Xstrata, Japan utilities coal talks in stalemate

 26 Mar 2010

Reuters

Annual Australian thermal coal contract talks between Swiss-based Xstrata Plc and Japanese utilities are stalemated, with sources on both sides saying there is a wide gap in price expectations.

Xstrata, the world's largest exporter of power-station coal, is holding out for $US100 a tonne or more for Japan's 2010 fiscal year thermal coal contract starting April 1, two sources close to the talks said on Friday.

Power hope to lock in prices at around $US90, the sources said.

Marketing executives from Xstrata left Japan last week with little progress on talks with utilities, the sources said.

As discussions look set to drag beyond April 1, the parties will use provisional pricing for any cargoes delivered in the interim.

"Australian coal prices on globalCOAL are in backwardation through to the fourth quarter and that's giving the Japanese utilities very little impetus to agree to a three-digit number," said one of the sources.

The benchmark price agreed between Xstrata and Japanese utilities was between $US70-$US72 a tonne in 2009. Prices are forecast to rise as much as 27 per cent to $US89 a tonne this year, a Reuters poll of analysts showed.

"Buyers are just not ready yet and are taking a wait-and-see stance," one source said.

Spot Australian thermal coal prices on globalCOAL stood at $US94.50 a tonne on Friday, while cargoes for June-delivery were traded at $US92.50 a tonne on Thursday.

Some traders said globalCOAL prices could ease in the coming weeks as supplies from Australia and Indonesia improve, after shipments were delayed in recent weeks due to weather-related issues.

"Maybe the dynamics will change if the Chinese start buying aggressively again, but they have been staying on the sidelines so far," said one of the sources.

The price paid for Australian coal by Chubu Electric Co, one of Japan's largest thermal coal buyers, is widely used by Japanese thermal coal importers as a benchmark.

Source: http://www.businessspectator.com.au/bs.nsf/Article/Xstrata-Japan-utilities-coal-talks-in-stalemate--s-3WBU4?OpenDocument&src=hp9