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Highlights

A benchmark coking coal accord at the upper end of expectations appears to be getting established, as Peabody Energy has sold North Goonyella premium mid-vol at $200/mt FOB Australia under contract for the fourth quarter to Nippon Steel, according to a source close to the matter.

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The source described the sale as a benchmark deal, but this could not immediately be confirmed.

The Q3 benchmark was $92.50/mt FOB, and spot prices rose after key spot buyer China increased purchases, supply was disrupted in Australia and China, and mining curbs were imposed in China, along with limited exports from the US at a time of greater global spot trade exposure. Steelmakers were left stunned at the prospect of $200/mt benchmark, given tight availability of alternative coals, with one Atlantic buyer suggesting the likely outcome would be lower steel production in due course. European and Brazilian steel mills have bought some coals ahead to cover the year at potentially lower prices, reducing the exposure to the quarterly benchmark while also increasing spot and index-linked purchasing.

Talk of the settlement by US miner Peabody, which has US operations under Chapter 11 and mines met coal in Australia, surfaced Monday from the US, a public holiday in Japan. St Louis-based Peabody declined to comment on the matter. Nippon Steel & Sumitomo Metal Corp. was not available for comment when contacted outside usual office hours.

Article Continues below...



The two-day Australia Japan Coal Conference ended Friday afternoon, with no news of a settlement emerging that day. The AJCC draws senior steel and coal executives, promoting cordial discussion around longer-term planning and industry challenges, more so than finalizing price negotiations.

Analyst Lucas Pipes of investment bank FBR, citing a report of a "potential settlement," described it as "well above our and others' expectations even over the weekend of around $180-$190/mt."

Anglo American and Glencore have previously set the hard coking coal benchmark in their sales negotiations with Asian steelmakers, leading some buyers to question the validity of the Peabody arrangement, ahead of confirmation.

A source close to the price talks said Nippon Steel was getting closer to meeting bids after an opening negotiation position last month said to have been $150/mt FOB.

"At the AJCC, Nippon became a lot more sensible about pricing, edging closer to a deal. If someone moved down to $190 they would have got a deal."

As key miners were seeking to get higher prices in line with spot prices, and keeping up offers last heard at $212/mt FOB in light of Chinese buying interest and a force majeure declared at Anglo's German Creek mine, Peabody may have taken the initiative. Peabody already settled PCI for Q4 at $133/mt FOB with a separate mill.

The usual 80% ratio for PCI to HCC would have yielded a HCC price of around $160/mt, suggested a buyer, who was surprised at a $200/mt level potentially agreed. A $200/mt outcome for HCC would lead PCI to a 66.5% ratio, compared to the current spot price ratio at 61%.

The news came after the price settlement was delayed into a second week, after the usual calendar deadline of the end of the prior quarter in question.

"A settlement of $200/mt would be the highest in US dollars since the Q3 2012 contract of $225/mt," FBR said. "In AUD, the settlement would imply a price of A$263/mt, the highest since Q4 2011 when the contract settled at A$274/mt and the Australian dollar was trading at $1.04/mt vs. $0.76 today."

North Goonyella had a longwall move expected to last till end-September. It is a mid-vol with high fluidity. On the globalCOAL brokered screen trading platform, North Goonyella makes up one of five brands traded on the premium mid-vol contract, along with BHP Billiton Mitsubishi Alliance's Goonyella, Glencore's Oaky Creek, South32's Illawarra, and Anglo American's Moranbah North.

--Hector Forster, hector.forster@spglobal.com

--Edited by Lisa Miller, lisa.miller@spglobal.com