Japanese cut BHP Billiton coal prices due to reduced steel Chinese demand

The move could also flow over to iron ore prices. UBS analysts and Japan's Nikkei financial newspaper reported that the mining giant had reduced its coking coal price by 7 per cent for Japanese steel mills for the three months to the end of December.

BHP, the Japan Iron and Steel Federation and Japanese steel mill Nippon Steel declined to comment on the reports.

But the reports suggest prices for high-quality coking coal (used in steel production) will fall to $US209 a tonne for the three months starting October 1, from $US225 a tonne in the current quarter.

Nippon Steel shares rose just over 1 per cent yesterday, while rivals JFE Holdings (1.89 per cent), Sumitomo Metal Industries (2.03 per cent), Kobe Steel (2.87 per cent) and Nisshin Steel (3.7 per cent) also posted rises.

BHP is the world's biggest supplier of coking coal and also a major supplier of iron ore. Pricing for both commodities has shifted from a yearly to a quarterly system that has seen large rises in the past year and protests from steel mills.

However, with China moving to curb property speculation and mills reducing their output, the cut in coking coal prices is likely to be followed by a reduction in quarterly iron ore prices.

The quarterly price of both commodities is linked to the average spot price in the previous quarter, which has come down from its peaks. BHP recently warned it was expecting the price of coking coal and iron ore, which had doubled since last year, to drop in the near term.

"With global steel production running ahead of real demand in the quarter ended June 2010, we expect output to soften from the record highs achieved in April," the company said in its annual results report. Steelmakers in China, Japan, Europe and the US have already announced output cuts for the second half of the year.

But BHP said the medium-term outlook was positive, particularly for iron ore, where it expected "a lack of low-cost supply response" to maintain prices over the next few years.

"Despite our short-term caution, we remain positive on the longer-term prospects for the global economy, driven by the continuing urbanisation and industrialisation of emerging economies," the company said in the report.

"In the medium term, we expect commodity demand to remain heavily dependent on emerging market demand as the gradual withdrawal of government stimulus is expected to constrain growth in the developed world."