Nippon Steel keeps benchmark system for PCI, semi-soft
Singapore, 14 June (Argus) — Japan's largest steelmaker Nippon Steel and Sumitomo Metal will set long-delayed second-quarter prices for pulverized coal injection (PCI) and semi-soft coking coal through bilateral negotiations, despite shifting to indexation for its hard coking coal contracts.
Nippon Steel said it has not decided whether to continue benchmark negotiations for PCI and semi-soft contracts for future quarterly prices, or eventually switch to the use of indexes for these feedstocks as well.
US-based coal firm Peabody and UK-South African mining company Anglo American are the leading producers in the PCI contract discussions, while Switzerland-based Glencore likely to lead semi-soft contract talks.
Steel producers were compelled to consider indexation for quarterly hard coking coal contracts after volatility in spot coking coal markets strained negotiations at the end of last year, and stalled second-quarter talks completely when prices doubled in just over a week in early April because of the impact of Cyclone Debbie on Australian supply.
Nippon Steel said this week it would use three indexes, including Argus assessments, to settle quarterly prices for hard coking coal, ending a decades-long benchmark system of bilateral negotiations.
Index prices are more likely to be used for the hard coking coal benchmark than for PCI because of a lack of liquidity in PCI indexes, a Japanese steel mill official said.
The lack of established indexes for semi-soft material is also weighing against any switch. "We will see a fixed-price benchmark for PCI and semi-soft in part because the Japanese mills do not think there is any semi-soft index that reflects real market prices," a Japanese trader said.
There is also less urgency for PCI and semi-soft quarterly contracts to move towards indexation. "Steelmakers in Japan can maintain bilateral negotiations for PCI and semi-soft because those are smaller parts of their overall procurement," another Japanese trader said.