Japanese Tohoku Power settles annual benchmark

Japanese power utility Tohoku Electric and Australian coal producer Glencore have finalized a price of $94.75/mt FOB Newcastle basis 6,322 kcal/kg GAR for thermal coal shipments under October 2017-September 2018 term contracts, market sources said Wednesday.

Tohoku Electric Power confirmed on Wednesday that it had reached a price settlement in its negotiations for its closely-watched October term contract, but said it was unable to disclose details, including the price.

“Glencore and Tohoku Electric Power company reached an agreement on October 10,” Tohoku Electric said in an emailed response to S&P Global Platts.

The fixed price of $94.75/mt FOB Newcastle heard applies to Australian thermal coal shipped from Glencore’s mines in New South Wales via Newcastle port to Tohoku’s power plants in Japan for the year starting October 1.

The October 2016 benchmark was also fixed at $94.75/mt.

Some market sources had expected a higher price for this year’s October term contact, citing severe tightness for Newcastle thermal coal following lengthy strikes at several Glencore mines in the Hunter Valley coal field in eastern Australia.

Over January-October, spot prices for Newcastle 6,000 kcal/kg NAR thermal coal, equivalent to 6,322 GAR, averaged $85.66/mt FOB, Platts data showed.

In the early stages of the talks, the spread between opening bids and offers spanned $92/mt to $105/mt FOB Newcastle, basis 6,322 kcal/kg GAR, before narrowing gradually to the mid- to high $90s/mt, sources said.

Monday was a public holiday in Japan, and on Tuesday three 25,000 mt parcels of November-loading Newcastle 6,000 kcal/kg NAR thermal coal traded on globalCOAL at $93.50/mt FOB, $94.50/mt and $95/mt respectively.

The October 2017 benchmark price is still higher than the price agreed in May between Glencore and Tohoku for contracts covering a larger volume of thermal coal shipments over the year April 2017-March 2018 at $84.97/mt FOB Newcastle, basis 6,322 kcal/kg GAR.

The October term contract price between Glencore and Tohoku is often seen in the industry as a staging post and scene-setter for price talks the following April.

Typically, the October benchmark price is followed by other Australian coal suppliers for their contracts with Japanese customers, eventually covering about 8 million-10 million mt/year of the 6,322 kcal/kg GAR grade of Australian thermal coal shipped to Japan, sources said.

Tohoku is one of Japan’s largest power utilities with 13 thermal power plants with a combined installed capacity of 12,725 MW, according to the company’s 2016 annual report.

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