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Glencore Cedes Asia Coal Price Benchmark to Rio After Japan Deal

For the first time in at least four years, it’s not Glencore Plc’s coal deal with a Japanese utility that’s determining industry prices in Asia.

Rio Tinto Group was the first to reach an annual contract with Tohoku Electric Power Co. for thermal coal at $67.80 a metric ton this month, establishing a benchmark price that’s used in contracts across the region. Glencore followed the deal, settling on the same price.

“Glencore, formerly Xstrata, has lead the agreement on all the contracts in recent history,” said Stefan Ljubisavljevic, a London-based commodities analyst with Macquarie Group. “Rio’s early settlement negatively impacted Glencore’s efforts to get a better price. Once you’ve got a price out there that’s been agreed to by one producer its obviously difficult for another producer to get a better one.”

Other Japan utilities will likely use the price negotiated by Tohoku Electric and Rio Tinto for their own annual supply deals, said Atsuo Sagawa, a coal researcher at the Institute of Energy Economics, Japan. While there are annual supply contracts signed each quarter, the April-to-March agreements typically account for the most volume.

The contracts were signed as coal trades near the lowest price since 2007 amid a global glut estimated by Credit Suisse Group AG to be 38 million tons this year, or about 4 percent of global trade. Baar, Switzerland-based Glencore has said it will trim Australian output by 15 million tons this year and is considering shutting South African sites.
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Francis de Rosa, a Sydney-based spokesman for Glencore, declined to comment on the negotiations. Jennifer Sakaguchi, a Tokyo-based spokeswoman for Rio Tinto, also declined to comment. Takashi Suzuki, a Sendai-based spokesman for Tohoku Electric, said the company’s talks with major coal suppliers for April-March contracts have ended. He declined to comment on prices.

The price Japan’s utilities negotiate is used as a benchmark for accords across Asia, and is typically settled at a premium to spot coal, which ended 2014 at $64.81 a ton after sliding 25 percent over the year.

Thermal coal at the port of Newcastle in Australia, the fuel’s biggest export harbor, closed at $54.37 a ton April 10, according to prices from Globalcoal. That’s the lowest since May 2007.

The negotiated price is a good deal for Australian miners who will receive better margins in a weaker market than last year, based on contractual sales, according to Ljubisavljevic.

source: http://www.bloomberg.com