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Aussie coal producers at a loss in Tokyo

SYDNEY: Australia's BHP Co on Monday accepted a five percent cut in coking coal sales to Japan, confronting many producers with another year of weak profits, sackings and mine closures.

The price cut of US$2.15 a tonne for hard coking coal in talks with steelmakers for the April 1 year follows an 18 percent reduction last year.

Analysts said the latest cut would have an impact on talks now underway between steaming coal producers and Japanese utilities.

While BHP might not fare as badly as some other producers because of a likely tonnage offset deal, the world's biggest coal exporter was hit with a 24 hour strike in protest at its decision.

"This A$3.40 a tonne cut is a disaster for Australia," said Construction, Forestry, Mining and Energy Union general president Tony Maher.

"It sets a new low level that will push marginal mining operations over the edge and trigger a new round of massive retrenchments as BHP and other companies seek to offset the effects of the price cuts through cutting costs," Maher said.

OTHERS TO FOLLOW

BHP's deal was likely to be followed in the near future by other local produers MIM Holdings Ltd and Shell Coal, analysts said.

BHP Coal, which has halved its workforce to 3,500 in the past two years, would not say how it would respond to the price cut.

"We've been restructuring the business for two years and will continue to do that," a BHP Coal spokesman said. "Now whether that means job cuts or more efficiencies will have to be decided down the track," he told Reuters.

BHP said the reduction would affect a minimum of five million tonnes or 15 percent of BHP's annual coal sales, blaming the decision on discounting by some suppliers in other markets and increased capacity from new mines.

It said Japan accounted for about 30 per cent of annual BHP coking coal sales, with other major markets in Europe, Korea, India, Taiwan and South America.

Analysts said BHP could handle the price cut better than most in the A$4.7 billion (US$3.0 billion) a year hard coking coal export sector.

"Those first to settle tend to be the ones that get the tonnage, particularly if there is a price reduction," said Salomon Smith Barney analyst Graeme Newing.

"Everyone will be affected," Newing said. "It is disappointing but it's a function of market conditions.too much hard coking coal around, mainly from Australia."

Macquarie Bank said BHP's net profit would nominally be lowered by three percent due to its price cut deal in Tokyo but resources analyst Richard Rossiter said this could be offset by other factors such as picking up extra sales.

Industry sources said the A$3.3 billion a year thermal coal industry, which exports mainly to Asian power companies, would feel added price pressure.

These producers, including the largest Rio Tinto Plc/Ltd, have told Reuters they do not expect price cuts to be as severe as for coking coal.

One source said the BHP coking coal settlement came as a second round of negotiations was underway in Tokyo between Chubu Electric Power Co Inc and Australia's MIM, Oakbridge, Shell and other producers.

Analysts were also waiting to see what impact BHP's deal would have on Shell's plan to sell its coal assets for upwards of US$1.5 billion, the main single rationalisation now underway in in the Australian industry.

Analysts said Shell and MIM would inevitably follow BHP into a five percent cut to drag the benchmark price of hard coking coal down by US$2.15 a tonne to US$39.75.-Reuters