PERTH, Feb 4 (Reuters) - Australian thermal coal benchmark prices rose to around $95 a tonne last week for their biggest weekly gain in nearly two months as heavy rains in the country’s east coast stoked supply worries after two major coal producers declared force majeure on their deliveries.
But after a year in which global coal prices dropped due to plentiful inventories, some industry sources said concerns about a major supply shortage due to the rains were overblown.
“All consumers and producers are well stocked,” one Sydney-based market source said.
“Unlike other times when we’ve had supply disruptions and we immediately see buyers come to market, we’ve not heard a peep,” the source added.
Australia’s Newcastle spot index rose 2.4 percent to $95.04 per tonne on Friday from $92.77 per tonne last week, data from online trading platform globalCOAL showed.
Rio Tinto and Xstrata both declared force majeure on coal deliveries from Australia’s Queensland state after flooding shut a key rail link to ports which will be reopened this week.
Rio Tinto declared force majeure on shipments out of its Kestrel coking and thermal coal mine, while Xstrata said only thermal coal shipments were affected.
But the fact that miners in Australia’s Hunter Valley, the country’s biggest thermal coal producing region, were not as hard hit, indicated that the impact on prices will be short-lived, some market sources said.
Although the key Hunter Valley region has not been hit hard, the spectre of further rains will likely boost prices for Australian producers’ annual coal contracts with Japan.
Xstrata typically sets the price with a major Japanese utility, often Tokyo Electric Power (TEPCO), negotiating on behalf of Japanese buyers, setting the precedent for the rest of the industry.
The annual contract begins at the start of the Japanese financial year, on April 1, and is the largest of the year in terms of volume.
“This flooding will definitely affect the negotiations between Xstrata and Japanese utilities... people are concerned about further (weather-related) risk,” another Sydney-based source said.
Long-term contract prices are typically a few dollars above the Australian coal benchmark price, a premium usually explained by security of supply, and market sources said they expect Xstrata to push for a price over $100 per tonne.
The spread between the spot price and the contract price has been widening since the March 2011 Fukushima nuclear crisis.