Japan’s steel firms are buying U.S. coal

High-priced coal will boost steelmaking costs

By Tom Stundza -- Purchasing, 2/20/2008 9:31:00 AM

Japanese steelmakers are buying coking coal from the U.S. because floods in Australia have halted mining and cut supplies. Upshot: Low-sulfur coal in the U.S. has risen to a range of $67-$70/ton from Appalachian mines, the Energy Information Administration says. So, coal delivered to coke plants has increased to $110-$125/ton, according to market sources. Spot prices for coal used in steelmaking have risen in Japan to as much as $270/metric ton, almost triple the $98 a ton contract price, reports the Bloomberg News Service.

Floods this year in Australia's Bowen Basin forced suppliers including BHP Billiton, the world's largest mining company, to say they will miss deliveries of coal. So, even though it is boosting raw materials costs, Nippon Steel Sumitomo Metal Industries, Kobe Steel and Nisshin Steel are importing more expensive coking coal from the U.S. Japan imported about 80 million tons of coking coal in 2006, according to latest available data from the Japan Iron & Steel Federation, with 45 million tons, or 56%, from Australia, 7.1 million tons from Canada, 3.8 million from China and 3.9 million from the U.S.

Australian-based Merrill Lynch & Co. analysts led by Vicky Binns wrote in a report dated Feb. 19 that once the supply returns to normal, Australian coal contract prices will probably jump to more than $220 a ton, excluding freight and insurance, in the fiscal year starting April 1. Prior to the Australian floods, the Merrill Lynch forecast had been $140.