Date: May 9, 2018

The traditional quarterly pricing system for coking coal is dead and buried, according to the world’s biggest miner of the steelmaking ingredient, BHP Billiton.

Miners and steelmakers traditionally met every three months to negotiate the price for premium hard coking coal, but that system broke down during the past two years on the back of sudden supply curtailments that sent prices soaring for the coking coal cargoes that were sold on spot markets.

A pivotal moment came in May 2017 when Nippon Steel, a major consumer of coking coal, flagged plans to trial a new system where coking coal prices were set according to the average spot price over the past three months.

A year on from that trial, BHP president of marketing and supply Arnoud Balhuizen said there was now widespread agreement that quarterly contract prices were a thing of the past.

“There is no way that will go back to quarterly pricing and everybody has accepted it and I don’t think you will hear much of it, because it is just business as usual which is great,” he told The Australian Financial Review in Melbourne on Monday.

The comments come 11 months after Mr Balhuizen said steelmakers were becoming “more open” to abandoning quarterly fixed prices in the wake of Nippon Steel’s “trial”.

“The relationships [between miners and steelmakers] are actually much better than 10 years ago because the price is the price,” he said.

BHP and Mitsubishi are the world’s biggest suppliers of seaborne coking coal, with their network of jointly owned mines in Queensland’s Bowen Basin largely responsible for Australia’s 60 per cent share of the global coking coal export market.

Markets maturing

The coking coal sector’s increased reliance on spot pricing is a positive for BHP, which has long advocated for transparent, daily market pricing systems rather than long-term contract prices.

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