* Ships turn back from damaged ports, shut plants
* Japan utilities look to swap some cargoes
* Annual thermal contract negotiations delayed
By Rebekah Kebede
PERTH, March 16Australia's thermal coal prices,
a benchmark for Asia, slipped this week as demand in quake-hit
Japan tumbled for the short-term, with many coal-fired plants
shut and vessels unable to discharge coal at some ports.
Thermal coal on the globalCOAL Newcastle index for the week
to date was $125.79 per tonne on Wednesday, down from $130.33 a
"We can expect a drop-down in the front-delivery, but
longer-term deliveries will be very strong due to recovery
period," one Sydney-based trader said, but added that in the
near-term, the market has been plagued by uncertainty.
"We still don't know what the aftermath of the earthquake
is, it's very difficult to predict what the final impact of the
earthquake will be."
On the global coal index, closing prices through the end of
the second quarter were flat to lower, with coal for delivery in
the third quarter of 2011 and later posting gains.
Two of Japan's largest utilities, Tokyo Electric Power
(TEPCO) and Tohoku Electric declared force
majeure on some coal deliveries due to shut power plants and
damaged port facilities, with other utilities also expected to
declare force majeure as well.
With some Japanese-bound vessels unable to discharge coal,
traders and brokers said utilities were still trying to fix
destinations for the spare supplies.
Utilities were exploring several options including splitting
some of the cargoes for delivery and carrying over the tonnage
to the next quarter, said one trader with direct knowledge of
vessel re-routing due to the quake.
Traders also said utilities were attempting to swap cargoes
for immediate delivery for other parcels with later delivery
with both local and foreign utilities.
Korea South-East Power Co Ltd (KOSEP) was considering taking
70,000 tonnes of Canadian thermal coal for late-March arrival,
as Japanese utility J-Power was unable to use it after Japan's
quake and tsunami.
In the long-term, demand from Japan is likely to climb with
some of the nuclear capacity taken offline by the deadly quake
unlikely to return soon, or not at all, in the case of the most
severely damaged plant that is on the verge of a meltdown.
Analysts at Societe Generale said this week that if the
nuclear capacity currently offline stays offline for the rest of
2011, Japan would need an additional 7 million tonnes to 8
million tonnes before the end of 2011 and a permanent 3 million
tonnes from 2012 onwards.
Several countries, including Russia and Indonesia, have said
they could increase coal supplies to Japan if they are
Japan's quake could also impact demand for coal in China,
the world's largest consumer of coal, if China's exports to
Japan drop significantly causing industrial power demand to
decrease, some analysts said.
ANNUAL CONTRACT TALKS STALLED
Japan's annual thermal coal contract talks for coal will be
delayed as producers and buyers assess the situation, traders
The world's top thermal coal supplier Xstrata had
been scheduled to meet with major Japanese utilities this week,
but the negotiations are now likely to drag on for a few more
Analysts at UBS said earlier this week they are forecasting
$130 per tonne, FOB, for the annual contract.
Prior to the earthquake, traders and brokers had reported
that Japanese buyers were offering $130 per tonne, with Xstrata
countering with $140 a tonne.
All eyes in the market will likely be on Japan -- traders
and analysts have both said it was too early to tell the extent
of the damage at coal-fired plants or how soon they may be able
to return to normal.
The market will be watching for signals on when Japan's coal
demand will begin to recover from the quake and how much coal
demand could increase during recovery.
Global sentiment on nuclear energy will also be a focus --
following the quake, several European governments have sent
signals that they may reconsider their policies, a development
that could increase demand for coal.
(Reporting by Rebekah Kebede)