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Japan's Nippon Steel, Glencore ink Q1 met coal settlement at $285/tonne

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Japan's Nippon Steel, Glencore ink Q1 met coal settlement at $285/tonne

Japanese steel mill Nippon Steel & Sumitomo Metal Corp. and miningcompany Glencore have settled the January to March premium hard coking coalprice at $285/tonne FOB Australia, the highest in more than five years, severalparties familiar with the negotiations said Dec. 12.

The first-quarter 2017 price is $85/tonne higher than thefourth-quarter priceof $200/tonne FOB Australia.

The prime hard coal settlement applies to 's flagship premiummid-vol brands produced at the Oaky Creek and Oaky North mines.

If recognized by other international steelmakers as thefirst-quarter benchmark, the price would be the highest since fourth-quarter2011.

Most industry insiders told S&P Global Platts that itwas a satisfactory price level for both parties and was sealed in a moredecisive fashion than during the protracted discussions seen for the previousquarter.

"It's a good price for sellers because spot prices havefallen ... but it's also a good outcome for buyers who want a quick settlementthis time," a procurement manager at a Japanese steel mill said.

At least three Asian steelmakers said they believed otherproducers like Australia's AngloAmerican Plc and Peabody Energy Corp., and Canada's will offer asimilar price for their premium mid-vol products.

But it was still unclear what first-quarter price Australianpremium low-vol coal brands like Anglo American's German Creek will achieve.

Japanese buyers are keen to avoid a repeat of the drawn-outnegotiations for the previous quarter, which resulted in a higher-than-expectedsettlement as spot prices continued to surge as the talks dragged on, sourcessaid. "Last time they missed out on a lower price when they delayednegotiations [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 apackage agreement, given the counterparties were able to conclude quarterlysettlements for both prime hard coal and semi-soft coal.

"PCI and semi-soft prices will follow the samerelativity from fourth quarter, which means quarterly prices for PCI andsemi-soft should go up," a North Asian buyer said.

A Glencore spokeswoman in Australia declined comment oncommercial negotiations, while officials at Nippon in Tokyo could not bereached for comment at the time of reporting.

Spot prices start tofall

On the other hand, a few sources said the $285/tonne FOBAustralia settlement was good for producers given spot prices have startedfalling after a multimonth price rally.

Platts assessed premium low-vol coal at $272/tonne FOBAustralia Dec. 9, down 12% from the year-to-date peak of $310/tonne FOBAustralia on Nov. 21. Commenting on the settlement's hefty premium over spotprice, an Australian miner said, "When compared to spot, it is a goodoutcome."

Mining companies from other countries like the U.S. willbenefit 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 incurrent spot prices would be factored into the settlement price for thefollowing April through June quarter.

The relatively low $200/tonne FOB Australia fourth-quarterbenchmark price, compared to robust spot prices, meant steelmakers were able totolerate a much stronger settlement for January to March, he said.

S&P Global Plattsand S&P Global Market Intelligence are owned by S&P Global Inc.