Xstrata, Japan Utilities Agree Coal Price Cut, Citigroup Says

By Angela Macdonald-Smith

Dec. 18 (Bloomberg) -- Xstrata Plc, the world’s biggest exporter of coal burned in power plants, agreed annual calendar- year contracts for the fuel with Japanese utilities at lower prices, Citigroup Inc. said.

Contracts for coal to be delivered in the year starting Jan. 1, 2009, have been settled at $80 a metric ton, lower than existing contracts of $125 a ton for the Japanese financial year that started April 1, Citigroup said in a Dec. 17 report. The price is also below Citigroup’s forecast of $100 for contracts that start next Japanese financial year, the firm said.

The weekly index for thermal coal prices at Australia’s Newcastle, a benchmark for Asia, has dropped 60 percent since a July 4 record amid declining demand and lower crude-oil prices and was $78.25 a ton in the week ended Dec. 12, according to the globalCOAL NEWC Index. Most coal imported into Japan is based on contracts for the year starting April 1, rather than Jan. 1.

The calendar year contract settlement, which are with utilities including Tokyo Electric Power Co., Asia’s biggest utility, “is broadly in line with current spot prices,” Citigroup said in the report. “However, the volumes sold on mid- year contracts are typically smaller than the Japanese financial year-based contracts.”

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net