* Xstrata, Chugoku term deal sets tone, floor in Pacific
* July, August Newcastle prices start to rise
By Rebekah Kebede and Jackie Cowhig
PERTH/LONDON, April 1 Record thermal coal term
contract prices agreed by Japanese utilities and one Australian
supplier this week have given the nearby global coal values a
boost, utilities, traders and analysts said on Friday.
Xstrata XTA.L and Chugoku Electric (9504.T) have agreed
annual contract prices for the fiscal year starting April 1 at
just under $130 a tonne FOB Newcastle, over 30 percent higher
than last year [ID:nL3E7EV499].
May loading physical Newcastle cargo prices rose by $1.00 in
early trading on the settlement news to $125-$127 a tonne but
fell back slightly on bank selling to $125 by 1000 GMT.
"The Japanese have clearly been convinced by the Australians
that the market going up is a certainty," said Emmanuel Fages,
analyst with Paris-based Societe Generale.
"The settlement news is bullish, very bullish," said one
major international trader.
The Pacific coal market is still heavily influenced by the
level at which term prices are settled, unlike the Atlantic
market where most end-user buying is on floating indices.
"The Japanese did not have to pay $140. Others will now as
this rather sets the tone and probably a floor," he added.
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
Analysts said prices have been temporarily depressed by the
Japan quake and will recover as Japan's coal-fired come back
online and ramp up to compensate for lost nuclear power.
"Once we get over the Japan situation, I'm expecting spot
prices to lift as the trade re-tightens," Tom Price, an analyst
with UBS said, adding that prices will likely return to the $130
per tonne level, where they were before the quake.
"Our expectation of a $20 tonne correction in 12 months time
reflects a forecast lift in supply across the seaborne market,
and in the massive coal industry of China to which it is linked,
in response to these relatively high and stable price levels,"
While very prompt prices may start to sag again following
the initial reaction to the settlement news, it has also started
to boost prices for July and August, traders said.
"We're now starting to see some people coming out to buy
physical for July and August loading and prices are
strengthening - this is the point at which Japan is expected to
start needing more coal," another trader said.
Others were not so convinced of the market's medium-term
strength or that Japan's utilities will recover so soon.
"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," one Sydney-based trade source said.
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(Reporting by Rebekah Kebede and Jackie Cowhig, editing by