Xstrata Agrees on Coal Prices With Japanese Buyers

Xstrata Agrees on Coal Prices With Japanese Buyers

Xstrata Plc, the world’s biggest exporter of coal used in power plants, said it agreed with most of its Japanese customers on a price for thermal coal sold under contract in 2006-07 that is near last year’s record level.

Xstrata, based in Zug, Switzerland, agreed with Japanese power utilities on a price of $52.50 per metric ton for thermal coal supplied in the year started April 1, James Rickards, a spokesman for the company in Sydney, said today. That compares with last year’s average of between $52 and $54 a ton, which was a rise of about 20 percent from the previous year.

This year’s price accord has been delayed as buyers resisted demands from miners, including Rio Tinto Group and BHP Billiton, to renew contracts at last year’s record price. Spot prices at Australia’s Newcastle, the world’s biggest coal-export harbor, fell as low as $35.99 a ton in November, leading to forecasts then that contract prices may fall 20 percent this year.

“This is a very good result for suppliers,” said Andrew Harrington, an industrial analyst at Australia & New Zealand Banking Group Ltd. in Sydney. “Nominally it’s a decrease but any result of $50 or above is historically quite positive. There have been some cost pressures so there might be a bit of margin compression but it’s still a very good result.”

Spot prices at Newcastle have jumped about 45 percent since mid-November on supply curbs from Colombia, Australia and South Africa, rising power generation demand in Asia, and a colder-than- average winter in Europe and north Asia.

`Good Position’

“In the current market we’re quite happy with the settlement and it places us in a good position,” Rickards said in a telephone interview. Xstrata signed sale accords for 17 million tons of coal to Japanese buyers, he said.

Xstrata is the second-largest supplier of thermal coal, used to generate electricity, to Japan, which is its biggest customer.

Tex Report said July 4 that Xstrata had reached agreements with several Japanese utilities on thermal coal contract prices at between $52.00 and $52.50 a ton. Xstrata’s accord is likely to set the benchmark for rival miners such as Rio, Graham Wailes, a coal analyst at AME Mineral Economics Pty, a Sydney-based minerals consulting firm, said last week.

Credit Suisse Group last week increased its estimate for 2006 thermal coal prices to $51 from $48 on signs that 2006-07 contract prices would be settled at a higher level than previously envisaged, the bank said in a July 7 report.

India, Malaysian Demand

“India and Malaysia poses upside risk on demand and are likely to more than offset the rise of Indonesia supply,” Credit Suisse said. The bank also increased its 2007 estimate for thermal coal prices to $47 a ton from $45 and its long-term price by 20 percent to $45.

Xstrata in November agreed to sell coal to Taiwan Power Co. at about $40 a ton in 2006, Citigroup Inc. said in a Nov. 10 report. Exporters were then seeking a contract price of $45, the securities firm said. In early 2006, a Japanese power producer negotiated a price with Australian coal miners of $41 a ton, for delivery from Newcastle, excluding freight and insurance, the Australian Bureau of Agricultural and Resource Economics said last month in a report.

Thermal coal demand is rising, buoyed by growth in coal-fired power generation in Asia amid rising crude oil and natural gas prices. World trade in thermal coal is expected to increase by 4 percent this year to 591.6 million tons, and by a further 2.6 percent next year to 606.7 million, the Canberra-based bureau said in the report. Asian trade may jump 6 percent this year and 4 percent in 2007.

Australia’s export earnings from thermal coal may rise by 14 percent in the year ended June 30, to A$7.2 billion ($5.4 billion), increasing by 8.3 percent next year to A$7.8 billion, the bureau said.

Source: www.bloomberg.com

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