The World's largest seller of coking coal, BHP Billiton has announced that many of its customers have agreed to short term pricing for the coal.

The coking coal is mainly used for steel manufacturing. The company had been asking for short term spot prices for coal as well as irons ore and now it has finally managed to break the traditional pricing based on yearly benchmarks.

The company has not charted out the whole mechanism yet but it is believed that it the prices would be revised every three months.

Spot prices of coking coal are ranging about $US220 per tonne which is much more than 2008/09 yearly contract price of $US129. The company said it will sell a significant portion of its hard coal on the basis of short term market pricing.

"These settlements reflect the company's commitment to achieving market clearing prices over time across all its bulk commodities," the company said in a statement.

The company is believed to have reached an agreement with various customers in Europe, Japan, India and China. Some reports suggest that the company signed reached an agreement with the Japanese steel maker JFE Steel to pay $US200 per tonne for three months from April 1 after a discount offered on spot rate.

Analysts say that this move does not bring an end to the benchmark system but will certainly lead to evolution of a new pricing framework. They say that short term pricing also reduces producer risks for coking coal and iron ore.

The short term prices reflect the demand supply situation and offer more flexibility and it also removes the arbitrages to increase the potential for both sides.

In a case last year four Rio Tinto workers in China were arrested after price negotiations for violating bribery and trade secret laws. Some at that time had called for the benchmark system to be scrapped.

The shares of the company rose $1.01 to close at $43.51.