DJ FOCUS:J-Power Secures 90% FY08 Coal; Price Remains An Issue By Mari Iwata
Of DOW JONES NEWSWIRES TOKYO (Dow Jones)--Japan's largest thermal coal buyer said Friday it has already lined up around 90% of the coal it will need for the next fiscal year starting April 1. Electric Power Development Co. (9513.TO), better known as J-Power, has secured about 90% its annual coal needs - about 20 million metric tons - despite continued tight supply in the Asia Pacific coal market, Executive Vice President Masayoshi Kitamura said. Although agreements on volumes have mostly been worked out, prices are still only tentative, pending conclusion of talks between Australian suppliers and some Japanese utilities, which act as a benchmark for Japan's coal purchases. "We have diversified sources, buying more from countries like Indonesia, South Africa and Russia," said Kitamura. Coal prices have soared in the Asia-Pacific market in the past year, driven by rising demand from India and China, and more recently by a temporary Chinese ban on coal exports. About 10% of the coal used by Japan last year came from China. In addition, bad weather and infrastructure bottlenecks have curbed output from Australia, the source of some 60% of Japan's coal imports. Although J-Power has kept receiving coal exports from China since its export ban was imposed in February, the company feels China won't maintain previous export levels to Japan in the future, said Kitamura. Term supply volumes from China to Japan in the fiscal year ending on March 31 were cut by roughly 40% below the contracted minimum supply obligation of 7.3 million tons, according to Japan Coal Development Co., a coal trade joint venture owned by 10 major Japanese utilities. Accordingly, J-Power has been lining up alternative supplies for the next fiscal year, he added. The company has a policy of not disclosing details of where it gets its coal from. But Australia is the source for about half, with China and Indonesia minor but important complementary suppliers, according to another company official, who asked not to be named. Japan's 10 regional power utilities together burn about 51 million tons of thermal coal a year, about 60% of it coming from Australia, according to data from the Federation of Electric Power Companies Japan. The figure excludes J-Power's purchases. Above or Below $100 But price talks are still far from being settled, said Kitagawa. Chubu Electric Power Co., Japan's third largest power utility by capacity and second-largest thermal coal buyer, is still in negotiations with Australian suppliers on the price it will pay for fiscal 2008 supplies. Chubu Electric has been holding out for prices below $100 a ton, Kitagawa noted. Since Chubu's term prices are widely used as a benchmark for Japanese utilities, "the other utilities are encouraging Chubu Electric, in the hope it will stand firm in the negotiations." With the next fiscal year starting Tuesday, Japanese utilities are having to buy term coal at tentative prices, and Kitamura feels the price talks may take a few months more. Chubu Electric has rejected Rio Tinto PLC's offer to supply Australian thermal coal at $135 a ton for the next fiscal year, Dow Jones Newswires reported earlier. Chubu Electric has also rejected Xstrata PLC's offer of $125/ton. Current term prices between Australian producers and Japanese utilities are around $55 a ton.
