UPDATE 2-Xstrata, Tohoku set benchmark coal contract price 17 pct lower

Thu Apr 11, 2013 10:58pm EDT

* Price agreed at $95/T, down $20/T from yr ago

* Deal in line with expectations

* Will set benchmark for Asia

* Japan utilities under pressure to cut costs after Fukushima

PERTH/TOKYO, April 12 (Reuters) - Australia's largest thermal coal exporter Xstrata Plc and Japan's Tohoku Electric Power Co have settled a benchmark annual supply contract 17 percent lower than last year, in a victory for cost-pressured Japanese utilities.

The first Japanese coal import contract for the financial year beginning April 1 was set at $95 per tonne, industry sources close to the negotiations said on Friday, down about $20 from a year earlier.

The price level, which was in line with most analyst expectations, will likely be followed by other Japanese utilities and will be used as a benchmark for Asia.

"It's a big compromise (for Xstrata), I think," said a Sydney-based market source. "For suppliers, it's not a good number."

Annual talks, which typically finish at the end of March, had been drawn out reflecting wide differences in the initial offer above $100 and a bid below $95, as Xstrata faces sliding coal prices and with Japanese utilities under pressure from Tokyo to cut fuel costs.

Tumbling prices have hit Australian coal producers hard, prompting layoffs and mine closures across the sector in efforts to cut costs, which industry sources say are as much as $100 per tonne at some mines.

Meanwhile, Japan's energy firms have been taking a tougher line with their suppliers, with nearly all the country's nuclear reactors offline in the wake of the Fukushima disaster.

Some sources in the industry said they believed additional tonnage would also be offered at a discount to the headline price.

The settlement price represents a premium of $6.10 to the Australian Newcastle coal index price of $88.90 a tonne, partly due to the higher quality of coal demanded by Japanese utilities, but the premium shrank from more than $8 a year ago.

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