Nippon Steel says high coking coal prices likely to stay awhile

By Yuka Obayashi

TOKYO (Reuters) - Nippon Steel & Sumitomo Metal Corp , the world's third-biggest steelmaker, does not expect coking coal prices to fall any time soon as China's steelmakers maintain high output while the country's coal producers trim supply, an executive said.

And with Japan's biggest steelmaker bracing itself for a long period of high prices, more producers could be prompted to boost coking coal output. Glencore (GLEN.L) last week said it would restart a mothballed mine in southeastern Australia, with a surge in prices breathing life into the sector.

Prices of coking coal and coke, which typically account for 20 percent of steel production costs, have rallied more than twofold this year amid China's push to curb overcapacity and pollution, limiting supply available to domestic consumer.

The most-traded coking coal for January delivery on the Dalian Commodity Exchange (DJMcv1) hit a record high on Tuesday.

"There is a gap in China's reform speed and reform scale between steelmakers and coal producers," Kazuo Tanimizu, managing executive officer in charge of raw materials at Nippon Steel, told Reuters in an interview on Monday.

"The gap will stay until we see consolidations among Chinese steel mills," he said, and that means steelmaking material prices would remain at high levels for a while, although Tanimizu provided no further specifics.

China's crude steel output rose 3.9 percent in September from a year earlier as steel mills in the world's top producer raised output amid a demand pick-up, although there are signs of output cuts more recently.

Supply disruptions at coking coal mines in Australia, including South 32's Illawarra and Anglo American's German Creek, are also lasting longer-than-expected, Tanimizu said.

"I'm worried that their production may not be back in time for our negotiations in December with global suppliers to set prices for the January-March quarter," he said.

"It will be a tough negotiation."

Both coking coal and iron ore prices in the next quarter will likely exceed the levels for this quarter, he said.

Nippon Steel and Peabody Energy (BTUUQ.PK) last month set the October-December coking coal contract benchmark at $200 a tonne, more than double the previous quarter's price.

Premium hard coking coal prices (.PHCC-AUS=SI) in Australia, which dominates global exports, rose to $289.30 a tonne on Monday, up from about $85 at the beginning of June.

To cushion pains from surging raw material prices, Nippon Steel is aiming to use more cheaper low-grade coal and metal scrap, Tanimizu said.

Coal prices will eventually fall if global suppliers start ramping up supply, he said.

(Reporting by Yuka Obayashi; Editing by Aaron Sheldrick and Tom Hogue)