Japanese power utilities are expected to settle the 2015-16 (April-March) contract price for Australian thermal coal at $77/mt FOB Newcastle -- likely the lowest in six years, the Australian government's Bureau of Resources and Energy Economics said in a report Wednesday.
The Australian government's commodities research bureau made the forecast in its resources and energy report for the April-June 2014 quarter, and said that despite rising thermal coal consumption in the Asia-Pacific region there was a global supply overhang that was expected to persist into next year.
"As such, contract prices for Japanese Financial Year 2015 are forecast to decline by a further 6% [from $81.80/mt FOB for the fiscal year 2014-15 contract price] to settle at around $77/mt," said the Canberra-based government bureau.
The Japanese fiscal year runs April-March, and the contract period accounts for the majority of Australian thermal coal shipped to Japan each year -- around 40 million mt. So, the price at which the April-March contract is settled by Japan utilities is critical for the Australian coal producers.
For the 2014-15 fiscal year, the contract price was settled in March 2014, at $81.80/mt FOB Newcastle for thermal coal with a calorific value of 6,322 kcal/kg GAR, and was last struck below $77/mt in 2009 when that year's price was agreed at $70.35/mt.
JULY-JUNE CONTRACT TALKS ONGOING IN JAPAN
Talks are currently underway in Japan between Tokyo Electric Power Company, which is representing Japanese power companies, and Australian coal producer Glencore for annual contracts starting July 1, said market sources.
Glencore has likely tabled an offer at $82/mt FOB basis for 6,322 kcal/kg GAR thermal coal, to which Tepco has counter bid at $78/mt, said a source close to the Japanese market.
The contract price discussions are focused on the sustainability of Australian coal mines at current market prices, in addition to current supply and demand conditions, said the source.
Volumes supplied for the July-June contracts are much lower than for the April-March deals.
Newcastle spot prices for Australian thermal coal with 6,300 kcal/kg GAR calorific value are currently around $69.60/mt FOB, and in the Newcastle coal derivatives market the 2015 calendar year price closed Tuesday at $74/mt, according to Platts data.
RECORD APRIL-MARCH CONTRACT PRICE REACHED IN 2011-12 FISCAL YEAR
Prices for the April-March contract hit a record high of $129.85/mt FOB for the 2011-12 fiscal year, though there were exceptional circumstances in the lead up to this -- the March tsunami and earthquake in Japan, and heavy flooding in eastern Australia that year.
The Australian government's commodity forecasting bureau said in its report it was expecting Australian thermal coal prices to stay subdued for the rest of 2014 on a "continued abundance of supply," and noted that lower prices had affected the profitability of many Australian coal producers.
Japan's total imports of thermal coal which includes Australian and Indonesian product, are forecast by BREE to hold steady this year at about 137 million mt, supported by the government's new energy policy which emphasizes the role of coal-fired power generation for baseload electricity.
Though the report notes a long lead time for new plants to become operational, and the bureau is forecasting a slight drop in Japan's imports of thermal coal to 135 million mt in the 2015 calendar year.
"Japan's entire nuclear fleet remains closed and there is still uncertainty about the timing and speed of restarts," said the bureau in its report.
"Despite this uncertainty, there is limited upside potential for Japan's coal imports because most coal-fired facilities are operating at close to capacity," the report added.
Imported thermal coal demand growth in other North Asian nations is expected to rise only modestly.
South Korea's imports of energy coal are forecast at 97 million mt this year, and rising to 99 million mt in 2015; and for China the bureau is forecasting imports this year of 260 million mt and then rising 3% year on year to 267 million mt in 2015.
