Rio Tinto’s general manager energy and marketing services Bill Hart has called on Australia and other Pacific nations to transform the current coal pricing system into a more transparent model.
Hart was speaking at McCloskey's 7th annual Asian Coal Forecast 2003 conference. He said the system should be flexible and transparent to enable buyers and sellers to create forward price curves and increase market efficiency.
The system should also be able to adapt to various markets around the world and feature a mix of contract types to provide a fair share of supply chain risks between buyers and sellers. The aim is better management of price volatility risks and longer term price stability.
One trend in the Asian region is a growing move towards shorter-term contracts as had emerged in Europe, where markets had been opening up to competition since the mid 1990s and prices had become more short-term focused as a result of buyers being able to switch suppliers with ease.
Ageing utilities and world price volatility were other factors affecting Asian markets.
Hart said ultimately all players in the market would like to pay a price which reflected supply and demand.
"I believe there is a strong case for a transparent indicator," he said. "We need a pricing system that is timely and allows the market to adjust. There's a benefit to the industry from transparent price indicator as they are the foundation to spot prices and forward price curves and help to increase market efficiency."
Macquarie Bank commodities analyst Jim Lennon predicted that the fate of Australia's coking coal industry in 2003 will largely depend on whether the current recovery in the steel industry continues.
World steel production was expected to grow by more than 6% in 2002, in contrast with flat base metals. However, coking coal exports by Australia, Canada and the United States were all down, by 2.8% to 4.9%, in January-September of 2002.
Lennon forecast a rollover of prices at the semi-soft end of the coking coal market and a cut of $2 a tonne, or 4%, in hard coking coal prices.
Extra demand from China accounted for the boom in the global steel industry he said but this demand was expected to slow slightly. Production cuts in Australia appeared to be helping stem oversupply, Lennon said.
Conference convenor, Gerard McCloskey, expects Australian coking coal producers to get at least rollover prices in 2003-04. Over the next six months thermal coal prices were seen rising by up to $4, towards $28, indicating a 2003/04 benchmark price rise of about 15%, McCloskey said.