Xstrata Plc (XTA.L) and Tohoku Electric Power Co (9506.T) have settled the first Japanese annual coal import contract for the fiscal year beginning April 1 slightly above $115 per metric tonne, sources told Reuters on Friday, a level which will likely be followed by Japan’s other utilities.
Market sources reported the contract was settled between $115.20 and $115.25 per tonne. Japan’s annual April contract is often used as the yearly benchmark for Asia.
“Tohoku Electric Power (9506.T) is seen as the champion negotiator, and based on that, other companies decide whether to buy,” a source at a major Japanese energy firm said.
The negotiations are held between a lead Japanese utility, in this case Tohoku, which negotiates on behalf of other Japanese utilities.
The settlement price is often just a few dollars above Australian coal spot prices, but this year the settlement price is more than $8 per tonne, or more than 7 percent, above the Australian Newcastle coal index price of $107.01 per tonne.
Talks often drag out for weeks and were especially drawn out this year as producers held out for $120 per tonne, a price well above spot levels. Tohoku countered with around $110 per tonne or lower.
Japan thermal coal and LNG suppliers:
Graphic- Australia thermal coal exports by destination:
Friday was the end of Japan’s fiscal year and although coal deliveries would have continued on a provisional basis even if an agreement had not been met, some suggested that Japanese utilities may have been more willing to compromise to secure supply.
Japan is heading into its peak summer power season with just one of its 54 nuclear reactors online due to safety fears after the Fukushima crisis.
Its gas import capacity is also reaching its upper limits, meaning the power sector will increasingly depend on coal to fill the nuclear power gap.
“They need to lock in supplies and have certainty,” one Australian market source said.
“With most of the nuclear units out, they need to make sure their coal-fired stations don’t have a problem,” the source added.
Japan’s nuclear reactors had previously supplied about 30 percent of the nation’s power needs.
Part of the premium to spot prices can also be attributed to the higher quality of coal demanded by Japanese utilities.
“(The price) seems to take into account the premium to the current spot price to take into account the quality difference,” the Japanese energy firm source said.