“We believe the most price-supportive factor for 2009 metallurgical coal settlements will be carryover tonnes,” Macquarie said in a commodities report on the topic.

“There will be massive under-delivery of 2008 contract volumes, due particularly to shipment deferrals as steelmakers cut production.”

While acknowledging it would be hard to see steel mills accepting $US300 a tonne coking coal prices given the extent of the steel market collapse, Macquarie said producers could achieve a relatively strong headline price by sacrificing the $US300/t prices on carryover shipments.

Macquarie also said the absence of a liquid spot market and benchmark system for metallurgical coal meant price adjustments were less transparent, indicating falls may not be as rapid as in other commodities.

Citing that the price for premium coking coal in China is around $150/t and it understands recent spot deals were around $US140/t, including to China, Macquarie said these prices were above marginal costs.

The big concern noted by the research division of the investment bank is news of coking coal pricing expectations coming from Japan.

Japan’s second largest steelmaker, JFE, said this week it expected coking coal prices to fall back at least to 2007 levels, which would be around $US98/t.

Macquarie also referenced a statement in the Tex Report that said blast furnace steel mills would try to aim for hard coking coal prices at 2007 fiscal year prices, with the bank saying the publication is often perceived as a Japanese industry advocate.

“Thus, $US98 per tonne appears at this stage to be the goal for Japanese benchmark negotiations,” Macquarie said.

“This would put prices within the cost curve, lower than a number of US and Canadian producers, but would not fall below the cash costs of any major producer.”

When looking at Australian coking coal producers, Macquarie said there was a good record of delivering on contracted volumes at contracted prices, aside from volumes impacted by flooding last year in Queensland.

“We understand a number of Australian contracts began delivery of $300/t coal only in 3Q08, after fulfilling contractual obligations at old prices,” Macquarie said.

“Thus, metallurgical coal producers are in a relatively strong position when negotiating carryover pricing.”

In an illustrative example based on a contract between major steel producer ArcelorMittal and Foxleigh (now run by Anglo Coal) in late 2007 to early 2008, Macquarie said it could see the potential for headline prices of up to $US138/t achieved over a $US98/t spot price from premiums negotiated in carryover tonnes.

However, carryover pricing for iron ore was not the same story, according to Macquarie, as major producers failed to deliver contracted volumes as contract prices soared over the past five years, making consumers not obligated to respect carryover prices as iron ore prices fall.

Last month, Australian Bureau of Agricultural and Resource Economics senior commodity analyst Alan Copeland told International Longwall News a large proportion of bulk commodity prices are locked in until March, which would then be renegotiated, and there are a number of factors that indicate those contract prices might come down for April.

Copeland said prices for coal remained historically high compared to a few years ago and prices for metallurgical coal exports, around $US300/t, achieved during the recent peaks were unprecedented.