Japan producers to disperse coal purchase to avoid high prices

Japan producers to disperse coal purchase to avoid high prices
14 June 2011

Taiheiyo Cement Corp and other major Japanese cement makers are dispersing their coal purchases to hedge against the risk of buying when prices are high.

Traditionally, cement companies have purchased a year’s worth of coal in April since price changes tended to be small. But with coal prices becoming volatile, cement makers are keeping a close eye on the market to gauge a favorable time to buy.

They hope to keep costs in check this way because coal purchases account for at least half of their materials expenses.

Taiheiyo Cement has procured only about 30% of its coal supply this fiscal year so far, while Sumitomo Osaka Cement Co. (5232) and Mitsubishi Materials Corp. (5711) have each purchased around 60%.

Sumitomo Osaka Cement, which began spreading out its purchases last fiscal year, may consider dispersing them even further, says a company official.

Coal prices began rising last year after major floods in Australia, a major producer. The price jump between January and March, which served as the basis for purchase prices in April, was particularly steep. Consequently, Taiheiyo Cement and Sumitomo Osaka Cement are believed to have paid nearly 150 dollars a ton for coal in April, about 30% more on the year. Mitsubishi Materials is said to have paid around 145 dollars, an increase of more than 10% on the year.

Prices are currently at around US$135/t. Coal shipments from Australia have gradually recovered and weakening demand resulting from a slowing Chinese economy "could keep prices top-heavy for the near term," says an official at Mitsubishi UFJ Morgan Stanley Securities Co.
Published under Cement News