Perth/ Tokyo/ Seoul: A Japanese power utility and a Korean steel maker have agreed to sharp increases in the prices of Australian coal, and their deals could set a new benchmark for coal consumers and producers for this year.
Japan’s Chubu Electric Power Co. would pay $125 a tonne to Australian thermal coal exporter Xstrata Plc under the industry’s first annual deal, one source involved in the talks told Reuters.
In South Korea, a spokesman for Posco, the world’s fourth largest steel maker, said the company had agreed on a 205-210% hike in coking coal prices with the Australian supplier from the beginning of this month. The first such deals for the season normally set the benchmark that most others will follow, spelling higher costs for utilities, but bumper profits for big coal producers such as Rio Tinto Ltd.
Analysts said the Japanese company’s settlement level for fiscal-year 2008-09 prices was expected after Australian spot market prices surged to a record high above $150 a tonne earlier this year, straining profits for power companies and fuelling inflation amid a global commodities prices boom for everything from oil to wheat.
Last year’s benchmark was $55.65 a tonne, a modest 6% rise from the year before, but prices surged in late 2007 and early this year after China briefly banned exports and flooding stymied shipments from top two exporters Indonesia and Australia.
“I’m not really surprised about the scale of increase,” said Gerard Burg, a resource analyst at the National Bank of Australia in Australia. “I think this scale of increase really signifies how tight the market is at present with very little supply coming onto the market.”
Australia supplies about two-thirds of Japan’s thermal coal requirement.
The contracts are for coal with gross calorific value of 6,322 kilocalories per kilo.
Speculation of a deal around $125 a tonne free-on-board Newcastle surfaced last week, a price slightly higher than some analysts had expected but in line with the market for prompt-delivery coal from Australia’s Newcastle port.
Newcastle prices have fallen for six consecutive weeks to $118.92 a tonne for the week ended 2 April as demand from most north Asian utilities eased and some exports from Australia and China resumed, according to data from exchange globalCOAL.
Korean Posco’s deal applied to only part of our Australian supplies, said its spokesman Ko Min-jin, declining to identify the Australian coal miner. Australian suppliers in total provide 60% of Posco’s entire coal imports.
Last week Posco said the company was considering a rise in steel prices, which would be the second this year, soothing concerns that rising costs of raw materials, such as iron ore and coking coal, will eat into its profits.
Posco had also agreed to a 65% hike in iron ore prices with Brazilian mining firm Vale in February but has yet to deal with other mining majors such as BHP Billiton. Steel makers are raising prices to reflect stronger demand, but rising raw material costs are eroding earnings.
Nippon Steel, the world’s No.2 steelmaker, cut its full-year profit forecast by 6.7% last month due to higher freight and raw materials costs and predicted its first earnings drop in six years. Taiwan’s China Steel Corp. said it would raise its domestic steel prices 19% in the second quarter and China’s Baoshan Iron and Steel hiked their product prices by a higher-than-expected 17-20%.