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INTERVIEW-Nippon Steel gives up coking coal pricing role as...

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    INTERVIEW-Nippon Steel gives up coking coal pricing role as influence wanes

    June 16, 2017, 06:06:00 AM EDT By Reuters





    Reuters
    * Nippon Steel drops negotiating role as China, India buy
    more
    * Quarterly prices now based on three spot price indexes
    * April-June coking prices expected at around $190-$195 a
    tonne

    By Yuka Obayashi and Ritsuko ShimizuTOKYO, June 16 (Reuters) - Nippon Steel & Sumitomo Metal
    <5401.T>, Japan's top steelmaker, has given up its decades-old
    role in setting global coking coal prices because the rise of
    Chinese and Indian rivals has weakened its influence over the
    market, an executive said.
    The shift - after years of pressure from the world's biggest
    miner BHP Billiton , and which involves crafting
    a pricing formula closely linked to three spot price indexes -
    shows how far Japan's once mighty steelmakers have fallen.
    Nippon Steel stepped down as top negotiator on the coking
    coal benchmark, also because wild swings in the spot market
    played havoc with its profits, with gaps between the benchmark
    and spot prices making it less responsive to the market than
    rivals using index-linked pricing. [nL3N1J92VF] [nL4N1I02Z0]
    "We have lost bargaining power as China and India have
    raised their share of global trade," Kazuo Tanimizu, Nippon
    Steel's managing executive officer in charge of raw materials,
    told Reuters in an interview on Thursday.
    Japan bought 61.5 million tonnes of coking coal in 2008,
    more than double India's 26.5 million and nearly 20 times
    China's 3.2 million. Last year, though, Japan imported 53.4
    million tonnes against India's 46.7 million tonnes and China's
    35.7 million, according to Clarksons Research.
    "It's a sad reality, but it has become tougher for us to
    make market predictions amid uncertainty over weather and
    China's policy, and we have lost the power to make our benchmark
    price impact global markets," Tanimizu said.
    Nippon Steel and other Japanese steelmakers have long
    resisted the idea of more flexible pricing for coking coal,
    preferring the stable supply and steady prices of quarterly term
    contracts. [nL3N1IY6A4]
    "But we couldn't resist the growing global trend towards
    index-linked pricing anymore," Tanimizu said, pointing to its
    weakened position in the global seaborne coking coal market.
    Also, BHP - which holds a more than a 50 percent share in
    the premium hard coking coal market - has moved completely to
    spot pricing since 2015, he noted.
    "Japanese buyers started to realize that the quarterly
    pricing discussions bring them to the same price as the spot
    market," a senior executive with a major supplier told Reuters
    last week.
    Using the new pricing formula - which sets prices based the
    spot price indexes provided by S&P Global Platts, Argus Media
    and The Steel Index - coking coal for the April-June quarter
    will likely be set at around $190-195 a tonne, Tanimizu said.
    That is down from $285 a tonne in the previous quarter.
    Unlike quarterly iron ore prices, which reflect the average
    spot prices of a previous three-month period, the coking coal
    price formula looks at more recent spot values and is then
    applied retroactively to a quarter.
    Despite the change in the price formula, Nippon Steel's
    long-term contract volumes with its suppliers remain unchanged,
    Tanimizu said.
    Given the new formula, Nippon Steel also wants to change the
    way it charges customers like Toyota Motor Corp <7203.T>, but
    talks have not yet begun, he said.
    Nippon Steel agreed the new formula with miners including
    Anglo American , Peabody Energy and Teck
    Resources , but will continue private talks with some
    suppliers to reach a negotiated price, Tanimizu said.
    "But those negotiated prices won't become a benchmark."
    One such standout is Glencore , which is keen to
    maintain the quarterly price talks.
    "We won't change to index pricing. We don't want prices to
    be decided by third parties," said a senior Glencore official.

    (Reporting by Yuka Obayashi and Ritsuko Shimizu; Additional
    reporting by Aaron Sheldrick; Editing by Tom Hogue)
    (([email protected]; +813-6441-1798; Reuters
    Messaging: [email protected]))

    Keywords: JAPAN COAL/AUSTRALIA (INTERVIEW)
 
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