Coking coal prices are rising as the global steel industry recovers from the worst recession since World War II, fueling takeover bids for Australian producer Macarthur Coal Ltd.
Posco, Japan’s JFE Holdings Inc. and Sumitomo Metal Industries Ltd. are among Asian steel mills to agree to an increase with producers for contracts starting April 1. Heavy rain and flooding in Australia’s Queensland state are also adding pressure to prices by constraining exports. Macarthur, the world’s biggest producer of pulverized coal, today received a takeover offer of A$3.71 billion ($3.4 billion) from New Hope Corp., adding to rival proposals from Peabody Energy Corp. and Noble Group Ltd. Japanese mills last month agreed to pay 89 percent more for Macarthur’s product, UBS AG said last month. Australia is the largest exporter of coal.
“The steel industry globally is recovering,” Tom Price, a commodity analyst at UBS, said in an interview on Bloomberg Television today. “Macarthur is an excellent candidate,” and its coal is “very important to the Asian steel market.”
Posco, Asia’s most profitable steelmaker, agreed to pay 109 percent more for semi-soft coal coking prices in a three-month supply accord with an Australian producer, UBS said in a March 26 client note. That compares with $80 a metric ton for the year ending March 31, and a UBS forecast of $125 a ton.
BHP Billiton, the world’s biggest mining company, won a 55 percent price increase from JFE Holdings last month. The companies agreed to the first three-month coking coal accord. Most coking coal is supplied on yearlong contracts, based on a fixed price.
Port Congestion
Ships lining up outside coal ports on Australia’s east coast waiting to load cargoes have climbed to 218, from last year’s record of 210, as heavy rain and flooding constrained exports, according to Commodore Research & Consultancy.
Heavy rain in 2008 resulted in coal producers in the Queensland’s Bowen Basin, including BHP, to declare force majeure. The disruptions, combined with infrastructure constraints, helped drive spot prices for power-station coal and the type used in steelmaking to a record.
The nation’s coking coal exports are expected to increase 22 percent, to 152.8 million tons, in 2009 and 2010, according to a forecast from the Australian Bureau of Agricultural and Resource Economics. This compares with 125.2 million tons in 2008 and 2009, the bureau said in a report last month. Teck Resources Ltd., the second-largest seaborne exporter of steelmaking coal, said last month global supplies will be crimped this year as Chinese imports may be near a 2009 record and exceed 30 million tons. Imports jumped to 34.4 million tons in 2009, up from 6.85 million tons in 2008, Wu Xinchun, a consultant to the China Iron & Steel Association, said Feb. 5.
Force majeure is a contractual clause that allows companies to miss deliveries because of circumstances beyond their control.