This marks a further step away from traditional yearly fixed pricing,which had been prevalent until last April when quarterly pricing was first introduced.
Spot-linked coking coal sales appear to be still limited in scale, and some Australian producers are yet to offer such terms, but "one or two" producers have offered contracts of any length -- monthly, quarterly or yearly-- with pricing linked to an index, an Indian coke maker said.
The coke maker said details of the pricing formulas were yet to be ironed out, but that the producers were very keen to sell on such a basis. "We are also quite keen, it would reflect market pricing," he said, adding that if his customers would be happy to accept index-linked coke, he would agree to such pricing and could lock in a regular margin.
He added that miners had made it clear that once the buyer had switched to this new pricing mechanism, that he couldn't swing back to fixed pricing.
A trader which has access to US coking coal strongly welcomed the news,saying he was also keen to offer index-linked tonnage.
However, some market participants thought it was a little early for index-linking to take place, including one trader who said he wanted to wait for the various spot indices to converge before being comfortable pricing off them. An Australian steelmaker also said it seemed "premature" for CC to be
priced in this way.
This is happening just as hard coking coal negotiations for the October to December quarter are taking place in Japan. These talks are due to be completed before the end of August. In the previous quarter, HCC was settled at $225/mt FOB Australia.
The Platts spot price of coking coal on Thursday was $186/mt FOB Hay Point, Australia, for mid-vol coking coal with 64% CSR -- coke strength after reaction -- or just above $200/mt FOB for premium HCC such as is used in contract talks.
COKING COAL INDEX USED IN COKE SALES
There is also indeed evidence that the practise is already being extended downstream into sales of coke. An Australian purchaser of metallurgical coke said Thursday he was being offered both spot met coke tonnage and longer term contracts, up to a year in length, priced against the Platts daily hard coking coal FOB Australia assessments.
He added that the introduction of coke being linked to spot coking coal prices was consistent across the Australian market, having been adopted by several producers and buyers. This could not immediately be verified.
The price taken into account is the average of the first two months of the quarter preceding the date of supply. So for a delivery in September, the average price of June and July would be used, the coke buyer said. This price is then multiplied by the conversion rate from coking coal to coke (around 1.5
to 1.6) to produce a met coke price, he explained.
This time lag of three months is reminiscent of the major index-linked contracts in iron ore, where the prior quarter's spot prices determine the current quarter's shipments.
The fact that met coke prices are linked to coking coal is nothing new,the Australian source said, except that this was previously adjusted yearly,and then quarterly.
Published Chinese met coke export prices are also said to be used as a benchmark by some coke makers. Other than steelmaking, smaller, niche applications for metallurigcal coke include ferroalloy smelting, sugar refining and production of phosphates and calcium carbide.
Spot coking coal indices are also being used in coal logistics, to price sales of rail capacity between Australian coal producers, one Australian coal producer said Wednesday. "We have an allocation based on the Platts published price," he said.
China Chemical Weekly: http://news.chemnet.com/en/detail-1403616.html
