An application of the hedonic approach to estimating prices for steam coal contract terms

The hedonic approach involves determining the characteristics of a good or service that have a market price. Simultaneously, estimates of those prices are made using regression analysis. Both delivered and FOB mine prices are examined in regional U.S. markets.

The steam coal contract terms examined include Btu, sulfur, and ash content; transportation cost, average annual tons delivered, start year of the contract, length of contract, buyer controlling interest in the mining operation, coal mine locations, and the individual buyers. Data for about eighty-five percent of all 1978 steam coal deliveries is utilized.

The major findings were that coal price structure varies substantially across markets, from year to year, and for delivered prices and FOB mine prices. Btu is usually, but not always, the most important characteristic in explaining coal price variations. Length of contract is occasionally more important. Transportation cost and sulfur content are usually of high importance. Some buyers have a substantial impact on price because of market imperfections and poor buying practices. The regression results were robust.