The higher-than-expected price jump for the Japanese 2010-11 fiscal year, which started this month, is the latest sign of surging costs for bulk commodities on the back of strong Chinese demand.
Xstrata and PT Bumi, the world’s largest exporters of the coal used to fire power stations, said this week that they have signed annual contracts at $98 and $104 a tonne, respectively, up from last year’s settlement of $70 a tonne.
“This is not only good news for coal producers this year but, with the coal market likely to be tighter next year, contract prices in 2011 could be settled in excess of $100 a tonne from Australia,” Colin Hamilton, a commodities analyst at Macquarie in London, said in a note to clients.
Annual thermal coal contract prices hit an all-time high in 2008 of $125 a tonne.
PT Bumi traditionally obtains a higher price due to the lower shipping cost to Japan from Indonesia than from Australia and South Africa, where Xstrata mines the commodity.
The annual contracts are above current benchmark spot prices in Australia’s port of Newcastle of $94.9 a tonne and slightly above analysts’ forecast of a deal at about $90 a tonne.
The Australian thermal coal spot market hit a bottom of $61 a tonne in March 2008.
The surge in annual coal contract prices comes as China becomes an importer of the commodity for the first time.
Beijing bought overseas about 80m tonnes of thermal coal last year, a big U-turn from net exports of about 70m tonnes in 2005.
The Chinese thermal coal market has tightened on the back of a clampdown on illegal and unsafe mining, which forced the closure of hundreds of small mines in Shanxi province, the key coal-producing area.
Beijing’s shift has more than offset poor demand in Europe and the US, analysts and traders said.
India’s strong consumption is also helping to tighten the market. New Delhi imported about 70m tonnes of thermal coal this year, double the amount it bought overseas in 2007.
Although the thermal coal market moved to spot trading in the early 2000s, Xstrata and PT Bumi still maintain contracts with prices settled in annual negotiations. The market watches the talks because Japan is the world’s largest thermal coal importer.