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

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)