Peabody Said to Grab Highest Met Coal Price in Four Years

  • Fourth-quarter supply contract said to be settled at $200/ton
  • Spot prices almost tripled this year amid China output cuts

Peabody Energy Corp. has scored the highest contract for selling metallurgical coal in four years after China’s effort to trim its coal output helped spot prices nearly triple this year.

Peabody agreed to sell coking coal at $200 a metric ton during the fourth quarter to Japanese steelmaker Nippon Steel & Sumitomo Metal Corp., said people with knowledge of the situation, who asked not to be identified as the information isn’t public. It’s the highest contracted price since 2012 and compares with $92.50 in the third-quarter. The settlement typically sets the benchmark for the region, though it’s unclear if the level reached with Peabody will be used widely since Nippon is still in talks with other miners, said one of the people.

Spot prices have more than doubled since June as China cut output capacity while flooding in the Shanxi province trimmed supply, spurring a boost in the nation’s imports. About 65 percent of seaborne coal is supplied under quarterly contracts and Japanese steelmakers were the biggest buyers of the raw material last year, according to Morgan Stanley. Spokeswomen for both companies declined to comment on the settlement.

“Steelmakers definitely had the hope that spot prices would fall quickly,” Robin Griffin, a research director at Wood Mackenzie Ltd. in Brisbane said in an e-mail. “But they’ve come to the realization that prices are not going to come down in the immediate future.”

Record Price

Spot hard coking coal climbed to $218.10 a ton on Tuesday, according to data from The Steel Index. That’s a record for the index, which started in January 2013. It averaged about $133 during the third quarter. Contract prices are still below the $330-a-ton record in 2011 after floods curbed supply from Australia, the world’s biggest exporter.

Peabody mines all of its metallurgical coal in Australia, where the company has managed to stay out of bankruptcy. Peabody’s U.S. operations filed for protection from creditors in April. Rival U.S. coal producer Arch Coal Inc. reemerged from bankruptcy last week, with Chief Executive Officer John Eaves declaring in a statement that he’s “particularly pleased to be emerging in a resurgent metallurgical market.”

Peabody’s fourth-quarter contract would be "much better than anticipated," Jeremy Sussman, an analyst at Clarksons Platou Securities Inc., said in a research note.

The contract surge is an additional burden for Japanese mills that are contending with a global supply glut and an increase in cheaper steel imports. While Nippon and JFE Holdings Inc. have warned customers that raising metal prices is essential to absorb to the cost of coal, customers from automakers to shipbuilders may think twice about agreeing to the increase amid the abundance of steel.

The coal price increase is providing a much needed boost for producers that have spent years in the doldrums, but miners from BHP Billiton Ltd. to Teck Resources Ltd. remain cautious on how long the rally will last. BHP, the largest shipper of coking coal which sells at least half its output into the spot market, last month said gains probably won’t last in the medium-to-long term.

— With assistance by Tim Loh, and Lynn Doan

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