Boost for old king coal

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jul 2009

ANNOUNCEMENTS from Rio Tinto's Coal and Allied and its putative – senior? – partner BHP Billiton yesterday, neatly captured key features of our present and our future. Coal and Allied announced big revenue and profit increases for the June half despite a fall in coal shipments into the global recession.  How was that possible? Because it and all other Australian coal, and iron ore exporters continued to get extraordinarily high prices for their products as those prices were locked in for a year at the very top of the crazy commodities boom in mid-2008.
That year self-evidently is ending. Indeed, has ended. The much lower coal prices for the next year have been agreed.  Enter BHPB (and Rio) which have settled their iron prices for almost all their customers in Asia and Europe. Except for one the one that is the "bloody great elephant in the room". China.
An elephant that is only going to get bigger as the room gets figuratively smaller as the years unfold.  BHPB told us two interesting things yesterday. That it had settled for 53 per cent of its iron ore sales. And that more than half of that was not at a fixed contract price. But a mix of "quarterly negotiated pricing, market clearing price (spot market) and index-based pricing". That left 47 per cent -- China, more or less.
The great irony of this is that China wants a bigger price cut than the other buyers have agreed. But it's actually undermining its negotiating power by aggressively buying ore in the spot market.  And further, effectively promoting the move BHPB has achieved in moving significantly away from fixed contract prices to the market-based blend. Whatever the opposite is of "having your cake and eating it too" is what China's got.  That though is also sending us some huge messages about how dominant a player China will be in our future. It can't and certainly won't be a one-way street.

Source: Heraldsun