Coal prices may rise as Japan's nuclear power problems persist: Report

Rio Tinto Group and other Australian producers of thermal coal used by power companies may receive 12 percent more for the fuel next year as Japanese nuclear plant shutdowns and economic growth boost demand, analysts was quoted by Bloomberg as saying.

Spot prices for thermal coal shipped by Rio and Xstrata Plc from Newcastle port in Australia may rise to US$27.20 a metric ton in 2004, compared with an average $24.30 a ton in the nine months ended Sept. 12, according to a survey of eight analysts.

Japan's ten largest utilities bought 12 percent more coal in August on year as more than one third of the nation's nuclear reactors remained closed for safety checks. Japan's economy grew at its fastest pace in 2 1/2 years in the second quarter as Toshiba Corp., Toyota Motor Corp. and other manufacturers increased production, boosting electricity use.

``Japan's demand has been very strong, largely because of the problems they have had with their nuclear power stations,'' said Alan Heap, director of commodity analysis at Citigroup Inc.'s Smith Barney division in Sydney. ``My read on that is it is likely to be an ongoing issue for them.''

Australian coal prices have risen 15 percent since mid- April as Japan's nuclear plant shutdowns increased consumption and a heatwave in Europe boosted use of power for air conditioners.

``The demand/supply dynamics of both the Atlantic and Pacific markets are becoming more positive for coal producers,'' Xstrata Chief Executive Officer Mick Davis said in a statement yesterday when announcing the company's first-half earnings beat analyst forecasts.

Spot prices for thermal coal loaded at Newcastle, the world's biggest coal export port, rose to $26.13 a ton last week, from a low of $22.72 a ton in mid-April, according to the globalCOAL index. While analysts surveyed expect another increase in spot prices next year, estimates ranged from an average of $25 to $29 a ton.

``Demand certainly seems to be very strong in Europe and Japan,'' said Mark Pervan, senior resources analyst at Daiwa Securities SMBC in Melbourne.

Nuclear Woes

Japan's 10 regional utilities have 52 operating nuclear reactors, with 32 up and running and 20 shut for inspections, according to the Central Research Institute of the Electric Power Industry.

Tokyo Electric Power Co. has restarted seven of its 17 nuclear reactors closed in April after the company admitted falsifying safety reports for a decade.

Other power companies have had delays in bringing plants back online. Chubu Electric Power Co. said this week it postponed restarting a reactor after finding a crack in the core's covering, while Hokkaido Electric Power Co. last week shut a reactor after a cooling water leak.

Problems at nuclear plants and rising spot coal prices come as Japanese utilities are about to start annual talks with coal miners to set long-term contract prices for the year beginning April 1. Informal talks are due to begin this month. Separately coal producers and users are meeting in Tokyo starting today for the Coaltrans Japan conference on increasing the use of the fuel.

The proportion of coal sold under term contracts has fallen as utilities, looking to reduce raw material costs, sought more cheaper, one-off cargoes from suppliers such as China and Indonesia.

Rio Tinto's Coal & Allied Industries Ltd. unit sells 35 percent of its coal under the long-term contracts, down from 85 percent five years ago.

Australian Dollar

Rising spot prices may help coal miners win the increase they need after a 21 percent surge in the Australian dollar in the past year eroded profit margins. Coal miners in New South Wales in the three months ended March 31 received prices in local currency terms about half their level two years earlier.

``The producers will be pushing that story really hard,'' said Pervan at Daiwa Securities SMBC in Melbourne. ``The Australian dollar is working against the producers.''

Increased demand in Japan helped boost coal shipments from Australia's Newcastle port to a record 6.74 million metric tons in August, the port authority said. Australian coal exports rose 4.3 percent in the first half of this year, according to Energy Economics Pty., a Sydney-based research company.

``There is a far more buoyant environment for thermal coal coming next year,'' said Richard Rossiter, head of resources and mining research at J.P. Morgan Securities Australia Ltd.

Kaltim Prima Strike

Still, the end of disruption to coal supplies from other producers may weigh on prices in the coming months, analysts said.

Indonesia's PT Kaltim Prima Coal, the nation's biggest coal exporter, said production would return to normal this week after workers ended a 19-day strike that crippled output. China's Shanxi province last month ordered all mines to close for one week after three explosions at its mines, said a report on the globalCOAL Web site.

At the same time, a cooler-than-normal summer in Japan may have left some utilities with increased stockpiles.

``It would be a mistake to assume realized prices would be substantially above $27,'' said Vicky Binns, head of research at Merrill Lynch & Co. in Sydney. ``The benchmark is $27 but they're actually getting $25 at the moment.''(*)