Market is abuzz about a Q1 deal at USD 165 per tonne of Peak Downs coal by BHP. Coming under shadow of an expected roll over of Q4 price at USD 170 per tonne it has punctured façade of confidence building up recently.
Surfing the Atlantic water such a deal is unlikely to ruffle the spot market. At the risk of obviating another benchmark knowingly BHPB opened bidding in Japan by tabling a USD170 per tonne settlement at USD 165 per tonne is possible. Even though some wagers have boasted of settlement below USD 160 per tonne it is distinct possibility.
Recently, prices for short-term coal generally have run significantly below the headline quarterly number. Moreover European buyers, shocked by the weakness in their markets, have spurned quarterly settlement. BHPB reportedly is pricing December coal to Japan at USD158 per tonne,
Transition from buyers to sellers market is ruled out atleast in Q1 owing to winter inactivity in steel production. However USD 165 per tonne is unlikely to spur miners into production cutbacks and abandon expansion plans. However the figure distinctly points to floor about another USD 5-10 per tonne below.
Production costs no doubt are playing a role in that dynamic but a period in which a large segment of lesser-quality mines are producing coal very near or below their true production costs is several months away.
Ambivalence is unlikely to fitter away soon but miners would certainly maintain a stubborn posture to create confidence in the market. Reduction in availability of premium quality coke from the spot market might be another ploy to coerce major steel mills into quarterly settlements.
