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Thursday, 11 March 10
COAL PRICES SET TO RISE AMID CONFUSION OVER QUARTERLY SYSTEM


Trading room reported that, Coal prices are tipped to rise in coming months amid constrained supply and ongoing Chinese demand, and analysts are confused about whether a quarterly pricing system for coking coal will be permanently adopted.

Analysts expect coal pricing will be a lot more complicated in the 2010 Japanese financial year (JFY) starting April 1, when quarterly pricing for hard coking coal will be used for the first time.

The BHP Billiton Mitsubishi Alliance (BMA) has secured quarterly pricing for a significant portion of its hard coking coal volumes in JFY2010, understood to be starting at $US200 a tonne, RBS Morgans Ltd said in a research note on Thursday.

Patersons analyst Andrew Harrington said it remains to be seen whether quarterly pricing for coking coal will continue thereafter.

"You normally only have annual pricing settlements and this year, you've got a very big push and it looks like a successful push from BHP Billiton to get quarterly pricing," Mr Harrington told AAP.

"I was very sceptical that they would be able to succeed at that.

"There is very little liquidity in the spot market - there's very little trading in the spot market for coking coal - so I find it a little bit hard to understand how they would be able to get a quarterly marker from which to base the pricing every quarter.

“coal pricing will be a lot more complicated in the 2010 Japanese financial year (JFY) starting April 1, when quarterly pricing for hard coking coal will be used for the first time”
 

"The question remains as to whether this has been accepted for the future. "A quarterly system might still be under serious debate.

"It may be that a year from now, things will look just as confused. "This year is a completely different year from any other year in the coking coal market."

BHP Billiton has also long pushed for quarterly iron ore pricing. RBS Morgans said detail on BHP Billiton's quarterly coking coal pricing arrangement was limited, but it expected some independent producers to follow BMA's lead.

This "would lead to more variability in achieved earnings than we are used to" the broker said.

RBS Morgans expects a base case of $US220 per tonne for hard coking coal on an annual basis. Mr Harrington said he expected hard coking coal would cost US$200 a tonne for the quarter from April 1 to June 30.

"But there have been rumours that annual pricing into Japan is at a higher level. "The number I've heard is $US240 a tonne." Coking coal was priced at $US128 a tonne in JFY2009.
Source: Trading Room By Rebecca Le May



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