Steelmaking Coal Slides to Four-Year Low After Billiton Deal

A key contract that determines prices of coal used in the $1.3 trillion market for steel slid to a four-year low amid a global supply glut.

The coking-coal benchmark contract for the third quarter was settled at $145 a metric ton in quarterly negotiations between BHP Billiton Ltd., the world’s biggest coking coal exporter, and Nippon Steel & Sumitomo Metal Corp., Doyle Trading Consultants LLC said today in a report. That compares with $172 in the second quarter.

Producers of the steelmaking component boosted output to take advantage of historically higher prices and now excess supply is flowing into a weaker market, Morgan Stanley said in a report yesterday. The New York-based bank expects U.S. companies to temper supply.

“We sure need it,” said Jim Rollyson, an analyst at Raymond James Financial Inc. in Houston. “On paper, at this level, we should have a lot of production under water.”

The benchmark contract fell to the lowest level since 2009, when the terms were negotiated on an annual basis, DTC, a New York-based energy from specializing in coal, said today.

An 11 percent drop in the Australian dollar this year means the country’s producers of the steelmaking component are realizing a $9-per-metric-ton decline, compared with a $27 slide in the U.S., DTC said.

Record High

Prices touched a record $330 a metric ton in the second quarter of 2011 after floods in Queensland, Australia, ravaged production.

Companies from the Pacific Basin to Appalachia responded to the higher prices by developing new mines and investing in infrastructure to boost supply, Rollyson said.

Coal at $133 a metric ton, free on board, a term indicating that delivery at the seller’s expense is included in the invoice price, makes about 46 million metric tons, or 16 percent of the 260 million metric ton seaborne market uneconomical to produce, Morgan Stanley said.

Based on 2012 finished steel production, global steel market revenue was about $1.3 trillion, according to Andrew Cosgrove, an analyst at Bloomberg Industries.

Jennifer White, a BHP spokeswoman in London, declined to comment, citing company policy.

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