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Monday 1 December 2008
BHP, Rio May Have to Cut Coking Coal Prices 33%, Analysts Say
BHP Billiton Ltd., partner in the world’s biggest coking coal exporter, and Rio Tinto Group may have to cut contract prices by a third next year because of slumping demand from steelmakers, according to a survey of analysts.
BHP, Rio May Have to Cut Coking Coal Prices 33%, Analysts Say
By Jesse Riseborough 1 December 2008
(Bloomberg) -- BHP Billiton Ltd., partner in the world’s biggest coking coal exporter, and Rio Tinto Group may have to cut contract prices by a third next year because of slumping demand from steelmakers, according to a survey of analysts.
Prices may drop to $200 a metric ton in the year starting April 1, from $300 a ton this year, according to the median forecast of nine analysts surveyed by Bloomberg. The forecasts ranged between $140 and $305.
A deepening global financial crisis has reduced demand for steel, prompting mills in Asia, Europe and North America to slash output. Marius Kloppers, chief executive officer of BHP, said last week protracted cutbacks would affect its coking coal production.
“Conditions in the steel market have considerably worsened over the last few months,” Gerard Burg, an energy and minerals economist at National Australia Bank Ltd. in Melbourne, said today. “We are seeing something in the line of halving of pricing, which is certainly possible.”
BHP, which last week scrapped a $66 billion hostile bid for Rio Tinto, fell 3.5 percent to A$29.91 at 12:04 p.m. Sydney time on the Australian stock exchange. Rio Tinto, the world’s third- largest mining company, dropped 4.9 percent to A$44.30.
BHP and Mitsubishi Corp. operate the BHP Billiton Mitsubishi Alliance venture, which owns mines in Australia. The nation is estimated by the government commodity forecaster to export about $44 billion of coking coal in the year ending June 30.
“This downturn is taking place in every single region of the world, highlighting the global synchronized nature of the slowdown and has been devastating for the raw materials suppliers to the steel industry,” Macquarie Group Ltd. analysts led by London- based Jim Lennon said today in a report. “Demand has crashed everywhere and for every product.”
53% Drop?
The rapid retreat in demand for coking coal and iron ore forced analysts to slash forecasts last month. Coking coal prices may drop 53 percent to $140 a ton, Macquarie said today, reiterating a Nov. 17 forecast. ABN Amro Holding NV said Nov. 26 prices will drop 34 percent, from an earlier forecast for an 8 percent gain.
“Producers of steel feedstock face the position of rapid declines in demand, a build up of mine stocks, and a weak position going into the 2009-10 contract negotiations,” ABN Amro’s Melbourne-based analysts, led by Warren Edney said.
To be sure, Credit Suisse Group AG has forecast prices to rise to $305 a ton.
Contract price talks are held annually between producers and mills, usually beginning in late January. Suppliers have signalled an outcome of the talks is unlikely for many, many months, Macquarie said in the report.
Prices Tripled
Prices tripled to a record this year after floods disrupted mining in Australia’s Queensland state, forcing at least 6 producers to delay shipments from a region responsible for about two-thirds of global exports. Nippon Steel Corp., the world’s second-biggest steel mill, agreed in April to accept BHP and Mitsubishi’s demand for a record annual increase in prices.
“We expect this year’s negotiation period to drag on because it is not in the interests of producers to rush to settlement in the current environment,” Fraser Phillips, an analyst at RBC Capital Markets in Toronto, said in a Nov. 27 report. “We believe many will try to delay through Queensland’s rainy season, which starts next month, in case last year’s floods are repeated.”
ArcelorMittal, the world’s biggest steelmaker, last month said it would slash production by as much as 35 percent in the U.S. and 30 percent in Europe as demand slumps. Toyota Motor Corp., the world’s second-largest carmaker, has forecast the biggest drop in profit in at least 18 years as a global slump cripples auto demand.
“It’s a little too early to see how the European steel mill cutbacks are going to flow into that market against the backdrop of Japanese steel mills still going well,” BHP’s Kloppers said Nov. 27. “Steel mills normally need to keep their coking batteries running. We will be impacted if this persists for a long period of time.”
Steel production in China, the biggest maker of the alloy, has slumped 17 percent so far this year, curbing demand for raw materials, Kloppers said.
1 comment:
BHP, Rio May Have to Cut Coking Coal Prices 33%, Analysts Say
By Jesse Riseborough
1 December 2008
(Bloomberg) -- BHP Billiton Ltd., partner in the world’s biggest coking coal exporter, and Rio Tinto Group may have to cut contract prices by a third next year because of slumping demand from steelmakers, according to a survey of analysts.
Prices may drop to $200 a metric ton in the year starting April 1, from $300 a ton this year, according to the median forecast of nine analysts surveyed by Bloomberg. The forecasts ranged between $140 and $305.
A deepening global financial crisis has reduced demand for steel, prompting mills in Asia, Europe and North America to slash output. Marius Kloppers, chief executive officer of BHP, said last week protracted cutbacks would affect its coking coal production.
“Conditions in the steel market have considerably worsened over the last few months,” Gerard Burg, an energy and minerals economist at National Australia Bank Ltd. in Melbourne, said today. “We are seeing something in the line of halving of pricing, which is certainly possible.”
BHP, which last week scrapped a $66 billion hostile bid for Rio Tinto, fell 3.5 percent to A$29.91 at 12:04 p.m. Sydney time on the Australian stock exchange. Rio Tinto, the world’s third- largest mining company, dropped 4.9 percent to A$44.30.
BHP and Mitsubishi Corp. operate the BHP Billiton Mitsubishi Alliance venture, which owns mines in Australia. The nation is estimated by the government commodity forecaster to export about $44 billion of coking coal in the year ending June 30.
“This downturn is taking place in every single region of the world, highlighting the global synchronized nature of the slowdown and has been devastating for the raw materials suppliers to the steel industry,” Macquarie Group Ltd. analysts led by London- based Jim Lennon said today in a report. “Demand has crashed everywhere and for every product.”
53% Drop?
The rapid retreat in demand for coking coal and iron ore forced analysts to slash forecasts last month. Coking coal prices may drop 53 percent to $140 a ton, Macquarie said today, reiterating a Nov. 17 forecast. ABN Amro Holding NV said Nov. 26 prices will drop 34 percent, from an earlier forecast for an 8 percent gain.
“Producers of steel feedstock face the position of rapid declines in demand, a build up of mine stocks, and a weak position going into the 2009-10 contract negotiations,” ABN Amro’s Melbourne-based analysts, led by Warren Edney said.
To be sure, Credit Suisse Group AG has forecast prices to rise to $305 a ton.
Contract price talks are held annually between producers and mills, usually beginning in late January. Suppliers have signalled an outcome of the talks is unlikely for many, many months, Macquarie said in the report.
Prices Tripled
Prices tripled to a record this year after floods disrupted mining in Australia’s Queensland state, forcing at least 6 producers to delay shipments from a region responsible for about two-thirds of global exports. Nippon Steel Corp., the world’s second-biggest steel mill, agreed in April to accept BHP and Mitsubishi’s demand for a record annual increase in prices.
“We expect this year’s negotiation period to drag on because it is not in the interests of producers to rush to settlement in the current environment,” Fraser Phillips, an analyst at RBC Capital Markets in Toronto, said in a Nov. 27 report. “We believe many will try to delay through Queensland’s rainy season, which starts next month, in case last year’s floods are repeated.”
ArcelorMittal, the world’s biggest steelmaker, last month said it would slash production by as much as 35 percent in the U.S. and 30 percent in Europe as demand slumps. Toyota Motor Corp., the world’s second-largest carmaker, has forecast the biggest drop in profit in at least 18 years as a global slump cripples auto demand.
“It’s a little too early to see how the European steel mill cutbacks are going to flow into that market against the backdrop of Japanese steel mills still going well,” BHP’s Kloppers said Nov. 27. “Steel mills normally need to keep their coking batteries running. We will be impacted if this persists for a long period of time.”
Steel production in China, the biggest maker of the alloy, has slumped 17 percent so far this year, curbing demand for raw materials, Kloppers said.
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