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Met coal producers shift to spot pricing amid volatility

Keywords: Tags  Ernie Thrasher, XCoal Energy & Resources, IHS McCloskey Coal USA, coal, metallurgical coal, spot pricing, Stacy Irish

NEW YORK — Metallurgical coal producers have moved to shorter-term spot pricing as a way to manage volatile prices, according to a top executive at Xcoal Energy & Resources LLC.

"In an oversupplied market, less than 10 percent of the seaborne-traded coking coal is priced at a headline benchmark price," Ernie Thrasher, chief executive officer and chief marketing officer of the Latrobe, Pa.-based company, said June 21 at the IHS McCloskey Coal USA conference in New York.

Steel producers have to remain competitive when buying their raw materials if they want to survive in an industry that has been plagued by global overcapacity, weak demand and thinning profit margins.

"No one wants longer-term pricing for coal, even quarterly pricing is long term," Thrasher said, highlighting the need to come up with a pricing structure that would help manage price volatility.

He wasn’t supportive of leading coking coal indices, which he said "distorts the market" that is thinly traded.

It was suggested that the industry could move back to annual or quarterly pricing, but delegates viewed this as unlikely.

"The market is more focused on spot prices. It’s doubtful that people will be willing to go for longer-term contracts and take a bet on the market," Thrasher said.

The metallurgical coal export market has softened due to high stocks and lackluster demand from major steel producers in Europe and Asia, who have slowed their overseas purchases to consume existing inventory.

"I don’t think people will be willing to take the hit with annual contracts. Steel producers will say ‘I have to survive today; I can’t wait a year for raw material costs to change.’ The tolerance to accept annual coking coal prices has gone," he said.

Contributing to the volatility of the market is China, where coal traders and steel producers use social media to share pricing deals, resulting in sometimes hourly changes in spot coking coal import prices, one delegate said.

A version of this article was first published by AMM sister publication Steel First.

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