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SYDNEY (Reuters) – Global miner BHP Billiton (BHP.AX)BHP.L has won a key break from traditional annual benchmark prices by agreeing to sell a major portion of its coking coal to Asian and European customers on term contracts.

Deals

“These settlements reflect the company’s commitment to achieving market-clearing prices over time across all its bulk commodities,” BHP said in a statement.

The move is a big step forward in BHP’s attempts to eliminate annual pricing for bulk steel-making commodities, and likely clears the way for quarterly pricing of coking coal and a similar move in iron ore, a portfolio manager said.

“As far as the suppliers go, the benchmark (for coking coal and iron ore) is dead and buried,” said Michael Bentley, a portfolio manager for Sydney-based funds manager Northward Capital.

BHP the world’s top coking coal producer and No. 3 in iron ore had been frustrated in efforts to persuade steelmills to drop a annual prices for bulk commodities sales and switch to quarterly, or even monthly or daily, prices.

“With coal now moving to quarterly price review, we’re expecting iron ore to follow in due course,” said a bulk commodities trader based in Adelaide.

“That will give the producers a leg up as long as the high spot price holds.”

Spot iron ore basis china is trading around $133 a tonne .IO62-CNI=SI, double the 2009 free-on-board benchmark.

Following is a graphic on iron ore prices:

here

Rio and BHP are locked in negotiations with Chinese mills to reach some type of agreement for 2010/11

BHP did not disclose the terms of the coal deals.

But on Friday Japan’s JFE Holdings Inc (5411.T), the world’s sixth-biggest steelmaker, said it had agreed with BHP to pay $200 per tonne for coking coal for April-June.

That represents a 55 percent increase from the benchmark price for the 2009/10 financial year, ending March 31, of $129, for the bulk commodity used in steelmaking.

Typically, BHP sets the benchmark for all subsequent deals for the same period, indicating rival producers will now have to choose annual contracts or quarterlies, as well.

“We expect a mixture of both in the coming weeks,” UBS said in a client note.

Xstrata (XTA.L) Peabody and other coal producers in Australia have yet to start price negotiations over sales of low-volatile and semi-soft coking coal.

The 55 percent rise was in line with media and analysts’ reports and the price represents a around a 10 percent discount from the current spot market price of about $220-$230 a tonne.

It is the first time Japanese steelmills have agreed to a quarterly pricing contract for the key steelmaking ingredient, but a JFE spokesman said the agreement did not mean the firm had scrapped an annual benchmark pricing system.

BHP produced 18.3 million metric tons of metallurgical coal in the six months to December, down 5 percent from a year earlier.

BHP has been pushing hard for a quarterly pricing system for coking coal for traditional bulk buyers as part of its campaign to dismantle annual benchmarking.

Japanese steelmills had resisted the proposal, which conflicts with sales practices with their key customers such as automakers that pay for much of their steel on an annual basis.

Other steelmills said talks continued, but deals were not in sight.

“We are still in talks with BHP. Nothing has been decided yet,” spokesman Choi Doo-jin at South Korea’s POSCO told Reuters by phone.

“The talks are likely to be concluded this week if the market and supplier accept the 55-percent rise as a benchmark price,” an industry source close to the negotiations said.

Global coking coal supplies are tight following a surge in demand from China.

In 2009, China imported 34 million metric tons of coking coal, which was almost a five-fold increase from the previous year.

(Additional reporting by Bruce Hextall and Balazs Korany and by Cho Mee-young in Seoul; Editing by Nick Trevethan and Ed Lane)