* Settlement price just under $130 per tonne
* Japanese utilities prioritise stability after quake
(Adds analyst quotes, market reaction)
By Rebekah Kebede
PERTH, April 1 Xstrata and Chugoku
Electric have settled an annual coal contract for the Japanese
fiscal year starting April 1 at a record level despite the
near-term thermal coal demand destruction caused by the deadly
earthquake in Japan last month.
The contract was settled just under $130 per tonne, over 30
percent higher than last year's contract, sources told Reuters
The settlement price exceeds the 2008 record of $125 per
tonne, and is in line with expectations for a higher settlement
price due to weather-related production difficulties in
"It's the first of April now, it's extraordinarily rare in
thermal trade for negotiations to carry on into the period that
they relate to, so I reckon they just came together and said it
was $130 per tonne before the quake, that's a fair price," Tom
Price, an analyst with UBS in Sydney said.
The Newcastle index closed at $129.87 the day before the
earthquake, but the settlement price is nearly $10 above the
current globalCOAL index for Australia's Newcastle coal, the
benchmark for Asian prices, which closed at $120.84 for the week
to date on Thursday.
"Prices are a bit lower right now because there's a lot of
stranded cargoes around Asia that were supposed to deliver into
Japan. Once that trade clears, the producers will make sure that
the price lifts again to about that level," Price said.
The negotiations between Xstrata, the world's largest
exporter of power-station coal, and Japanese utilities were
delayed after a deadly quake hit Japan last month and talks
resumed last week.
Japan's annual contracts are generally around spot price
levels, often with a supply security premium, which analysts and
trade sources said Japanese utilities may have been more willing
to accept as they struggle to recover from the quake.
But some market watchers said the price does not fully take
into account the downside potential of the earthquake, which
forced major utilities Tokyo Electric Power Co (TEPCO) and
Tohoku Electric Power Co Inc to declare force majeure
on some coal deliveries after the quake due to power plant
outages and damaged ports.
Tohoku, which was expected to be the lead negotiator for
Japanese utilities this year, was replaced by Chugoku Electric
Power in the negotiations.
"I think they (settled at $130 per tonne) because of the
Japanese desire for stability more than anything else. It's a
great outcome for Xstrata at $130 per tonne," said one trade
source based in Sydney.
"Coal consumption is going to be down because of the power
plants that have been knocked out by the quake and the tsunami,
it's going to take a lot longer to put them back online than
people are predicting," the source said.
(Reporting by Rebekah Kebede; Editing by Balazs Koranyi)