Japanese steel mill Nippon Steel & Sumitomo Metal Corp and mining company Glencore have settled the January-March premium hard coking coal price at $285/mt FOB Australia, the highest in more than five years, several parties familiar with the negotiations said Monday.
The Q1 2017 price is $85/mt more than the Q4 price of $200/mt FOB Australia.
The prime hard coal settlement applies to Glencore's flagship premium mid-vol brands Oaky Creek and Oaky North.
If recognized by other international steelmakers as the Q1 benchmark, the price will also be the highest since Q4 2011.
Most industry insiders told S&P Global Platts that it was a satisfactory price level for both parties and was sealed in a more decisive fashion than during the protracted discussions seen for the previous quarter.
"It's a good price for sellers because spot prices have fallen ... but it's also a good outcome for buyers who want a quick settlement this time," a procurement manager at a Japanese steel mill said.
At least three Asian steelmakers said they believed other producers like Australia's Anglo American and Peabody and Canada's Teck will offer a similar price for their premium mid-vol products.
But it was still unclear what Q1 price Australian premium low-vol coal brands like Anglo American's German Creek will achieve.
Japanese buyers are keen to avoid a repeat of the drawn-out negotiations for the previous quarter, which resulted in a higher-than-expected settlement as spot prices continued to surge as the talks dragged on, sources said. "Last time they missed out on a lower price when they delayed negotiations [in anticipation of a spot price drop]," a trader said. "This time, they had a firm idea of a price and did it quickly."
One international steelmaker raised the possibility of a package agreement, given the counterparties were able to conclude quarterly settlements for both prime hard coal and semi-soft coal.
"PCI and semi-soft prices will follow the same relativity from Q4, which means quarterly prices for PCI and semi-soft should go up," a North Asian buyer said.
A Glencore spokeswoman in Australia declined comment on commercial negotiations, while officials at Nippon in Tokyo could not be reached for comment at the time of reporting.
SPOT PRICES START TO FALL
On the other hand, a few sources said the $285/mt FOB Australia settlement was good for producers given spot prices have started falling after a multi-month price rally.
Platts assessed Premium Low Vol at $272/mt FOB Australia Friday, down 12% from the year-to-date peak of $310/mt FOB Australia on November 21. Commenting on the settlement's hefty premium over spot price, an Australian miner said: "When compared to spot, it is a good outcome."
Mining companies from other countries like the US will benefit from a benchmark at this level as it will spur them to ramp up output, he added.
However, one Japanese trader said that any possible plunge in current spot prices would be factored into the settlement price for the following April-June quarter.
The relatively low $200/mt FOB Australia Q4 benchmark price, compared to robust spot prices, meant steelmakers were able to tolerate a much stronger settlement for January-March, he said.
