Competition and Canadian coal prices in the Japanese coking coal market

CIM Bulletin, Vol. 73, No. 821, 1980

PETER KITTREDGE and LORNE SIVERTSON, Economic Analysis and Research Bureau, British Columbia Ministry of Industry and Small Business Development, Victoria, B.C.

World metallurgical coal imports totalled 110 million tonnes in 1978. Of this amount, Japan imported 50 million tonnes, making it by far the largest and most important coking coal market. British Columbia and Alberta exported 12.0 million tonnes of coking coal in 1978, or 11% of the world total. Virtually all of these exports were directed to Japan, making up 22% of total imports.Some observers have suggested that because Japan is almost the exclusive buyer of British Columbia and Alberta metallurgical coal, the benefits of the coal trade may be primarily on the side of the powerful Japanese buyers. Buttressing this suspicion is the fact that Japanese trading companies have taken substantial equity positions in B.C. coal mines, thus presenting the possibility of non-arms-length transfer arrangements. There is then at least some evidence to support the hypothesis that Canada's western coal producers receive prices that are less than would prevail in a more competitive market; that is, that they are exploited.This paper produces evidence that Canada's coals are not underpriced in respect to U. S. and world markets. The conclusion is drawn that British Columbia and Alberta metallurgical coals receive prices that are equal to prices known to be competitively determined. This conclusion follows an in-depth analysis of prices, coal qualities and the economic characteristics of all major coals traded in the Japanese market. A by-product of the analysis is an equation capable of predicting the value of any metallurgical coal sold to Japanese buyers, or, for that matter, any buyer. Hopefully, this can be of some use to coal producers in developing their marketing strategies.
Keywords: Coal markets, Coking coal, Japan, Metallurgical coal, British Columbia, Alberta, Market analyses.