Asia Coal-Australia thermal coal prices slip to $132/tonne

PERTH, March 1 Tue Mar 1, 2011 2:37pm IST

PERTH, March 1 (Reuters) - Australia's thermal coal prices, a benchmark for Asia, slipped to $132 a tonne versus last week in a thinly traded market which is largely awaiting the results of annual contract negotiations between Australian producers and Japanese utilities.

Thermal coal on the globalCOAL Newcastle index for the week to date closed at $132 a tonne on Monday, down from $136.50 a week earlier and was up from $131.71 on Friday.

Buyers and sellers are holding out on deals pending negotiations between Australian thermal coal producers and Japanese utilities.

Large Japanese utilities Tokyo Electric Power Co (TEPCO), Tohoku Electric Power Co Inc and Chubu Electric , negotiate April-to-March fiscal year thermal contracts with Xstrata , the world's largest exporter of thermal coal.

The contracts are generally around spot price levels, often with a supply security premium.

This year, two of Xstrata's coal mines have been under force majeure due to weather considerations, and another was shut due to a fire.

"They've got plenty of ammunition to go up there with a strong number," one Sydney-based trade source said.

So far, the bids and offers for the Japanese fiscal year contract are far apart, with some traders describing the parties as in a standoff that could take weeks to resolve.

Analyst forecasts for the final settlement price have been equally far apart, with some predicting as low as $125 per tonne and the highest forecast coming in at $145 a tonne.

Supplies of thermal coal from New South Wales, where much of Australia's thermal coal is produced, continue to be marginally affected by wet weather, but far less so than in Queensland, which primarily produces coking coal.

But some sources said supply tightness in New South Wales could be attributed in part to producers setting aside tonnage to fill new Japanese fiscal year contracts.

"They are tight because they are expecting to sell (a certain number) of tonnes into Japan starting April 1," another Sydney-based trader said.

Chinese buyers, recently absent from the coal market due to lower prices for Chinese domestic coal than internationally available coal, have signalled renewed interest in Indonesian coal.

So far, Chinese buyers have bid under market levels, trade sources said, but some suggested that Indonesian producers of subituminous coal may be willing to lower their prices, with Indonesia raising its production of subituminous coal this year.

WEEK AHEAD

All eyes will be trained on the Japanese fiscal year contract negotiations, with traders saying most spot trade will be kept to a minimum until buyers and sellers have a clear indication on the results of the negotiations.

The market will also continue to watch Chinese demand. The world's biggest producer and consumer of coal was a key coal price driver last year. (Editing by Ramthan Hussain)

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