BHP Billiton (NYSE: BHP) in Coking Coal Price Agreement with Japanese

BHP Billiton (NYSE: BHP) has what is being called a major breakthrough in its bid to change the way coking coal prices are set on an annual basis.

The big change has come in a quarterly contract agreement with the Japanese where they have agreed to pay a premium of 55 percent over the prices asked for right now.

After they weren't able to agree to a 12-month price with BHP Billiton Mitsubishi Alliance, Japanese mills agreed to pay $200 a ton until June 30 for coking coal provided to them.

This is important because the Japanese and Koreans have fought to keep their steelmakers existing annual contract system in place, while producers like BHP Billiton have fought to put a pricing system in place which coincides more with the market conditions currently being faced.

While the Japanese were quick to assert this deal doesn't mean they're forsaking the annual contract system, those in the steel industry refute that saying this is the beginning of the end of the past way of pricing coking coal through annual contracts, and more than likely this will also expand to iron ore as well, one of the key raw materials in making steel.

The deal may go far beyond only the Japanese and Koreans and spread to the auto industry as well, which has used the annual price-setting system for its steel too. This will be especially true if this becomes a part of iron ore contract pricing practices.

As far as the price of $200 a ton, that is the first price increase for a contract in two years.
 
BHP and its partner Mitsubishi supply close to 20 percent of the coking coal to the Japanese mills.