Japanese 2011 coal contract seen climbing to record level

Wed Feb 16, 2011 5:21am EST

By Rebekah Kebede and Osamu Tsukimori

PERTH/TOKYO, Feb 16 (Reuters) - Annual negotiations between Australian coal producers and Japanese utilities for thermal coal contracts starting April 1 are underway with the prices
expected to meet or exceed record levels seen in 2008.

Prices are widely expected to match or exceed the 2008 record price of $125 per tonne due to upward pressure from floods in Australia's Queensland state as well as production disruptions elsewhere.

Trade sources said that the price is likely to settle between $125 and $130 per tonne. A new contract at $125 per tonne would represent an almost 30 percent increase from last
year's contract.

"We think there are enough reasons (for a higher coal contract settlement) -- Queensland, of course, the disruptions in South Africa and export issues in Indonesia," said David Brennan, an analyst with Daiwa Securities.

Flooding in Queensland lifted thermal coal prices to a high over $140 per tonne earlier this year and the globalCOAL index for Newcastle coal is still hovering around $125 per tonne,
about 35 percent higher than this time last year.

Rain-related disruptions during the last months in other coal producing countries have also contributed to global supply tightness.

The annual contract prices are set by mining major Xstrata Coal , the world's largest exporter of power-station coal and large Japanese utilities including Tokyo Electric Power Co (TEPCO), Tohoku Electric Power Co Inc and Chubu Electric .

Forecasts for the contract price among coal analysts have varied widely, with Macquarie Research putting its forecast at $145 per tonne, while others put the price around the 2008
record of $125 per tonne.

The contracts, which represent the majority of coal imported into Japan are generally around spot price levels, often with a supply security premium.

Some contracts, typically smaller volumes, are signed in July and October. Japanese utilities use about 50 million of thermal coal annually, with Australia supplying about 60 percent of its imports.

Japanese utilities may accept a price of $125 per tonne, but there's a feeling they do not want to pay higher than that, according to one Japanese coal trader.

"There's a sense of resistance to ($125 per tonne) level for the buyers," one Japanese utility source said. "Of course, we aim to keep it below that."

Some market sources said the Queensland floods and recent market tightness would bolster Xstrata's hand in the negotiations.

"This is coming at a very good time from Xstrata's point of view," said one Sydney-based trader, indicating that Xstrata may use some of its recent mine disruptions to negotiate for a
higher price.

Xstrata recently declared force majeure on one of its thermal coal mines in Australia due to heavy rains; another of its thermal coal mines has been shut for weeks due to a fire.

"In the end, whoever holds the tonnage will have the final say," the Sydney based trader said.

(sourced:Thomson Reuters)
Tags: Japanese 2011 coal contract,coal contract on record level high,thermal coal contracts, prices,coal traders, Queensland,South Africa, Indonesia,forecasts by coal analysts,Macquarie Research,Xstrata,

KEPCO considers overseas coal trading firm by end-2012

Wed Feb 16, 2011

* In talks with foreign partners, local utilities -sources
* Trading firm could be located in Singapore -one source
* To start with coal and expand to LNG and uranium -sources
* Plans for futures trading for risk management -sources
(Adds more details and quotes)
By Cho Mee-young

SEOUL, Feb 16 (Reuters) - Korea Electric Power Corp (KEPCO) , state-run utility in the world's No.3 coal buyer South Korea, aims to set up its first coal trading firm in a move that could give a boost to spot market trading in Asia in the face of surging prices.
The proposed firm, due to be set up by the end of 2012, will be based overseas and will possibly be a joint-venture with foreign partners and local utilities, company and industry sources said on Wednesday.

KEPCO may set up the new trading company in Singapore, one person with knowledge of the matter told Reuters. However, a company source said the location has yet to be decided.
The government and president of South Korea, the world's No.2 liquefied natural gas (LNG) buyer after Japan and No.5 crude oil importer, have been calling for various ways to efficiently secure commodities and energy as global prices rally. The country imports almost all its feedstocks for power generation.

The trading firm may signal a shift from the norm of securing large volumes under long-term contracts to buying via the spot market, as more Asian utilities break away from decades-old fixed-price purchases to a flexible trading model to cope with growing price volatility.
"The firm will procure and trade coal from those overseas mines where KEPCO holds stakes to supply local utilities, as so far there has been no coal trading entity for the utilities," said one company official, who declined to be identified because he was not authorised to talk to the media.

He said that KEPCO is in informal talks with foreign utilities and trading firms to be its partners, although major trading companies were excluded so far.
KEPCO has stakes mainly in coal mines in Australia and Indonesia, its two major suppliers, he added.

HERALDS ACTIVE TRADING

Should more utilities enter spot trading, it could herald growing demand for coal derivative products as power companies seek hedging instruments to manage price risks, traders said.

"We plan to eventually expand the firm's procuring and trading products to other raw materials for power generation including uranium and liquefied natural gas," the KEPCO official said.

"At the initial stage, the firm will focus on physical trading, but in the long term, it may trade futures for risk management if trading volumes expand and supplies diversify."

An Asia-based trade source said the proposed trading firm would enable KEPCO not to rely on tenders and that they could buy coal on the open market more easily.

Reflecting the persistently strong prices, annual negotiations between Australian coal producers and Japanese utilities for thermal coal contracts expected to meet or exceed record levels seen in 2008.

"It will mean more liquidity in Asia," said another source based in Singapore.

"Hopefully, we can see more North Asian companies coming to Singapore to trade. So far, the Koreans are definitely the most aggressive in the spot market."

South Korea has five utilities, which are fully owned by KEPCO -- Korea Midland Power Co Ltd, Korea Western Power Co Ltd, Korea East-West Power Co Ltd, Korea South-East Power Co Ltd and Korea Southern Power Co Ltd. KEPCO also fully owns Korea Hydro & Nuclear Power Co Ltd.

In August 2009, Korea East-West Power Co Ltd and trading company LG Corp considered a joint venture in Australia mainly to procure coal in the spot market, industry sources close to the deal said at that time.

The talks have since collapsed, and KEPCO has leaned toward the plan for a coal trading firm, sources said. (Additional reporting by Rebekah Kebede in PERTH and Fayen Wong in SHANGHAI; Editing by Ramthan Hussain,sourced:routers)

Tags:KEPCO, overseas coal trading firm, South Korean news, coal spot market, Singapore

WISCO inks cooperation deal with ADI on Lac Otelnuk iron ore project

Wednesday, 16 February 2011 13:34:25

Major Chinese steelmaker Wuhan Iron and Steel Group Corp. (WISCO) has announced that on February 15 it signed a cooperation agreement with Canadian iron ore company Adriana Resources Inc. (ADI) for the development, construction and operation of the Lac Otelnuk iron ore project in Quebec, Canada. In January this year, WISCO and ADI signed a binding framework agreement according to which WISCO will hold ADI's interests in the Lac Otelnuk and December Lake iron ore properties in Northern Quebec.

ADI also has iron ore resources in Brazil and Canada. The Lac Otelnuk project has indicated iron ore reserves of 4.29 billion mt and inferred reserves of 1.97 billion mt (grading at about 29 percent Fe), according to ADI's website.

Tags: iron ore , raw mat , China , Canada , Far East , East Asia and Pacific , North America , steelmaking , mining , WISCO , Pellets , Fine ore

Asia demand to push Colombia coal to Europe-Cerrejon

Wed Feb 16, 2011 9:01pm GMT
* Port to close for routine maintenance for 20 days
* Asian demand to draw Colombian coal to Europe
* Firm to present expansion plan in next few months
By Jack Kimball

BOGOTA, Feb 16 (Reuters) - Colombia's largest coal exporter, Cerrejon, sees Asian demand propelling more Colombian coal to Europe and that demand will also keep prices at current
levels, the company's president said on Wednesday.

The overall trend for coal prices this year is upward but a series of price shocks is likely as the market reacts to supply disruptions and the sudden appearance and disappearance of
Chinese spot buying, analysts say.

"Long-term (the current price of coal) is relatively sustainable because of the dynamics of supply and demand in the world," Cerrejon President Leon Teicher told reporters.

"China, India, Asia (are) growing and taking a lot of the volume from South Africa and therefore leaving more space open for us in Europe," he said in Colombia's capital, Bogota.

Prices hit a peak of $130 a tonne early in January when sentiment after Australian floods sent prices to a 12-month high. An April Colombian only cargo was bid on Wednesday at $115.00 against an offer at $117.50.

Colombia -- one of the top producers of high-quality thermal coal -- saw a dramatic increase in exports to China last year although the main markets for Colombian material
remain the United States and Europe.

Neither coal exporters, analysts nor officials believe the destination make-up of Colombian coal exports will shift dramatically -- though the Latin American nation has also seen increased exports to Japan and South Korea.

Teicher said the company -- a joint venture between BHP Billiton (BLT.L: Quote), Anglo American (AAL.L: Quote) and Xstrata (XTA.L: Quote) --had sent less than half a million tonnes to Asia so this year.

Cerrejon and union workers signed a two-year compensation agreement earlier this month, avoiding a strike at a time when the company is trying to recover production following heavy
rains across the country last year.

Teicher said Cerrejon exported 31.5 million tonnes in 2010 but produced only 30.3 million tonnes. "We had intensive use of our inventories," he said.

The company still expects production to hit 32 million tonnes or the mine's nominal capacity in 2011, while Teicher also said he expected a shareholder decision on the mine's expansion plan later this year.

Canada's SNC-Lavalin Group Inc (SNC.TO: Quote) and a partner have been awarded the expansion contract for a project to boost output to 40 million tonnes annually.

"I have not yet presented the expansion project for shareholder approval," Teicher said, adding that he expected to do so in the "next few months".

Cerrejon will close its port for 20 days from around Feb. 20 for routine maintenance and clients have been advised, Teicher said. It plans to replace parts of the shiploader.
(Editing by Dale Hudson, sourced:ThomsonReuters)

Tags:Asia coal demand, Colombian coal, Europe, Cerrejon, coal exporters, coal prices, thermal coal, BHP Billiton, Anglo American Plc, Xstrata, SNC Group Inc., raw material, South Africa