According to Credit Suisse Group AG analysts, power station coal isn’t suited to quarterly contracts and a switch to three month pricing would be highly problematic to customers.
Credit Suisse analysts citing comments by Mr Bill Champion MD of Coal & Allied as saying that utilities operate in a regulated market and can’t readily respond to rapid changes in coal pricing.
BHP Billiton Ltd and Japan’s JFE Holdings Inc in March agreed to the first three- month accord for coking coal used in steelmaking. Vale SA, Rio Tinto and BHP also scrapped a 40 year custom this year of pricing iron ore supplies in 12 month periods, replacing it with quarterly contracts based on the average cash or spot price over three months.
Thermal coal burned by power stations will remain the dominant electricity generation fuel for the Chinese and Indian markets, Credit Suisse analysts led by Paul McTaggart said, citing Champion. India’s imports of the fuel should double in the next five years, the analysts cited Champion as saying.
22-Iron ore prices take the brunt of export rebate reduction in China
The cancellation of export rebate on steel products commenced taking casualty with decline in Iron ore prices. Fe 62% reference price was lowered by USD 2 per tonne to USD 142.5 per tonne and Fe 63.5% was lowered from USD 151.5 per tonne to USD 149 per tonne. Physical iron ore Fe 63.5/63 was heard offered at USD 148 per tonne. The futures market also bulked as Q3 traded at USD 135 per tonne.
With the cancellation of export rebate the obvious repercussion is hike in export levels thereby making Chinese products uncompetitive in this sullen market The Chinese mills will witness reduction in export volumes thereby adding to the domestic inventory bringing down prices further. With the cost remaining high at current raw material levels mills would certainly opt for production pruning thereby obviating need for stock building of iron ore .
On the other hand the recent appreciation of CNY vis a- is USD has set the tone for hike in import prices thereby making iron ore dearer. The incremental increase in cost of steel will certainly act as a deterrent for further import when the finished products are finding it difficult to move.
However with BaoSteel virtually agreeing for a 23% hike in Q3 price with mining majors the sentiments in spot market is expected to rebound in July.
With the impending gradual shift form benchmark pricing based long term contracts to spot cargos, it has become more vital for both sellers as well as buyers to precisely monitor the daily movements of iron ore spot prices to keep tab on trends and spot opportunities.
This has galvanized us to start reporting domestic prices of iron ore at Barbil & Bellary and export prices on FOB Indian port.
Domestic iron ore spot pricing information updated 5 days a week whereas export spot prices FOB Indian port as and when they change