December 03, 2008

Chubu sets thermal coal benchmark at AUD 125

Reuters reported that Japan's Chubu Electric has agreed to a 125% rise in Australian thermal coal prices in the industry's first annual deal, setting an AUD 125 a tonne benchmark for peers and producers.

Top thermal coal exporter Xstrata Plc won the deal with Chubu, Japan's number three utility, on Friday, one source involved in the talks told Reuters.

Analysts said the settlement level for fiscal year 2008/2009 prices was expected after Australian spot market prices surged to a record high above AUD 150 a tonne earlier this year, straining profits for power companies and fuelling inflation amid a global commodities prices boom for everything from oil to wheat.

The first such deal of the season normally sets a benchmark that most others will follow, spelling higher costs for utilities like Japan's biggest thermal coal user, Electric Power Development Co but bumper profits for big producers like Rio Tinto Ltd.

Last year's benchmark was AUD 55.65 a tonne, a modest 6% rise from the year before, but prices surged in late 2007 and early this year after China briefly banned exports and flooding stymied shipments from top two exporters Indonesia and Australia.