Regional Coal: Australia thermal coal price soars

Most contract prices for Australian thermal coal with major Japanese power utilities for 2004/05 had risen by a massive 68 percent on a year earlier, minerals research house AME Mineral Economics was quoted by Reuters on Sunday.

AME said in a new study that most tonnages in contracts for the Japanese fiscal year beginning April 1, 2004, had been settled at close to US$45 a tonne, the highest in over 20 years.

The record prices were welcomed by coal producers, particularly those adversely affected by the recent fall in the U.S. dollar, it said.

Major Australian exporters Xstrata and Rio Tinto Plc/Ltd had particularly benefited, AME said.

Xstrata had said on Thursday, ahead of the AME report, that it had sealed contracts with long-term customers in Japan for thermal coal supplies in 2004/05 at $45 a tonne, up 68 percent.

Xstrata also said it had settled steel-making coking coal export prices for 2004/05 at an average of $80 a tonne, nearly double the $45 a tonne price of 2003/04.

Prices have been rocketing because of strong China-led demand and tight supply.

Strong thermal coal prices should be maintained into 2005, encouraging new mine expansions and greenfield developments, AME said in its latest study, entitled "Changing Fortunes".

"The big questions for customers and suppliers alike is whether these record prices indicate the beginning of a supply side 'golden age' or are simply an anomaly caused by a coincidence of supply and demand-side factors," it said.

The massive price rises went against a long-term trend of an average annual decline of five percent in real terms between the early 1980s and last year, AME said.

Japan-Australia contract settlements in 2004 varied widely, ranging from $35 a tonne to $46 a tonne fob, AME also said.

Late agreements struck in March were at the highest prices, including deals between Xstrata and Japanese utilities, it said.

"Customers who delayed settlement in the expectation that regional spot prices would ease before the beginning of Japanese fiscal year 2004 were eventually forced to accept higher prices in order to secure tonnage," AME said.

Global total thermal coal imports in 2003 rose by 10 percent to around 490 million tonnes, with demand underpinned by Asian giants Japan, South Korea and Taiwan, AME said.

It forecast that the rate of thermal coal demand increase would slow this year after booming in 2003.

A sharp rise in Japan's 2003 import volumes would not be repeated in 2004 as nuclear generation capacity progressively came back on line after a safety scandal last year, it said.

AME forecast that the world thermal coal trade would grow at an average annual two percent for the rest of the decade.

Australia remained comfortably the world's largest thermal coal exporter, but had lost some share in key Asian markets to Indonesia and China, AME said.

Coal is Australia's biggest export, with thermal exports in 2004/05 forecast to be worth A$6 billion ($4 billion) and coking exports A$8 billion.(*)