Mining and Heavy Industries

Japan questions premium rates paid for coal

Coal. Photo: Shutterstock.

Some of the biggest consumers of Australian thermal coal are reportedly asking why they continue to pay a premium price for the commodity while its spot price sits at a near-ten-year low.

Japanese energy producers typically buy more than half of Australia’s thermal coal production.

In exchange for guaranteed supply of a high-quality product, they often agree to a contract price on the higher-end of projections for the 12-month period. The annual Japanese contract price, according to the AFR, was set at just more than US$67 a tonne in April 2015.

But with the spot price for Australian thermal coal currently around US$54, its lowest point since late-2006, more Japanese buyers are said to be testing the waters with lower-quality coal, bought on the spot market.

“There has been a recognition in Japan that the power utilities are paying a premium to Australian suppliers and they’ve basically started asking why are we doing it?” Marian Hookham from market analyst IHS reportedly told Fairfax this week.

“The coal volumes attached to [the latest coal supply contracts] are smaller than in previous years and therefore it will exert less influence.”

Hookham reportedly highlighted two commodity buyers – power company Tohoku and miner Glencore – as leading the way in the negotiations.

“We understand that Tohoku is looking at around a US$57 per tonne number, and Glencore is pushing for around a US$60 per tonne number.”

Since thermal coal was last worth US$54 a tonne – in December 2006 – it has soared to an original peak of more than US$190 a tonne (July 2008), then dipped to a temporary low of roughly US$65 (March 2009), and returned to a long-term high period of around US$125 (December 2010 to mid-2012).

Since its most recent peak, thermal coal has steadily slipped, dipping below US$60 a tonne in the second half of 2015.

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