Australian miner Glencore and its Japanese customer Tohoku Electric have finally settled on a price for April 2017-March 2018 term contract deliveries of Australian 6,322 kcal/kg GAR thermal coal at $84.97/mt FOB Newcastle, the highest benchmark since $95/mt in 2013, said several market sources Tuesday.
The annual Glencore-Tohoku April price is traditionally followed by other Japanese buyers and Australian coal producers for their Japanese financial year contracts, and it represents an increase of 38%-46.50% on Glencore and Tohoku's April 2016-March 2017 term contract prices in the range of $58-$61.60/mt FOB Newcastle.
The settlement prices are for Australian thermal coal, with a calorific value of 6,322 kcal/kg GAR, or 6,000 kcal/kg NAR, that is shipped from Newcastle port to Tohoku's power plants in Japan.
"It [the April settlement price] is $10 lower than the October benchmark, and is still a good number for coal producers," a trader said.
Glencore had achieved a price of $94.75/mt FOB Newcastle for October 2016-September 2017 cargo deliveries to Tohoku, which was agreed upon during a steep price rally for Australian thermal coal late last year.
"It will be applied to benchmark-linked contracts for Japan," the trader said of the April 2017 term contract price.
But the trader expressed his wonder at the quantity attached to the price of $84.97/mt FOB Newcastle, despite the April-year contracts for Japan usually accounting for the highest quantities of all annual term contracts.
He was not alone is this, as another market participant said he questioned the significance of the April settlement price to the wider market, "given the lower volume of tons committed to this price."
"I am not sure the market will read much into the settlement, however, the fundamental picture is over-supplied currently," he said.
To illustrate his view, the market participant pointed to disappearing Chinese spot demand for Australian thermal coal, and to South Korean buyers succeeding in securing "aggressive prices" from coal producers in their purchase tenders.
The market participant said the April talks' outcome of $84.97/mt FOB represented a premium of $12.50/mt over the current forward curve prices for Newcastle 6,300 kcal/kg GAR thermal coal, "which is towards the higher side of the historical JFY premium."
"On this basis, I would think it should be deemed a good result for the producers, particularly given where the Australian dollar-to-US dollar [exchange rate] is at the moment," he added.
Another market participant held a similar view, and said of the Glencore-Tohoku April price settlement: "it is just a number at the end of the day..[the] bulk of tons are now settled on an index basis."
The $84.97/mt FOB Newcastle settlement price is close to Tohoku's negotiating position of $84-$85/mt, to which it steadfastly held in the talks which overran their April 1 deadline by five weeks.
The Japanese power utility strengthened its negotiating position by lining up separate supply deals with some other Australian thermal coal producers in late-March, at prices in the range of $79-$84/mt FOB Newcastle, basis 6,000 kcal/kg NAR, sources said.
The headline price of $61.60/mt FOB Newcastle struck for last April's price benchmark reportedly only applied to a small amount of the term contract's total volume, and the bulk went at prices between $58-$60/mt, according to market sources.
Tohoku is one of Japan's largest power utilities and has a fleet of 13 thermal power plants, with a combined installed capacity of 12,725 MW, according to the company's 2016 annual report.
Australian coal producers and their Japanese customers closely guard the details of their bilateral term contracts, including volumes, which are considered commercially confidential by both parties.
Third parties manage to gain knowledge of the prices struck for April and October, however, as these traditionally have a widespread influence on market prices in the Asia seaborne market.
Tohoku declined to comment on the outcome of its talks with Glencore, and a Sydney-based spokesman for Glencore said the company was not providing any comment.
