Regional coal: Australian thermal coal sees price rise: Report

Australian coal was returning to boom times as thermal producers closed in on a price rise of 40 percent or even more from Japanese power utilities in 2004, a senior industry source told Reuters.

Settlements were expected in the next couple of weeks for Australian thermal coal exports, with negotiations now current in Japan with leading producer Xstrata Plc.

Australian coking coal negotiators were also believed to be headed for a 20 percent price rise from Japanese steel mills, another source said.

Big gains for thermal coal, fuelled by China's booming economy, would reverse a seven percent price cut to US$26.75 a tonne in contract prices for the 2003/04 Japanese fiscal year to this March 31. Increased coking coal export prices would reverse a four percent cut to US$46.35 for the past year.

The 30 percent-plus rise by the Australian dollar since the beginning of last year would eat into gains produced by the US dollar denominated prices, producers said.

"(Still) it's a wonderful time in the coal market," the industry source said, pointing out that the global spot thermal market had hit US$40 a tonne in the last two days, up from just US$22 a year ago.

The booming Asian coal market is being driven by China's burgeoning economy, a consequent leap in freight rates which are limiting transport of coal from different parts of the world, exchange rate differentials, unexpected demand caused by the closedown of nuclear power plants over falsified safety documents, and other factors.

The Australian coal industry source said thermal coal prices with Japan could rise by as much as 50 percent, which would take contract prices for 2004 to almost US$40 a tonne.

Japanese utilities are currently negotiating with Chinese and Indonesian suppliers as well as with Australia and it was hard to say who they would settle with first, the source said.

"But you would think that with Australia with a 40 percent increase plus the freight differential, it's going to be pretty unpalatable for them (the Japanese)," he said.

China coal was not expected to spoil the party.

"Our information is that they will limit their exports in 2004 to around 80 million tonnes (from) about 90 million tonnes in 2003," the Australian source said.

Indonesia might increase supply.

But the main factor in driving up prices was Japanese concerns over security of supply, with China cutting exports and fears that weather may hamper Indonesian exports, he said.

Xstrata had no comment on Wednesday. A spokesman for Australia's major coking coal producer BHP Billiton Ltd also would not comment on whether a recent Canadian 20 percent price increase with the Japanese steel mills had set the way for its contracts for 2004.

"We're still at it," he said of the negotiations.

Australia is the biggest coal exporter in the world, shipping more than A$10 billion (US$7.5 billion) worth a year to Asia. Coal is Australia's biggest single export, underpinning the country's balance of trade.

Australian coking coal exports in 2003/04 are forecast by the Australian Bureau of Agricultural and Resource Economics (ABARE) to be worth A$6.8 billion and thermal coal A$4.0 billion. But big price rises could boost returns. ($1=A$1.33)(*)