* Coking coal seen more bearish than iron ore
* China stimulus may not boost prices in 2013
* Anthracite, PCI prices also seen weak
By Jacqueline Cowhig and Silvia Antonioli
LONDON, Sept 12 Prices for benchmark Japanese
imports of coal for its steel and metals-making furnaces may
drop by around 25 percent as the fuel nears the cheapest it has
been for three years, say sources close to the final round of
this year's quarterly price talks.
Japanese steelmills and Australian producers are likely to
settle for $160-$170 a tonne FOB Australia for the fourth
quarter, a sharp drop from the previous quarter but still a
premium of $10-20 above spot prices, producers and traders said.
The Japanese-Australian quarterly price is still the most
important benchmark against which other types and origins of
metallurgical coal is sold and a key indicator of the market's
strength, despite the growing acceptance of recently-introduced
daily index prices.
Spot prices for all metallurgical coals - from premium hard
coking coal to semi-soft, pulverised PCI and anthracite - have
slumped by over 25 percent since July with iron ore's slide
because of the global steel glut and China's slowdown.
Japan is the world's largest importer of coking coal but the
steep growth projected for medium-term demand will be dominated
by China and India, particularly for spot sales.
Major mining houses Anglo American, BHP Billiton
, Rio Tinto ,, Xstrata and Vale
have enjoyed the steel-driven boom but some are now shutting
mines and cutting jobs. Output cuts may eventually bite and
start to reverse the price trend.
This is a significant short-term concern for the mining
majors whose fortunes depend on China continuing to see a
construction boom requiring iron ore, coking coal, cement and
"At the end of August the Q3 quarterly price of $225, which
was settled in June, looked extremely strong and now even $185
is certainly looking too high," said Jim Truman, metallurgical
coal analyst at Wood Mackenzie.
Metallurgical coal for years was one of the commodities in
tightest supply and with the strongest margins because soaring
construction in China and India absorbed ever-rising quantities
which could hardly be shipped quickly enough, spurring coal
mining M&A and investment.
But new sources of supply, global economic woes and more
recently, China's slowdown, have eroded producers' margins to
the point where some are selling at below their cost levels.
Mongolia is increasingly eating into Australia's share of
imports into China.
Since the 2011 tsunami which slashed Australian exports to
Japan, end-users everywhere were forced to try blending
lower-cost, lower quality metallurgical coals from Colombia and
the United States and have become adept at saving money by doing
Prices for iron ore, also used to make steel, may be close
to the bottom but metallurgical coal, particularly of lower
quality types, can fall further.
"Iron ore is near the bottom and starting to creep higher
but coking coal is more vulnerable and has further to fall,"
said Marcus Garvey, analyst with Credit Suisse.
Iron ore spot prices fell last week to a three-year low of
$86.70 a tonne, having slumped by 36 percent in two months while
hard coking coal spot prices have sagged by 25 percent from
around $200 in June to $150, leaving end-users and traders
reluctant to do fresh deals when prices are vulnerable and
"Coking coal prices have gone down 25 percent since June and
will stay weak for a while because demand is relatively poor,"
said Peter Fish, managing director at UK steel consultancy Meps.
"The Chinese look to be reducing their rate of demand for
steel and they are overstocked, so it's certainly likely that
growth in demand for steel will be near zero in the next few
months," he added.
CHINA PSEUDO STIMULUS?
China said last week it will spend $150 billion on
infrastructure projects but many were already in
the pipeline and are on a smaller scale than those funded by the
cash transfusion which followed the 2008 crisis, raw materials
suppliers and analysts said.
"This is a pseudo stimulus if you look at it closely, spot
prices rose but there is almost no desire from China now to buy
any kind of met coal, not hard coking, anthracite, semi-soft or
any of the grades which they've got used to taking, it's
extremely tough to sell at any price," said one Asia-based steel
raw materials trader.
"The problem is not that prices have dropped and that's
causing difficulties, the problem is steel demand in China and I
don't think we've seen the worst of it yet," he added.
Metallurgical coal output is already being trimmed - cuts
have happened faster and harder than many players had expected.
At least 10 million tonnes of U.S. coking coal output has
been cut this year, and more cuts are likely by producers who
cannot export profitably.
Consol, one of the U.S.'s biggest coking coal
exporters, last week said it was idling its 5 million tonnes a
year Buchanan coking coal mine for 30-60 days due to the
"Metallurgical coal will see more international tonnage
coming under pressure, for example, BHP cutting production in
Australia," said Colin Hamilton, head of commodities research at
Australian miners face a margin squeeze because spiralling
costs and currency have propelled Australia close to the top of
the global league table of coal mining costs.
"In 2011 all the analysts wanted to know about mining costs
and profits, it was all about acquisitions but 12-18 months
later miners are burdened by debt and there's no guarantee of
$200-250 a tonne prices forever - people failed to see the
underlying issues," a major U.S. coal trader said.