Reuters Nippon Steel, BMA agree 57 pct cut in coal price

Nippon Steel, BMA agree 57 pct cut in coal price
TOKYO, March 23 (Reuters) - Nippon Steel Corp (5401.T) has sealed a year-on-year discount of around 57 percent on coking coal contracts with BHP Billiton Mitsubishi Alliance (BMA) for fiscal year 2009/10, a Nippon Steel official said on Monday.

The deal -- the first between the Australian miner and the world's second-biggest steelmaker -- usually sets a benchmark for other firms' contract negotiations for the year starting on April 1, affecting steelmakers' production costs and miners' revenues for the year.

Nippon Steel struck an agreement with BMA, the world's top exporter of coking coal used in steelmaking, at prices between $128 to $129 per tonne on March 19, compared to last year's benchmark price of $300, the official, who asked not to be named, said.

An official at JFE Holdings Inc (5411.T), the world's third-biggest steelmaker, said the company had agreed to price cuts in the same range. BMA is an equally owned joint venture between BHP Billiton (BHP.AX)(BLT.L) and Japanese trading house Mitsubishi Corp (8058.T). The deal was well-flagged as Citigroup said in a research note late last week that BMA had agreed to accept a discount of around 60 percent.

Shares in Nippon Steel closed up 4.7 percent at 269 yen before the news,outperforming the iron and steel sub-index's .ISTEL.T 3.6 percent gain. Analysts said the agreed price was higher than expected and would deal a blow to earnings at Japanese steelmakers, already struggling with falling demand and facing prospects of squeezed margins on auto-sheet, their mainstay products.

"It was a must for them to keep the coal price below $90, or their earnings would suffer," said UBS analyst Agsushi Yamaguchi. Asian steelmakers were seeking a price cut to 2007/08 levels of around $97. Global steelmakers face a sharp reversal in demand as tight credit strangles demand for cars, construction machinery and other products that consume steel.

The headwinds are stronger at Japanese steelmakers as the high yen batters their exports, while demand remains weak at home compared with South Korea's POSCO (005490.KS) and China's Baosteel (600019.SS).

Steelmakers and miners' negotiations on the 2009/10 term contract price for iron ore, other key raw material for steel making, have been prolonged as the gap between the two parties' demands are still wide. Asian steelmakers are pushing for at least a 40 percent cut in iron ore prices to 2007/08 levels to end six years of consecutive rises, during which prices rose five-fold.

Miners, however, have resisted large price cuts, encouraged by a sign of a recovery in steel output in China, the world's biggest importer of iron ore, analysts said.

Source: Reuters (23 Mar 2009)