Seaborne coking coal suppliers such as BHP Billiton are pushing the industry toward quarterly pricing, a development

that is breaking down the traditional annual benchmark price BHP Billiton, the world's largest miner, said yesterday that it had moved a "significant portion" of its coking coal sales for 2010 to "shorter term market based pricing", breaking away with the tradition of annual contracts and mutually agreed prices.

Steel mills in Japan, China and Europe have accused the three big iron ore producers - BHP Billiton, Rio Tinto and Brazil's Vale - of abusing their market dominance. The new pricing system will see the commodities' costs nearly double in the short term, which could raise steel prices by up to a third. Vale, Rio and BHP control nearly 70 per cent of the sea-borne iron ore market A manager at one Japanese steelmaker said even if such co-operation were possible, a Japan-South Korea alliance would have little leverage over suppliers without the inclusion of China, the world's biggest steel producer and the biggest customer for iron ore. Annual thermal coal contract prices have increased by 40 per cent following settlements between Xstrata, the Switzerland-based miner, and PT Bumi Resources of Indonesia with Japanese utilities PT Bumi traditionally obtains a higher price due to the lower shipping cost to Japan from Indonesia than from Australia and South Africa, where Xstrata mines the commodity. Beijing bought overseas about 80m tonnes of thermal coal last year, a big U-turn from net exports of about 70m tonnes in 2005. The Chinese thermal coal market has tightened on the back of a clampdown on illegal and unsafe mining, which forced the closure of hundreds of small mines in Shanxi province, the key coal-producing area. Beijing's shift has more than offset poor demand in Europe and the US, analysts and traders said. India's strong consumption is also helping to tighten the market. New Delhi imported about 70m tonnes of thermal coal this year, double the amount it bought overseas in 2007. Japan is the world's largest thermal coal importer

Jim Lennon, a commodities analyst at Macquarie in London, said this was the "point of no return for annual benchmark" contracts for bulk commodities. "Quarterly change eventually based on spot indexes will become the norm," he said in a note. Analysts said that if China continued importing at its current pace - and buying accelerated in January spot prices could climb further. "Overall the coking coal market continues to look extremely tight through the second quarter of 2010," said Mr Lennon. "The price risk remains firmly to the upside." BHP Billiton said said that it wanted to shift to quarterly contracts that track spot prices more accurately and away from the annual negotiations under which the first deal agreed between a miner and a steelmaker created a benchmark which was then followed by the industry that year. Spot coking coal prices have risen sharply to about $220-$240 a tonne after a drop in China's domestic production forced Chinese steelmakers to import. China imported about 30m tonnes of coking coal last year, up from only one tonne in 2008. Beijing's shift to an importer follows a clampdown on illegal and unsafe mining operations. Coal markets will remain robust this year, according to Xstrata, the mining group, which said China and India's growing import requirements would support demand for both coking coal for steelmaking and thermal coal, used to generate energy. Both Barclays and Credit Suisse are concerned about the inability of coal supplies to react to rising prices due to bottlenecks in key exporting nations, South Africa and Australia, where port congestion and rail problems have not been resolved.