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steel production cuts start to hit coking mark

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    hardly surprising but worth a read...i assume that the CZA arrangement with AM would somewhat help when they start shipping coal

    Steel production cuts start to hit coking market
    AdvertisementEmail Print Normal font Large font AdvertisementJamie Freed
    November 22, 2008

    THE coking coal market is starting to experience the same signs of deterioration that hit the iron ore market last month, raising fears producers will be forced to cut production and prices.

    "We are starting to see these steel production cutbacks bite," said ANZ's head of commodities research, Mark Pervan. "There are very large stockpiles of coking coal and coke sitting in China at the moment."

    The coking coal market is dominated by the BHP Billiton-Mitsubishi Alliance, which controls more than 30 per cent of the global trade in the steelmaking material, but others like Xstrata, Rio Tinto and Canada's Teck Cominco also produce significant volumes.

    Teck said yesterday that it expected its coal sales volumes this year and next year would be affected by steel production cuts.

    "As expected with these market conditions, Teck has now received notification from a small number of customers indicating their desire to defer some of their contracted volumes for the 2008 coal year," the miner said.

    The slowdown in the coking coal market has so far lagged the iron ore market - partially because China can meet its own needs through domestic production - but that could change as Japan and South Korea lower steel production in the coming months in response to weaker automotive and shipping markets.

    "We have had steady business progress on sales, but we are watching future sales and demand closely," said a Rio spokeswoman, Amanda Buckley.

    Mr Pervan said the full impact of steel production cuts had yet to be felt but he expected a "healthy cut" in coking coal demand next year, combined with hard coking coal prices halving to $US155 ($241) a tonne or lower.

    Macquarie Equities this week slashed its forecast for BHP coking coal sales by 15 per cent for this year on weaker demand.

    Mr Pervan said the high quality of BHP's coal meant it would be more insulated than other producers but he expected it would still have to make mild production cuts.

    "It is the best of a weak bunch."

    Some of BHP's Indian customers are reportedly trying to renegotiate the price of their coking coal contracts lower. In the iron ore market, BHP has so far not cut production but is instead attempting to sell unwanted shipments at a steep discount on the spot market.

    A BHP spokeswoman, Samantha Evans, would not comment on the possibility of coking coal production or price cuts, but the current market conditions were presenting "very challenging times" for all miners, she said.
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