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TOKYO (Reuters) - Nippon Steel & Sumitomo Metal, Japan's top steelmaker, has given up its decades-old role in setting global coking coal prices because the rise of Chinese and Indian rivals has weakened its influence over the market, an executive said.
The shift - after years of pressure from the world's biggest miner BHP Billiton, and which involves crafting a pricing formula closely linked to three spot price indexes - shows how far Japan's once mighty steelmakers have fallen.
Nippon Steel stepped down as top negotiator on the coking coal benchmark, also because wild swings in the spot market played havoc with its profits, with gaps between the benchmark and spot prices making it less responsive to the market than rivals using index-linked pricing.
"We have lost bargaining power as China and India have raised their share of global trade," Kazuo Tanimizu, Nippon Steel's managing executive officer in charge of raw materials, told Reuters in an interview on Thursday.
Japan bought 61.5 million tonnes of coking coal in 2008, more than double India's 26.5 million and nearly 20 times China's 3.2 million. Last year, though, Japan imported 53.4 million tonnes against India's 46.7 million tonnes and China's 35.7 million, according to Clarksons Research.
"It's a sad reality, but it has become tougher for us to make market predictions amid uncertainty over weather and China's policy, and we have lost the power to make our benchmark price impact global markets," Tanimizu said.
Nippon Steel and other Japanese steelmakers have long resisted the idea of more flexible pricing for coking coal, preferring the stable supply and steady prices of quarterly term contracts.
"But we couldn't resist the growing global trend towards index-linked pricing anymore," Tanimizu said, pointing to its weakened position in the global seaborne coking coal market.
Also, BHP - which holds a more than a 50 percent share in the premium hard coking coal market - has moved completely to spot pricing since 2015, he noted.
"Japanese buyers started to realize that the quarterly pricing discussions bring them to the same price as the spot market," a senior executive with a major supplier told Reuters last week.
Using the new pricing formula - which sets prices based the spot price indexes provided by S&P Global Platts, Argus Media and The Steel Index - coking coal for the April-June quarter will likely be set at around $190-195 a tonne, Tanimizu said.
That is down from $285 a tonne in the previous quarter.
Unlike quarterly iron ore prices, which reflect the average spot prices of a previous three-month period, the coking coal price formula looks at more recent spot values and is then applied retroactively to a quarter.
Despite the change in the price formula, Nippon Steel's long-term contract volumes with its suppliers remain unchanged, Tanimizu said.
Given the new formula, Nippon Steel also wants to change the way it charges customers like Toyota Motor Corp, but talks have not yet begun, he said.
Nippon Steel agreed the new formula with miners including Anglo American, Peabody Energy and Teck Resources, but will continue private talks with some suppliers to reach a negotiated price, Tanimizu said.
"But those negotiated prices won't become a benchmark."
One such standout is Glencore, which is keen to maintain the quarterly price talks.
"We won't change to index pricing. We don't want prices to be decided by third parties," said a senior Glencore official.
Reporting by Yuka Obayashi and Ritsuko Shimizu; Additional reporting by Aaron Sheldrick; Editing by Tom Hogue