November 13, 2012 / 9:56 AM / 5 years ago

UPDATE 1-Sino-Japan islands row hits Yancoal Australia coal sales

* Japanese steel makers face resistance from Chinese steel buyers

* Japanese steel mills trim demand for coal

* Yancoal Australia hopes to release strategy review by Christmas (Adds Yancoal comments)

PERTH, Nov 13 (Reuters) - Yancoal Australia said on Tuesday that Japanese customers have been turning down coal from the company as a result of the Sino-Japanese territorial row in the East China Sea.

Yancoal, controlled by China’s Yanzhou Coal Mining Co , sells its metallurgical and thermal coal into China, Taiwan, South Korea and Japan.

“We are seeing a direct impact which we believe is part of the Sino-Japanese issue,” Yancoal Managing Director Murray Bailey told a resources conference.

He said Japanese steel makers were facing resistance from steel buyers in China, so those steel makers were trying to limit the amoung of coal they take from Yancoal and other companies.

“Clearly, with the China growth story, a lot of those companies in Japan rely on Chinese customers. So anecdotally we are seeing a modest moderating in physical demand from some of our customers,” Bailey told Reuters on the sidelines of the conference.

“They are saying because their exports to China have slowed down they are inferring that it is part of that souring relationship over the disputed islands,” Bailey said, stressing that the information was anecdotal.

Yancoal has said it would book a loss for the September quarter as weak demand forced it to sell some metallurgical coal into the cheaper thermal coal market and resulted in it having to pay for port capacity that it was unable to use.

Some analysts expect it to book a loss for the whole second half of the year due to the weak coal market and high costs and expect it to shelve some expansion plans that it had outlined when it merged with Gloucester Coal earlier this year.

The company, the fifth biggest coal producer in Australia behind the majors, is due to complete a strategy review this month, and Bailey said he hoped to be able to release the outcomes to the market before Christmas.

Reporting by Rebekah Kebede and Sonali Paul; Editing by Kim Coghill

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