RPT-PREVIEW-Japan-Australia '08 thermal coal price record-bound

(Repeats item first sent Jan 24)

By Fayen Wong and Osamu Tsukimori

SYDNEY/TOKYO, Jan 24 (Reuters) - Japanese utilities have
begun what will be lengthy talks with some Australian producers
for 2008 thermal coal contracts that analysts say could be
sealed at a record-high above $90 amid tight global supplies.

Marketing teams from Xstrata Plc (XTA.L) and Rio Tinto Ltd
(RIO.AX) are in Tokyo this week, hoping to negotiate a near 80
percent jump in contract prices at about $100 a tonne, but
Japanese buyers are seeking between $15-20 below that.

Miners and analysts have said coal supplies were set to
tighten significantly this year on continued supply constraints
in Australia and Indonesia as well as growing Asian demand,
particularly in China and India.

"Our forecast is for prices to be settled at $90 but recent
developments would suggest that there are some upside risks to
the price," said Malcolm Southwood, a resource analyst at
Goldman Sachs in Melbourne.

"The emergence of China and India as major importers has
been a critical factor in tipping the market balance. And when
you add supply constraints in Australia and South Africa into
the equation, you get a very tight market."

Macquarie Bank and UBS have raised their forecasts for the
2008 contract prices between the two parties, which will start
in April, by nearly 60 percent to about $90 a tonne.
[ID:nSYD143]

LONG-DRAWN OUT TALKS

Rio Tinto's initial offer to Japanese utilities would be in
the range of "high-$90s to low-$100s", an executive told
Reuters on condition of anonymity because of company policy.

"The market is a lot tighter this year. But some Japanese
utilities are still hoping to get something at mid-$80s or even
low-$90 levels, which I think is quite impossible," he said.

"This could be a long-drawn out negotiation."

One Japanese utility source even indicated its opening bid
would be up to $79, more than $10 below prices on the
globalCOAL NEWC index, versus last year's contract price of
$55.65.

Industry sources said Xstrata and Rio have yet to put in
firm offers, as prices on the index, commonly used as a
benchmark for coal prices in Asia, were still hovering in the
low-$90s.

This signals that they may be targeting higher levels on
forecasts of even tighter supplies and rising demand from Japan
and China, which are grappling with power shortages due to high
prices of other fuels as well as outages.

But prices at $100-levels, free-on-board (FOB) basis, would
be a historic high and Japanese utilities, such as Chubu
Electric (9502.T) and Tohoku Electric (9506.T), are expected to
offer fierce resistance during the meetings, which have so far
been informal.

"Offers in the mid-$90s is a sharp increase and is totally
different from what we have in mind. It will be hard to accept
a three-digit figure," said a company official from one of the
smaller Japanese utilities.

Other Japanese buyers said it was unreasonable for prices
to jump this high when South Korean utilities managed to ink
their 2008 coal contracts at about $60 a tonne. Some Japanese
utilities have also agreed with Indonesia's Bumi Resources
(BUMI.JK) to buy 2008 coal supplies at about $85 a tonne in
November.

Producers say that each contract signed will take tonnage
out of an available supply pool, which will in turn tighten
supplies further and push up prices.

And analysts noted that China's export prices are even
higher.

EYES ON CHINA

Chinese producers, including Shenhua Energy Co Ltd
(1088.HK) and Datong Coal (601001.SS), are also in Tokyo this
week to negotiate for 2008 term contracts, but industry sources
said they too have yet to throw in an offer.

"They are waiting to see what Xstrata or Rio is offering.
Everyone is having a wait-and-see attitude and waiting for
someone else to make the first move," said a Tokyo-based trader
who declined to be identified.

Two market sources said Shenhua has recently settled a 2008
thermal coal contract with a Japanese utility at $98, FOB
basis, for 300,000 tonnes of coal. The contract was for coal
with calorific value of 5,800 kcal/kg net as received basis.
With a freight advantage of more than $10 a tonne, industry
watchers said Chinese miners were unlikely to put in an offer
that is cheaper than Australian producers.

"Coal from China takes only five days to arrive in Japan,
while Australian coal takes about two weeks to be delivered.
Apart from that, there are also congestion issues and
reliability when it comes to Australian producers," said a
trader from a European trading firm.

Supplies from China, which is expected to emerge as a net
coal importer this year, would also be limited as domestic
demand surges.

Japan faces mounting competition for coal produced in
Australia -- its main supplier -- from South Korea, China and
India. Supplies from other regional exporters such as Indonesia
and Vietnam are also limited due to their own rising needs for
the fuel.

In the 2006 fiscal year, Japan imported 179 million tonnes
of coal, of which about 60 percent came from Australia, 20
percent from Indonesia and 12 percent from China.
HISTORICAL BENCHMARK THERMAL COAL CONTRACT PRICES
-------------------------------------------------

YEAR PRICE (US$/TONNE)
Japan FY 07/08 55.65
Japan FY 06/07 51.85
Japan FY 05/06 53.00
Japan FY 04/05 42.00
Japan FY 03/04 26.80
Japan FY 02/03 31.90
(Editing by Ramthan Hussain)