Japan utilities, Glencore set annual coal contract at $110/T - sources
By Yuka Obayashi
TOKYO (Reuters) - Japanese utilities and global mining giant Glencore have settled an Australian thermal coal import contract for April 2018-March 2019 at $110 a tonne, according to several people with knowledge of the matter.
The deals were struck between Glencore and Japanese utilities such as Shikoku Electric, Chugoku Electric and Kansai Electric after bilateral talks, a source at a Japanese coal buyer said, requesting anonymity as he was not allowed to speak in public about commercial deals.
Glencore didn't respond to a request for comment.
A Chugoku Electric spokesman confirmed it has struck some annual contracts at $110 a tonne with Glencore, but said some other deals were agreed at different prices or index-linked prices. Shikoku Electric said it settled the April-March contract with Glencore last month but declined to disclose the price, while Kansai Electric declined to comment.
"We've agreed with Glencore at $110 per tonne for the April-March contract late last month," another source at a utility directly involved in the talks said, also declining to be named.
A trader with a major commodity merchant also confirmed the deals.
The deal marks a breakthrough after Japan's Tohoku Electric and Glencore, the world's biggest exporter of seaborne thermal coal, failed earlier this year to agree an annual supply deal which had in the past been used as an industry benchmark.
At $110 per tonne, the contractual price came in nearly 30 percent higher than an annual supply price a year earlier, and is 16 percent above a deal for October 2017-September 2018, reflecting a tighter global market for the world's dominant power generation fuel.
Australian spot thermal coal cargo prices have hit several six-year highs in the past months, and at $120 per tonne remain a third above this year's lows from April, pushed up by a heatwave across the northern hemisphere this summer as well as output cuts in China, the world's biggest consumer of coal.
CLARITY
The deals between Japanese utilities and Glencore give coal markets welcome clarity after Tohoku and Glencore abandoned their talks on an annual contract which traditionally set prices for the region.
With annual imports of around 115 million tonnes, Japan is one of the world's biggest importers of thermal coal. Its utilities buy around 40 percent of all Australian thermal coal exports.
But volumes under the long-term contract have been declining as utilities try to diversify supply sources and start to trade more in the spot market as part of Japan's energy market liberalisation.
Still, miners say term contracts will remain important.
"End users like to have a mix of spot exposure and they like to have some certainty in their portfolios - as, I have to say, producers also benefit from," Paul Flynn, Chief Executive at Whitehaven Coal said in an earnings conference call on Tuesday. Japan is Whitehaven's biggest customer.
"Despite the gyrations that you've seen over the last 18 months and two years, in particular, with the setting of those prices, I think both sides of that equation continue to have a commitment to maintain both pricing regimes."
(Reporting by Yuka Obayashi in TOKYO and Sonali Paul in MELBOURNE; Editing by Henning Gloystein and Kenneth Maxwell)
