Japan Steels, BMA Agree to Reduce Hard Coking Coal Price by 15.5%

Nippon Steel, JFE Steel and other Japanese major steel makers agreed with world largest coking coal supplier, BHP Billiton Mitsubishi Alliance by Thursday to reduce the hard coking coal purchase price by 15.5% for fiscal 2007 starting April 2007 from previous year. The price is still near double of traditional price level though the price decreased for 2 years in a row when the supply getting easier from very tight condition 2 years ago. The annual coking coal negotiation between steel makers and suppliers is expected to settle based on the agreement. Japanese major steels expect the total raw materials purchase cost could increase for fiscal 2007 from fiscal 2006 under severe negotiation for semi-coking coal, pulverized coal injection coal and iron ore.

Japanese steel makers’ purchase price will increase by US$ 18 to FOB US$ 98 per tonne for top grade of hard coking coal from BMA for fiscal 2007 shipment from fiscal 2006. The extremely high price will be adjusted to less than US$ 100 for the first time in 3 years under looser supply with output expansion and new mine development. However, the price stays near double of 3 years ago when worldwide steel output keeps firm.

The price negotiations between steel makers and coal suppliers are expected to reach settlement based on the agreement between BMA, which has around 25% share of annual 200 million tonnes of world seaborne coking coal trade, and steel makers in Japan, which is the largest coking coal import country. With the US$ 18 per tonne price down, the purchase cost is estimated to decrease by more than 60 billion yen for Japanese steels in fiscal 2007 from fiscal 2006 when the steels import annual 30 million tonnes of hard coking coal.

However, the negotiation condition is another story for semi- and soft coking coal and PCI coal, of which the price already dropped by 30% in fiscal 2006 and the supply is getting less easy. World iron ore supply is still tight due to aggressive output increase by China. An official of Japanese major steel maker said the total procurement cost for raw materials including zinc, nickel and ocean freight could increase for fiscal 2007 from fiscal 2006.