Japan utilities seek steeper coal import discount

Japanese utilities are seeking a steeper discount on next year's thermal coal price contracts than the 15% foreign mining companies are willing to accept, sources have said.

The contracts, covering around 50 million t of Australian thermal coal delivered between 1 April 2015 and 31 March 2016 were close to being settled at around US$69 a t until index prices again turned downward, the sources said.

The world's biggest thermal coal exporter, Glencore, and Tohoku Electric Power Co last year settled the first Japanese annual Australian thermal-coal import contract at US$81.80 per t.

Both companies declined to comment on the current negotiations, which are expected to run close to the end of March.

The benchmark Newcastle coal contract settled below US$60 a tonne for the first time since 2007.

The push by the utilities for a lower settlement price underscores a mounting supply glut for thermal coal worldwide.

In past years, the prices for contracted coal by Japan - about 60 million tonnes - typically settled at around a US$7-per-t premium to spot prices.

ANZ Bank has forecast US$70 a t from US$75, while National Australia Bank put it at US$72.50.

Policies in China, the world's biggest coal producer and importer have continued to reverberate this year, contributing to the glut as it curbs imports to cut down on pollution and support its own mines.

"It's really tough to figure out an appropriate price for an annual contract this time as spot coal prices have been so volatile and futures prices have been under pressure," said a source overseeing coal procurement at a utility in Japan.

"For a buyer, the cheaper the better. But we also have to consider our long-term relationship with suppliers," he said.

The miners are said to be willing to accept around US$69, saying that would represent a nearly flat outcome year-on-year given the movements in the Australian dollar and Japanese yen.

Edited from source by Joseph Green

Source: Reuters

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