A summary of all the major stories on the Australian Stock Exchange
Coking coal: back on proverbial fire
BHP Billiton (ASX:BHP), the world's biggest producer of seaborne coking coal, has announced that it has settled contracts "with a range of customers throughout Europe, China, India and Japan", without confirming numbers, but probably around USD 200 a tonne, 55% higher than prevailing contract rates applicable to 31 March 2010.
The world's biggest diversified resources stock also announced that it was making progress towards contract prices that could be adjusted from time-to-time, based on the shorter end of spot prices. BHP Billiton is lobbying for similar moves in iron ore contracts. It is not alone in wanting less price volatility for both itself and its customers.
In the seaborne coking coal arena, prices bumped along for more than a decade around USD 50.00 a tonne, before a decisive break out around five years ago. Prices rocketed to USD 300.00 a tonne for the 2008-2009 season, and were then slashed to USD 129.00, the contract price in place until the end of this month.
The dynamics caused relative chaos in BHP Billiton's accounts; glorious chaos in the fiscal year to 20 June 2009, when underlying profits from coking coal nearly quadrupled from the year before, to USD 4.7bn. The downside was seen in the first half of the 2010 fiscal year, when underlying profits from the division crashed to USD 772m, from USD 3.1bn for the comparable 2009 fiscal half year. Increases in prices for steam coal, a far bigger market, have been less volatile.
Coking (metallurgical) coal, typically a hard coal that is pre-prepared (not unlike processing wood into charcoal) for use in steel smelters, is a smaller market with a more specific customer base. It fits into the broader steelmaking family, along with iron ore, and the metals used in blending, alloying and finishing, such as manganese, molybdenum, nickel and zinc.
BHP Billiton ranks as by far the biggest producer of seaborne coking coal, followed by Teck, Xstrata, Anglo American, and Rio Tinto. Most producers of coking coal have registered excellent stock price increases, in line with rising spot prices. Chinese coal miners, generally, are a notable exception, in line with a pricing model that works less advantageously than the seaborne market.
Even then, specialists can shine; Canada-based Nasdaq-quoted SinoCoking's stock price has risen more than twenty fold over the past year. Teck‘s stock price, also assisted by copper and zinc, has soared by more than 1,000%, along with specialist coking coal producers Western Coal and Grande Cache.
The broader coal story is that China, the world's biggest coal miner, changed into a net importer of coal during 2009. As such, imported coking coal prices are likely to be set around the cost of mining applicable to the most marginal miners. For the biggest, such as BHP Billiton, with huge low cost operations that have easy access to huge port and handling facilities, the margins can be simply fantastic.
