BHP agrees to cut 2009 coking coal prices about 58 per cent

BHP Billiton Ltd., the world’s largest mining company, agreed to about a 58 percent cut in annual coking coal contract prices after demand for the steelmaking material declined.

A “significant portion” of supply contracts have been settled with “key global customers,” the Melbourne-based company said today in a statement. BHP and Mitsubishi Corp.’s alliance is the world’s biggest exporter of coking coal.

Nippon Steel Corp. and JFE Holdings Ltd., Asia’s two largest steelmakers, won a 57 percent cut in prices to between $128 and $129 a metric ton in talks with BHP, two industry executives with knowledge of the deal said in March. Global mills have slashed raw material orders as the worst recession since World War II curbs demand from builders and carmakers.

“We saw a little bit of upside” in BHP’s shares as the price cut was not as steep as some investors expected, Chris Weston, an institutional dealer at IG Markets in Melbourne, said today by phone. “It’s a commodities play today. People want a piece of it. We are seeing a lot of positive momentum on this stock.”

BHP rose 3.3 per cent to A$37.69 on the Australian stock exchange, after a measure of the six metals traded on the London Metal Exchange rose to the highest in eight months overnight Sydney time.

BHP’s production of coking coal may be 10 per cent to 15 per cent less than current capacity this year because of lower demand, BHP said in April. Sales of the coal accounted for 6.7 per cent of BHP’s revenue in the year ended June 30, 2008. The annual contracts cover sales running from April 1 to March 31.

Coking coal prices tripled in the year-ending March 31 as flooding disrupted supply from Australia’s Queensland state and rising demand from China fueled a surge in commodity prices. Contract prices with Japanese mills were about $50 a ton during most of the 1990s, according to Nippon Steel.

Japan’s steel output tumbled 44 per cent in April to 5.72 million tonnes, the Tokyo-based Japan Iron & Steel Federation said last month. Production was 10.15 million tonnes last year, and the percentage drop for April is near the March record decline, according to data on the Bloomberg.