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Coking coal prices negotiated

NIPPON Steel Corp has sealed a year-on-year discount of about 57 percent on coking coal contracts with BHP Billiton Mitsubishi Alliance for the fiscal year of 2009-10, a Nippon Steel official said yesterday.

The deal - the first of the year between the Australian miner and the world's second-biggest steel maker - usually sets a benchmark for other firms' contract negotiations for the year starting on April 1, affecting steel makers' production costs and miners' revenues for the year.

Nippon Steel struck an agreement with BMA, the world's top exporter of coking coal used in steelmaking, at prices between US$128 to US$129 per ton on March 19, compared to last year's benchmark price of US$300.

An official at JFE Holdings Inc, the world's third-biggest steel maker, said the company had agreed to price cuts in the same range.

BMA is a joint venture between BHP Billiton and Japanese trading house Mitsubishi Corp.

Shares in Nippon Steel closed up 4.7 percent at 269 yen (US$2.79) before the news, outperforming the iron and steel sub-index's 3.6 percent gain.

Analysts said the agreed price was higher than expected and would deal a blow to earnings at Japanese steel makers, already struggling with falling demand and facing prospects of squeezed margins on car sheet metal, their mainstay products.

Iron ore prices

"It was a must for them to keep the coal price below US$90, or their earnings would suffer," said UBS analyst Agsushi Yamaguchi.

Steel makers and miners' negotiations on the 2009-10 term contract price for iron ore, the other key raw material for steel making, have been prolonged as the gap between the two parties' demands are still wide.

Asian steel makers are pushing for at least a 40-percent cut in iron ore prices to 2007-08 levels to end six years of consecutive rises, in which prices rose fivefold.

Miners, however, have resisted large price cuts in the commodity, encouraged by a sign of a recovery in steel output in China, the world's biggest importer of iron ore, analysts said.


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