Negotiations on the FY06 Long-term Agreement are Complicated and Confusing

Since November last year, long-term agreement negotiations for international market thermal coal, coking coal, and iron ore for fiscal year 2006 have been held in Tokyo, Japan. Based on past experience, annual long-term agreement negotiations usually last three to four months. Under normal circumstances, there should be a clear result by March this year. However, this year's negotiations appear to be much more difficult and may take longer than in previous years. The main reason for the difficult progress of this year's negotiations is that the two parties have large differences in judging international market supply and demand and price trends.

In terms of thermal coal negotiations, Japanese power giants believe that the current supply and demand relationship in the international thermal coal market is slowing down, and lower coal contract prices are an inevitable trend. Since July last year, international thermal coal prices have been falling. The Australian BJ spot coal price has dropped from US$52.3/ton on July 14, 2005 to US$37.95/ton on November 24, a drop of 27.4%. At the McCloskey Australian Coal Annual Conference in December last year, participants analyzed that the FOB contract price of thermal coal in fiscal year 2006 is likely to drop to about US$40/ton. However, since December last year, affected by many factors such as China's coal and power disputes, intensified cold weather, and regular price increases during the annual long-term contract period, the international thermal coal spot market has begun to pick up, and spot prices have rebounded in the past three months. , until February 16, the standard thermal coal spot price (FOB) at the Port of Newcastle in Australia reached 47 US dollars / ton, and has remained at this level in the past two weeks. In view of the current relatively strong trend in the thermal coal market, coal suppliers believe that the coal market will still have the power to continue to rise in the future, which is far from Japanese customers' judgment of a declining coal market. Therefore, negotiations were extremely difficult. According to the agreement reached during the 6th long-term cooperation agreement between the Chinese and Japanese governments, the quantity of thermal coal contract under this item has been determined: 7.268 million tons in fiscal year 2006, 7.397 million tons in fiscal year 2007 and fiscal year 2008, but the coal supply The price still needs further negotiation.

In terms of coking coal, it is reported that major Japanese steel companies such as Nippon Steel Corporation and Japan United Steel Corporation have reached price reduction agreements with Australian BHP Billiton and other companies for high-quality coking coal used in steel production in 2006. This is the first time in three years that the coking coal contract price between Japan and Australia has been reduced. According to the agreement, the supply price of high-quality coking coal for steelmaking in 2006 dropped by about 8% compared with the previous year, and the FOB contract price of high-quality hard coking coal was US$115/ton. Of course, due to differences in variety and quality, supply prices are also different. The contract price of high-quality hard coking coal is around US$115 (FOB), and the price of medium or low-quality hard coking coal is between US$105 and US$110 (FOB). At present, suppliers such as BHP Billiton, Mitsubishi Associated Company (BMA), Anglo Coal Company, Peabody Energy Company and Xstrata Coal Company have reached agreements with Japanese users. As the Chinese representative, China Coal Group arrived in Japan on February 22 to negotiate with Japanese steel companies on the supply of metallurgical coal. Under the framework of the China-Japan long-term agreement, China's metallurgical coal is divided into three categories: hard coking coal, semi-hard coking coal and semi-soft coking coal. The contract prices of China's hard coking coal and semi-hard coking coal are likely to refer to the contract prices of Australian coal. This round of negotiations Whether the contract price for China's semi-soft coking coal can be determined remains a mystery. The industry had worried that after Japanese steel companies reached a coal price reduction agreement with BHP Billiton and other companies, they might increase the negotiated price of iron ore, which would undoubtedly be extremely detrimental to Chinese steel companies. Industry insiders analyze that coal price cuts may actually be a signal of iron ore price increases, because unlike China, which supplies most of its own coking coal, Australia's coking coal is mainly exported to Japan and South Korea, so lowering coking coal prices is motivated by raising iron ore exports. price factor. It is reported that the third round of annual contract price negotiations between Chinese steel companies represented by Baosteel and the world's three largest mining giants has ended, with no breakthrough in the negotiations.

In terms of international shipping, shipping prices have skyrocketed in the past two weeks. According to news released by Coal Fax, shipping rates in the Atlantic and Pacific regions have increased by more than 40% in recent days. The freight rate from Richard Bay to Rotterdam increased by US$5.80/ton to US$17.85/ton; the freight rate from Richard Bay to Japan increased by US$6.65/ton to US$21.65/ton. It was also reported that on February 15, the Baltic Dry Bulk Freight Index climbed to its highest point in the past month, rising 16.2% within a week. On February 16, the daily rent of "Cape size" (CAPE) ships traveling to and from the Pacific region skyrocketed by US$6,454, causing ocean freight to increase by 54% in three days. On February 17, the freight rate for iron ore from Western Australia to Beilun reached US$11.94/ton, with the freight rate rising by 31% within a week. This series of such rapid surges in sea freight rates is rare in recent years.

Coupled with the surge in sea freight, congestion at major ports is quite serious. Analysts pointed out that the "crazy" performance of the shipping market has its objective factors. For example, due to the typhoon in mid-January, Australia's main iron ore export port was temporarily closed, resulting in the delay of some shipping schedules. In addition, the iron ore trading of Chinese companies rebounded rapidly after the Spring Festival, resulting in a concentration of ships arriving at the port and so on. But the "artificial hype" factor is also obvious. During this period, industry insiders had speculated that during the iron ore price negotiations, international mining giants took advantage of the favorable time and place after the typhoon to artificially inflate the shipping market to facilitate negotiations. In short, the FY06 long-term agreement negotiations are complicated and confusing, and all parties involved are trying their best to push forward with great expectations. The new fiscal year (April 1) is coming to us soon, let's wait and see.