June 22, 2011
By Mari Iwata
(Recasts lead, adds analysis, information on falling Japan coal demand, outlook for coking coal price talks)
TOKYO (Market Watch) - Conventional wisdom has it that Japan will import more thermal coal to make up for lost nuclear power output stemming from the catastrophic March 11 earthquake and tsunami, and more coking coal to boost output of steel for use in reconstruction efforts.
However, this isn't happening for a variety of reasons. Japanese importers of thermal coal used to make electricity and coking coal used by the steel industry are instead dragging their feet in a series of price and volume negotiations with global mining companies, and appear reluctant to clinch new deals.
Japan, the world's biggest coal importer, is witnessing falling demand for the fuel, which normally produces 17% of its power, and the poor state of the economy and caution by consumers of autos and other products has meant that steel companies are seeing reduced demand for their output.
That said, thermal coal buyers and Chinese suppliers belatedly agreed recently on the retroactive price of coal exported to Japan under long-term contracts for delivery for 12 months starting in April, at $145.75 a ton, a person with first hand knowledge of the deal said Wednesday.
The buyers are still negotiating volumes, but these are likely to be around 700,000 metric tons in total, far less than the 6 million tons that Japanese utilities potentially could claim, with this due to what they consider to be high prices, and also weak domestic demand, the source said.
The decision came more than two months after the start of the delivery period, but "it's not been a big problem, we don't need much coal this year anyway," a coal trader with a Japanese utility said on Wednesday.
Japan typically buys 180 million to 190 million tons of coal annually from overseas, and the price it pays in term deals are a benchmark against which many other contracts around the region are set.
Since the quake, Japan's coal imports have tumbled, falling 12% from a year ago in April and 22% to 13 million tons in May, government data show.
The nuclear power deficit--about two-thirds of 54 reactors that normally would be working are now offline due either to damage or because of security worries--has been met mostly by higher imports of liquefied natural gas.
Also, roughly 15% of Japan's coal-fired generating capacity still remains offline due to quake-related damage.
Japan is forecasting its real GDP will remain flat in 2011, which is another element in coal buyers' calculations.
The March disaster will cut Japan's thermal coal demand by more than 6 million tons this financial year, or roughly 7% of Japan's annual thermal coal use, the Institute of Energy Economics said in a recent report.
Japan's May on-year crude steel output was down 7.0%, marking the third straight month of on-year falls, due mainly to weak steel demand from automobile manufacturers, The Japan Iron and Steel Federation said.
This reduced steel output translates into lower coking coal use, which is a factor influencing July-September 2011 coking coal price talks which have been underway for several weeks.
None of the term buyers have yet completed a deal, sources close to the negotiations said Wednesday, although some have come close to accepting $315 a ton in talks with Anglo American PLC (AAL.LN) and Teck Resources Ltd. /quotes/zigman/18171/quotes/nls/tck TCK -1.22% .
Japanese steel makers have said they would agree "if the South Koreans accept this price," while South Korean buyers have said they would agree only if the Japanese accepted the price, coking coal traders said.
This would be $15 down on the $330 a ton agreed between the same parties for the April-June quarter, but a little higher than spot Australian coking coal prices which have been hovering around $300-310 recently.
"Nobody is in a hurry to make any deal. We have large inventories and are getting deliveries under contracts made before the quake and tsunami," said a Japanese steel mill spokesman who asked not to name his company.
Similarly, Japanese power utilities and sellers of Australian thermal coal haven't yet set prices for a year-long delivery contract that starts in a week's time, traders with some of the utilities said.
A delegation of Xstrata PLC (XTA.LN) visited Japan last week and suggested a price around $125 a ton, but Japanese buyers think a price below $120 is appropriate, said the traders. The delegation is due to return for more talks next week. ( sourced market watch)
By Mari Iwata
(Recasts lead, adds analysis, information on falling Japan coal demand, outlook for coking coal price talks)
TOKYO (Market Watch) - Conventional wisdom has it that Japan will import more thermal coal to make up for lost nuclear power output stemming from the catastrophic March 11 earthquake and tsunami, and more coking coal to boost output of steel for use in reconstruction efforts.
However, this isn't happening for a variety of reasons. Japanese importers of thermal coal used to make electricity and coking coal used by the steel industry are instead dragging their feet in a series of price and volume negotiations with global mining companies, and appear reluctant to clinch new deals.
Japan, the world's biggest coal importer, is witnessing falling demand for the fuel, which normally produces 17% of its power, and the poor state of the economy and caution by consumers of autos and other products has meant that steel companies are seeing reduced demand for their output.
That said, thermal coal buyers and Chinese suppliers belatedly agreed recently on the retroactive price of coal exported to Japan under long-term contracts for delivery for 12 months starting in April, at $145.75 a ton, a person with first hand knowledge of the deal said Wednesday.
The buyers are still negotiating volumes, but these are likely to be around 700,000 metric tons in total, far less than the 6 million tons that Japanese utilities potentially could claim, with this due to what they consider to be high prices, and also weak domestic demand, the source said.
The decision came more than two months after the start of the delivery period, but "it's not been a big problem, we don't need much coal this year anyway," a coal trader with a Japanese utility said on Wednesday.
Japan typically buys 180 million to 190 million tons of coal annually from overseas, and the price it pays in term deals are a benchmark against which many other contracts around the region are set.
Since the quake, Japan's coal imports have tumbled, falling 12% from a year ago in April and 22% to 13 million tons in May, government data show.
The nuclear power deficit--about two-thirds of 54 reactors that normally would be working are now offline due either to damage or because of security worries--has been met mostly by higher imports of liquefied natural gas.
Also, roughly 15% of Japan's coal-fired generating capacity still remains offline due to quake-related damage.
Japan is forecasting its real GDP will remain flat in 2011, which is another element in coal buyers' calculations.
The March disaster will cut Japan's thermal coal demand by more than 6 million tons this financial year, or roughly 7% of Japan's annual thermal coal use, the Institute of Energy Economics said in a recent report.
Japan's May on-year crude steel output was down 7.0%, marking the third straight month of on-year falls, due mainly to weak steel demand from automobile manufacturers, The Japan Iron and Steel Federation said.
This reduced steel output translates into lower coking coal use, which is a factor influencing July-September 2011 coking coal price talks which have been underway for several weeks.
None of the term buyers have yet completed a deal, sources close to the negotiations said Wednesday, although some have come close to accepting $315 a ton in talks with Anglo American PLC (AAL.LN) and Teck Resources Ltd. /quotes/zigman/18171/quotes/nls/tck TCK -1.22% .
Japanese steel makers have said they would agree "if the South Koreans accept this price," while South Korean buyers have said they would agree only if the Japanese accepted the price, coking coal traders said.
This would be $15 down on the $330 a ton agreed between the same parties for the April-June quarter, but a little higher than spot Australian coking coal prices which have been hovering around $300-310 recently.
"Nobody is in a hurry to make any deal. We have large inventories and are getting deliveries under contracts made before the quake and tsunami," said a Japanese steel mill spokesman who asked not to name his company.
Similarly, Japanese power utilities and sellers of Australian thermal coal haven't yet set prices for a year-long delivery contract that starts in a week's time, traders with some of the utilities said.
A delegation of Xstrata PLC (XTA.LN) visited Japan last week and suggested a price around $125 a ton, but Japanese buyers think a price below $120 is appropriate, said the traders. The delegation is due to return for more talks next week. ( sourced market watch)
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