JAPAN CRISIS:Japan buyers may seek to delay coal contract negotiations
Perth (Platts)--14Mar2011/618 am EDT/1018 GMT
Thermal coal contract talks between Japanese buyers and Australian coal
producers could be put on hold for several months as the country begins its
recovery from the massive earthquake and tsunami that hit the country Friday.
"The main participants in the talks, Tohoku and Tepco, or Tokyo Electric
Power Company, are going to lose 50% of their consumption for months. They
would like to postpone the April year contract talks to at least the summer
time [in the northern hemisphere]," said one market participant speaking from
Japan over the telephone on Monday.
"The deadline for an agreement in the 2011 Japanese financial year talks
is March 31. However, achieving this looks remote for this year's talks which
have made slow progress to date," he added.
He went on to question the current spot price for Newcastle thermal coal
at $130/mt FOB, given that many coal-fired power plants in Japan were out of
action and likely to remain so for some months.
Offer prices for cargoes of FOB Newcastle thermal coal rose several
dollars early in the Asian trading window Monday, with a June-delivery
Newcastle cargo offered on globalCOAL at $131/mt FOB compared with $127/mt FOB
for the same delivery period on Friday.
"On the Pacific side of Japan, which was hit by the tsunami, these power
plants, as far as I know, will be out for maybe three or four months or
possibly longer. One power station has two vessels grounded on its pier," the
market participant said. "We are losing some coal-fired plants. I think it
will be bearish for the market in the mid-term."
Japanese power utilities were likely to turn to LNG- and oil-fired power
plants to fill the gap in generation left by outages at the nuclear plants.
Japan's 54 reactors at 18 plants host about 47,000 MW of operational
capacity, although at any one time, several reactors are shut for scheduled or
unplanned maintenance. The plants generated almost 30% of Japanese grid
electricity supplies in 2010.
"There is no increase in demand for coal because in Japan there is
limited capacity to transfer power from the western to the eastern side of the
country. There could be one or two cargoes purchased, but the capacity to
transfer power from the east to the west is very limited. It's about 1,000
MW," the market participant said.
A second market participant said he too thought that the 2011 Japan
financial year negotiations would be postponed.
"I think the negotiations have been delayed, but I am not sure as to how
long. Coal company representatives were due to arrive in Japan this week,
though I expect their visit will be canceled," he stated.
Meanwhile, power cuts were being introduced in Japan to cope with its
reduced capacity for power generation and the earthquake and tsunami had
caused extensive damage to port facilities in the northeast of the country, he
"The northeast of Japan has lost one quarter of its power generation
capacity. That part of the country is a disaster zone where it is almost
impossible to unload coal from ships," he said.
If the earthquake and tsunami add up to a bearish scenario for Japanese
thermal coal demand as market participants suggest, it places a large question
mark over the fate of vessels carrying a total of 2 million mt of thermal coal
said to be on their way to Japan from eastern Australia.
There might be a possibility of diverting some of these cargoes to other
buyers in northeast Asia such as South Korea, Taiwan or possibly China, but
these potential buyers would most likely expect prices for these cargoes to be
Japan generates 50% of its electricity from coal-fired plants and
imported 125 million mt of thermal coal last year, equivalent to 16% of the
global seaborne market in thermal coal, according to analysts at the Royal
Bank of Canada in Sydney, in a Monday research note.
"A substitution in source of power supply could see a lift in spot
thermal coal prices; we also believe this event may place upward pressure on
Japan financial year thermal coal contract negotiations depending on the
duration that the nuclear plants are offline," said the RBC analysts, noting
that Tepco had shut its Kashiwazaki nuclear plant for 21 months after an
earthquake in 2007.
Tepco's 4.6 GW capacity Fukushima Daiichi nuclear power plant suffered
problems at its reactor units after its cooling systems failed.
"We expect that a prolonged shutdown of the Fukushima Daiichi power
station will increase import demand for fuel oil, coal and LNG, putting upward
pressure on coal and gas prices," said analysts at Australia's Commonwealth
Bank in a note to clients Monday.
The CBA analysts said it was difficult to judge the exact impact of the
nuclear outage on demand for coal, LNG and fuel oil, however, they noted that
the "Fukushima Daiichi nuclear power plant's capacity translates through to up
to 14 million mt of thermal coal equivalent or about 1.5-2% of world trade per
--Mike Cooper, firstname.lastname@example.org
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