According to Dow Jones Newswires, both Nippon Steel and second-largest Japanese steelmaker JFE Steel confirmed agreements to pay $US128-129/t for premium coking coal on Monday.

While these deals are expected to set the new price regime for coking coal this year, well down on the record $US300/t benchmark achieved last year, Macquarie analysts noted the weaker steel market already had South Korea dropping its coking coal imports by 20% in February, compared to the same month in 2008.

To avoid production cuts in the meantime, Australian producers have been turning to Indian and Chinese markets.

Drawing on data from Queensland’s Hay Point, Macquarie analysts pointed out that Chinese exports accounted for 47% of the port’s vessel line-up on March 18, compared to 0% for March 28, 2008.

Macquarie said domestic prices in China had been kept high by supply disruptions and the discouragement of small mine production in the wake of the Tunlan mine collapse disaster that killed 78 miners last month.

“As a result, up to 5 million tonnes of sales are supposed to have been secured from Australia into China, with up to 2Mt to be shipped in March,” Macquarie said.

With the new Japanese financial year less than a week away, deals with Indian steelmakers that were considered discounts in February now sit above the new $US128-129/t expectation for premium coking coal.

Last month Rio Tinto settled March quarter coking coal deliveries with JSW Steel for $US175/t, while BHP was widely reported as inking a coking coal delivery agreement with the Steel Authority of India for $US150/t.

On the Indian deals, Macquarie analysts said they were made to help keep production open.

“The alternative for the Australian producers was to face materially lower demand from the Indian mills and therefore to further slow mine production,” Macquarie said.

“They chose to facilitate continued deliveries and keep their mines running. They do still make excellent margins at $US150/t (with operating costs estimated at less than $US65/t).”