Glencore Said to Sell Coal to Tohoku at Lowest in Five Years

Mar 28, 2014 5:20 am ET

(Updates with analyst comment in fourth paragraph.)

March 28 (Bloomberg) -- Glencore Xstrata Plc, the world’s biggest exporter of thermal coal, agreed to sell the fuel to Tohoku Electric Power Co. at the lowest price in five years, according to people with direct knowledge of the matter.

Tohoku Electric, the lead negotiator in annual supply contracts for Japan’s utilities, agreed to pay $81.80 a metric ton starting April 1, said two people who asked not to be identified because the information is private. That’s down 14 percent from last year and the lowest since 2009. Hiroki Enami, a Sendai-based spokesman for Tohoku, said the company and Glencore agreed on a deal, without providing further details. Francis de Rosa, a Sydney-based spokesman for Glencore, declined to comment on the contract discussions.

Glencore is fetching a lower price for thermal coal even as power producers in Japan have boosted consumption of fossil fuels after the shutdown of the nation’s 48 nuclear reactors in the wake of the Fukushima disaster. Spot prices have slumped to the lowest in four years amid a supply glut that is projected by UBS AG to be about the equivalent of 4 percent of annual seaborne trade this year.

“For a supplier, this may be close to the minimum price,” Michiaki Harada, director at Japan Coal Energy Center, a Tokyo- based research institute, said by phone. Prices that are any lower may mean some coal mines will close because continuing operations would be unprofitable, he said.

Benchmark Price

Utilities in Japan, the world’s second-biggest buyer of thermal coal, agreed to pay $95 a ton for annual supplies in 2013. The contract was settled at a record $129.75 in 2011 as flooding curbed output in Australia and Indonesia, the world’s biggest exporter. The price that Japan’s power producers negotiate with Glencore is typically used as a benchmark for contracts across Asia.

Glencore owns the Ravensworth, Mount Owen and Liddell coal operations in Australia’s Hunter Valley. The Baar, Switzerland- based company said yesterday it will suspend steelmaking coal output at Ravensworth from September due to lower prices, high costs and a strong local dollar.

Japan’s thermal coal imports rose 1.3 percent from a year earlier to 108.9 million tons in 2013, according to Finance Ministry data. Australia’s total exports of the power-station variety will increase by 3.7 percent to 195 million tons this year, according to estimates from Australia’s Bureau of Resources and Energy Economics.

Thermal coal at the Australian port of Newcastle slid to $72.98 in the week ended March 14, the lowest since October 2009, according to globalCOAL, a London-based data provider.