With coal and coke stocks throughout the supply chain remaining low, there remains potential upside to our $260/mt FOB Australia Q3 settlement," it added.

--Julien Hall, julien_hall@platts.com

--Hector Forster, hector_forster@platts.com