Asian demand sees record high coal deals

Miners have won record prices for the annual thermal coal contracts with utilities, amid strong demand in Asia and supply disruptions in Australia earlier this year.

Xstrata and Chugoku Electric of Japan closed a deal on Friday for the fiscal year starting April 1 with the London-listed miner supplying thermal coal, used to fire power stations, at $130 a tonne, up 32.6 per cent from $98 a tonne of 2010-11.

“The result reflects tight conditions for premium calorific value coals consumed by Asian power plants, largely caused by poor Australian weather conditions over the past six months and stronger overall demand, particularly from China and India.”

Thermal coal prices have been quietly moving higher since the 2009-10 annual contracts were set at $71 a tonne. But the recent flooding in Australia’s coal-rich state of Queensland has cut supplies from one of the world’s top thermal coal exporters.

The Queensland Resources Council, which represents big miners, said on Friday that the state had lost about 30m tonnes of coal production, or 15 per cent of annual output, due to flooding. The estimate is significantly higher than previous official forecasts.

Output has also been lower at other top producers – Indonesia, South Africa and Colombia – because of heavy rains. At the same time, a severe shortage of railway wagons has been hurting Russian coal output, pushing up European coal prices.

The hefty price increase comes in spite of damage to several coal-fired thermal power plants in Japan following the earthquake and tsunami that struck the country three weeks ago.

The damage forced utilities including Tokyo Electric Power and Tohoku Electric Power to ask miners to defer shipment, denting demand over the short term.

But analysts and traders said the closure of several nuclear power plants would boost thermal coal consumption over the medium term in the country.