* Contract starts April 1, represents 30 pct annual supply
* Tohoku seen as lead negotiator for Japan utilities
* Xstrata eyes $125/tonne, most see price between $115 and
By Rebekah Kebede and Osamu Tsukimori
PERTH/TOKYO, March 5 Annual negotiations
between Japanese utilities and Australian coal producers for the
Asian benchmark thermal coal contract starting on April 1 are
expected to begin next week when Xstrata's lead
negotiator is expected in Japan.
The annual contract prices are set by mining major Xstrata
Coal, the world's largest exporter of power-station
coal, and large Japanese utilities including Tokyo Electric
Power Co (TEPCO), Tohoku Electric Power Co Inc and
"I understand Xstrata may send a proposal by email later
this week," a Sydney-based broker said, adding that Xstrata
would then send its negotiator to Japan for talks next week.
The annual negotiations often drag on for weeks, beginning
with preliminary talks, which have already got going, and
include meetings in both Australia and Japan.
This year, with TEPCO still recovering from the blows dealt
to its business from last year's earthquake and tsunami, Tohoku
Electric is expected to act as lead negotiator.
Demand for coal from Japan is likely to recover this year
after falling sharply since March last year, when the earthquake
and tsunami damaged some coal-fired power plants and
"In Japan, almost one year has passed since the disaster and
a steady recovery means the capacity (for coal) has been much
more," the Sydney broker said.
In February, Japanese power demand rose for the first time
since last year's earthquake after colder weather temporarily
caused a spike in heating demand.
Still, with coal prices globally weaker, Xstrata and
other Australian producers are likely to have to settle the 2012
contract at a price below the record of $130 per tonne set last
year, market sources said, with most expecting the final
settlement price to be in the $115-$120 per tonne range.
"Over $120 per tonne seems challenging. Shippers have all
been very bullish on the price," the broker said.
STABLE SUPPLIES KEY
The annual contract price is usually struck around spot
price levels, which have been falling in recent weeks. On
Friday, the globalCOAL index for Newcastle coal settled at
$111.07 per tonne, down $5.48 from the previous week.
Japanese utilities settled their annual coal contract
beginning on Jan. 1, which represents about 10 to 15 percent of
Japan's annual imports, for about $115 per tonne. The April
contract, the largest of the year, represents 30 percent of
yearly thermal coal imports.
The relatively low globalCOAL index price may help Japanese
utilities put pressure on the final annual contract price.
"The Japanese are saying prices are inflated as it is, let
alone above the index," one Sydney-based market source said, but
added that Japanese utilities are a relatively captive market.
Japanese environmental regulations require coal-fired plants
to minimise their emissions, making higher quality Australian
coal a better option.
Supply security, especially in light of last year's nuclear
disaster in Japan, has become paramount, a Japanese utility
"The importance of stable supplies have become more
prominent than ever at a time the utilities cannot restart
nuclear reactors. So it is not a time, I think, where they would
make big changes in (their purchase volumes)," the source said.
Rain disruptions to production in Australia's Hunter Valley
may also support prices, market players said.
"Long term, I think Xstrata's pretty tight on that
good-quality coal. I think that is why they are not rushing,"
another Sydney-based source said.
(Editing by Robert Birsel)