Coal Coking Coal Settles at US$120/t Alan Heap +61-2-8225-4853 [email protected] ƒæ Settlement in Line ¡X We believe JFY09 coking coal prices have been settled at US$115-125/t (quality dependent) between Nippon Steel and BMA. This is in line with our forecasts of US$120/t. ƒæ No Carry Over ¡X We believe this settlement contains no carry-over tonnes, a much discussed sticking point of the negotiations. Rio Tinto dropped its coking coal prices to India's JSW from US$305/t to US$175/t for January-March 2009 shipments and there was a risk that settlement of pricing for carry-over tonnes could obscure the actual price settlements for 2009/10. This now appears not the case. ƒæ Producers Win ¡X We understand Japanese steel mills were pushing for prices below US$100/t, while producers were suggesting prices in line with recent spot sales of US$140/t. Prices of US$120/t would give producers a healthy margin. Coking coal median costs could fall ~20% to US$40/t this year as lower mining costs and exchange rates impact. ƒæ PCI Some Settlements ¡X POSCO recently settled JFY09 PCI prices at US$90/t with some Australian suppliers. This is above Citi's PCI forecasts of US$82/t. We believe Japanese consumers of PCI are still pushing for prices of ~US$80/t. ƒæ Beyond the Settlement ¡X Coking coal remains an attractive industry long-term perspective. Infrastructure constraints will likely impact again 2011. Additional supply sources are capital intensive and some time away. High quality coking coal is a rare geological commodity.
RIV Price at posting:
$3.46 Sentiment: Buy Disclosure: Held
