Prices for coking coal - Australia's biggest export - are expected to be settled within weeks, following reports the nation's big miners sealed thermal coal agreements with Japanese customers this week.
But analysts warn coking coal producers are still likely to wear a massive 60 per cent price drop this year, despite a better-than-expected result in the thermal coal talks.
The outcome of the negotiations is vital for the Australian economy, with an estimated $50 billion worth of coking coal shipped in the 12 months to April.
According to Japanese reports, Australia's two largest thermal coal producers - Rio Tinto and Swiss-based Xstrata - have agreed to prices of $US70 to $US72 ($A109 to $A112) per tonne with Nagoya-based Chubu Electric Power.
The new price, which takes effect on April 1, is significantly lower than last year's rate of $US125 per tonne due to plunging energy demand caused by the global financial crisis.
GoldmanSachs JBWere commodities analyst Malcolm Southwood said the result was in line with forecasts. "A benchmark price of $US70 per tonne, if confirmed, would be at least $US10 a tonne below the sellers' initial objective and approximately 44 per cent below the prevailing Australia-Japan contract price," he wrote in a note to clients.
"But we would still regard it as a good outcome for the miners in the current market environment: Spot prices have fallen by $US25 a tonne since negotiations commenced, the demand outlook has deteriorated and the Australian dollar versus the US dollar has weakened by 30 per cent since this time last year."
Power plants use thermal coal to produce electricity, while steel mills need coking coal to make the metal.
Prices for powdered coal for pulverised coal injection - a low grade form of coking coal - have also reportedly been settled.
According to an article in industry journal Steel Business Briefing, Queensland's Macarthur Coal has signed an agreement with Korean steel giant POSCO that prices its PCI coal at $US90 a tonne -- down from the current $US240 a tonne.
ANZ head of commodities research Mark Pervan said coking coal negotiations would be heavily affected by slowing steel output.
"I would expect an outcome in the next week or two and I think we're going to see something in the order of a 60 per cent decline," he said.
Source: Melbourne Herald-Sun
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