Talks are underway in Japan to determine a benchmark price for deliveries of Australian thermal coal to Japanese customers for the year starting October 1, according to market sources Thursday.
The term contract negotiations started last week, with an opening offer price in three digits -- around $100/mt FOB Newcastle -- from a large Australian coal producer for shipments of its 6,322 kcal/kg GAR thermal coal, according to a market source.
Other market sources suggested a price outcome of $110/mt FOB Newcastle for the contract talks, which would represent a significant rise from the last October's settlement price of $94.75/mt.
Parties met for talks after representatives from Japan-based power companies visited a number of mine sites in Australia in early September, said another source.
"Tohoku was in Australia two weeks ago," he said.
Tohoku Electric Power is the lead negotiator in the contract talks with its supplier, Australian miner Glencore, because it has a large supply contract for Australian coal that reprices on October 1 each year.
One market source said that he believes a "reasonable" price outcome for the October benchmark talks to be in the high $90s/mt FOB Newcastle. He acknowledged that there was some market tightness at Newcastle port for Japanese specification 6,322 kcal/kg GAR thermal coal, broadly equivalent to 6,000 kcal/kg NAR.
Spot purchase activity in the Japanese seaborne market has been relatively thin recently, on account of a combination of high market prices and the proximity of the October term contract talks, he said.
"Most Japanese power utilities try to decrease their spot procurement," he said. They are relying instead on deliveries under term contracts, including those that follow the Japanese fiscal year and repriced on April 1 to $80-$84.97/mt FOB Newcastle, basis 6,322 kcal/kg GAR.
This price range is cheaper than the current spot market prices at $95-$97/mt FOB Newcastle.
Alternatively, some Japanese customers may seek to bring forward deliveries under their term contracts to avoid going to the spot market at a time of high prices, said the market source.
"It means they will have some room in January [for spot cargoes], and will have to tender in November or December," he said. But for this option to work, coal producers would need to have spare cargoes available for prompt shipment from Newcastle port, something he doubted in the current tight market.
The importance of some dates in the calendar for benchmark negotiations for Japanese thermal coal supply contracts is starting to wane, he said.
Traditionally, there were four pricing points for Japanese thermal coal contracts throughout the calendar year -- April, July, October, and January -- "but there is no longer any July, or January benchmark prices," he said.
Japanese buyers are trying to diversify the timing of when their contracts are repriced by having some smaller contracts renegotiated in November and at other times in the year, added the source.
Screen-traded parcels of Newcastle 6,000 kcal/kg NAR thermal coal have traded at lower prices this week, just under $100/mt FOB, compared to $100-$102/mt a week ago.
In Thursday's Asia trading session, a 25,000 mt parcel of this Japan-specification thermal coal for October loading went through the globalCOAL trading platform at $95/mt FOB Newcastle.
On Tuesday, two 25,000 mt November laycan parcels of the same grade traded at $96.50/mt and $97/mt FOB Newcastle, respectively, on global COAL.
Source: PlattsPrevious Next
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