Japan Major Steels Settle Higher PCI Coal Price for F2007

Japanese major integrated steel makers including Nippon Steel and JFE Steel apparently agreed last week with Elk Valley Coal of Canada to reduce the hard coking coal price for fiscal 2007 as agreement with Australian miners. The steel makers also agreed with miners of Australia and Canada to increase the price of coal for pulverized coal injection (PCI) by as much as near 5% from previous year. The steels’ coal purchase cost down could be smaller than drop for hard coking coal when they could face higher price for non- and soft-coking coal in coming negotiation. Japanese steels agreed with the largest coking coal supplier of BHP Billiton Mitsubishi Alliance (BMA) in December to reduce high grade hard coking coal price by US$ 18 or 15.5% to FOB US$ 98 per tonne for fiscal 2007 shipment. They agreed to reduce the Canadian coal price in line with the agreement with BMA. The steels almost concluded the hard coking coal price negotiation with major miners in Australia and Canada and will conclude the negotiations with miners in China and Russia. Their PCI coal purchase price will increase by US$ 2-3 to FOB US$ 67-68 per tonne for fiscal 2007 depending on the conditions. The demand increases under higher hard coking coal price after PCI coal price decreased to around US$ 65 in fiscal 2006 from US$ 100 in fiscal 2005. With limited supply, the tight supply balance lifted the price.Non- and semi-coking coal price could increase depending on the coming negotiation. The supply is tight when the demand increases as substitute for expensive hard coking coal after the non- and semi-coking coal price decreased by around 30% to FOB US$ 53-58 per tonne in fiscal 2006 from US$ 80 in fiscal 2005. The price could increase also when thermal coal price increases due to smaller Chinese export.