Asia Coal-Prices hover above $81, but physical demand weak

By Fayen Wong

PERTH, Jan 12 (Reuters) - Prices of power-station coal from
Australia, a benchmark for Asia, stood at above $81 a tonne on
firmer oil and gas prices, but physical demand from Asian
utilities remained weak as industrial users cut power usage
amid production cutbacks.

Producers from Australia and Indonesia said utilities
across Asia were indicating that they would be burning less of
the fuel in 2009, as the gloomy economic outlook hampers power
demand.

Thermal coal prices on the globalCOAL Newcastle weekly
index rose $2.25 to $81.44 a tonne in the week ended Jan. 9,
based on free-on-board prices at Australia's Newcastle port,
the world's largest coal export terminal.

"Prices are firmer than a month ago but the outlook remains
weak since many utilities are cutting down their requirements
for this year," said an Indonesian producer.

The source said preliminary talks with Japanese and South
Korean power companies indicated that they would be requiring
between 10 and 15 percent less coal, while a Taiwanese buyer
plans to cut back on coal deliveries by as much as 30 percent
in 2009 from a year ago.

Despite a forecast fall in coal consumption, two producer
sources said supply volumes in annual coal contracts were
likely to remain unchanged, as buyers will be able to roll over
excess tonnage to next year.

Benchmark Australian coal prices have tumbled by more $120
since their record peak of $201 a tonne in July last year, as
the global financial crisis cuts demand.

Industry sources said the physical market was looking for
pricing directions and all eyes are on preliminary contract
talks between top thermal coal exporter Xstrata Plc (XTA.L) and
key Japanese utilities for the headline coal contracts that
begin in April 1, 2009, the start of Japan's fiscal year.

Trading sources from Australia said marketing
representatives from Xstrata were expected to visit Japanese
utilities for preliminary talks at the end of the month, while
Peabody's Australian unit and Felix Resources will be in Tokyo
this week.

With Xstrata reportedly having locked annual 2009 calendar
year contracts with some Japanese utilities at $80 a tonne -- a
36 percent fall from the headline price of $125 agreed in April
and a near 50 percent drop on contracts it signed at $155 for
the year starting October 2008 -- asking prices from miners are
expected to hover around current spot levels.

Faced with a worsening demand outlook and threats of a
supply glut as surplus metallurgical coal flows into the
thermal coal sector, analysts and industry sources said they
expected more coal miners to follow the footsteps of Xstrata
and Rio Tinto Group/Plc (RIO.AX)(RIO.L) to start making
production cuts.
(Editing by Ben Tan)