SYDNEY Oct 25 Xstrata Plc XTA.L has upped
its offer in thermal coal term contract negotiations with
Japanese utilities by as much as 20 percent to $78 a tonne on a
worsening supply outlook, industry sources said on Thursday.
But the utilities, such as Chubu Electric (9502.T), balked
at the steep increase in prices, producers and Japanese buyers
"Japanese utilities are not interested at this point and
are going to reject the offer," said a source familiar with the
"The proposed price is on par with spot prices and they
don't see why they have to pay such a high price since this is
a long-term contract."
He said the utilities were expected to counter offer at
below $70 a tonne.
Xstrata, the world's largest thermal coal producer, had
previously offered coal in the October 2007-September 2008
annual contracts at about $69-$71 a tonne, but a recent
bull-run in forward 2008 coal prices on the globalCOAL index on
an expected worsening supply situation next year prompted the
Coal swap prices for 2008 jumped to an all-time high of
$79.75 a tonne on Oct. 18, while benchmark spot prices on the
Newcastle index have persistently hovered at around $75 a tonne
for the past three weeks, data from electronic trading platform
Rio Tinto Coal (RIO.AX)(RIO.L), the world's second-largest
coal producer, has yet firm up a price for the contracts, a
second source said.
"The discussions are going on but there is no price on the
table. The talks are focusing on tonnage and delivery periods
at the moment," the source said.
Some Japanese utilities say they have mostly accumulated
enough stocks for winter and early 2008 through long-term
contracts with Chinese and Indonesian suppliers, and were now
holding off large purchases as spot coal prices continue to
hover at record levels.
"We are hoping that prices will stabilise," said a source
from a Japanese utility.
But producers said prices were expected to continue rising
and Japanese utilities should not delay further.
"We really see next year's market to be a situation of
over-demand and under-supply. Each contract conclusion will
only take more volumes out of the market and push prices
higher," said a source from a major Australian producer.
Producers and traders said rising domestic coal prices in
China would also prompt Chinese producers, such as Shenhua
Energy Ltd (601088.SS)(1088.HK) and China Coal (1898.HK), to
trim exports and keep more supplies for utilities on the
Coal prices in China, the world's top producer and consumer
of the commodity, hit a record in the main shipment port of
Qinhuangdao last week, government bodies said on Wednesday.
Coal with calorific value of 6,000 kcal/kg was offered at
535 yuan ($71.41) per tonne on Oct. 15 in Qinhuangdao, up 50
yuan from its trough in May, said the Ministry of Commerce in a
report on its Web site (www.mofcom.gov.cn).
(Additional reporting by Osamu Tsukimori in Tokyo)