To add to the continuing cost pressure on steel prices, coke prices are escalating rapidly in Asia:-
BHP Billiton and Rio Tinto are to deliver a crippling blow to Asian steel firms this week by demanding a 200 per cent increase in coking coal prices that their customers will have no choice but to accept.
Sources at Nippon Steel said it was “basically inevitable” that new contracts for coking coal delivery would be set at $300 a ton. Other leading steelmakers, including JFE, of Japan, and Posco, of South Korea, apparently are close to signing contracts at that price.
The sudden swing to a seller's market and the tripling of the coking coal price has sent a wave of panic through corporate Japan. It has exposed the weakness of a resource-poor economy that relies on imports, and given other Japanese industries cause for concern.
The steelmakers, who have been in negotiation with the Australian miners for several months, have little scope for manoeuvre. Floods in Queensland and surging demand from China's construction sector have propelled spot prices of coking coal to record highs of $350 a ton.
The expected increase in the long-term contract price will generate potentially devastating knock-on effects throughout the steel industry, which has grudgingly accepted large price increases for iron ore. The 2008 onslaught of commodity price surges is expected to cost the Japanese steel industry an additional £15 billion a year - enough to wipe out about 10 per cent of pre-tax profits.