Japan thermal coal contract may reach $145/T in 2011- Macquarie

PERTH Tue Jan 18, 2011 5:34am EST

PERTH Jan 18 (Reuters) - Major Japanese utilities may be forced to pay nearly 50 percent more than a year ago for their largest annual thermal coal contracts as floods in Queensland push prices higher, according to an analyst report released Tuesday.

The price for the key Japanese fiscal year thermal coal contract could settle at $145 per tonne, up from $98 per tonne for the same contract last year, Macquarie Research said in the report.

A $145 per tonne price would be well over the record seen in 2008, when prices spiked due to flooding in Queensland and the annual contract settled at $125 per tonne.

"The supply disruptions are severe ... by the end of February, we think spot pricing will be quite a bit higher and that's when contracts will be negotiated," Hayden Atkins, an analyst with Macquarie Research said.

Contracts generally settle around spot price levels, often with some premium built in for supply security.

The Japanese thermal coal contract, which runs from April 1 through March 31 of the following year, is a benchmark for other coal deals and is typically negotiated between Xstrata and large Japanese utilities including Tokyo Electric Power Co (TEPCO), Tohoku Electric Power Co Inc , and Chubu Electric .

Supply issues are not limited to Australia, with other major coal producers also hit by weather that has disrupted production.

"There are problems in Colombia, Richards Bay (in South Africa) is running low on stocks, and it's still rainy season in Indonesia," Atkins said.

Many coal analysts are still in the process of updating their forecasts for the Japanese fiscal year contract, with informal estimates varying widely from $120 per tonne to $140 per tonne. Morgan Stanley updated their Japanese fiscal year forecast to $130 per tonne in a report released on Tuesday.

Japan is Australia's largest thermal coal buyer as well as the country with the largest demand for seaborne thermal coal globally. (Reporting by Rebekah Kebede; Edited by Ed Lane)