Bucket wheel reclaimers operate in a coal stockpile site at the Onahama port in Iwaki City, Fukushima Prefecture. Glencore, the world’s largest exporter of the power-station fuel, will sell annual supplies to Japan starting from April 1 at $70 a metric tonne, according to analysts.

Bloomberg/Tokyo


Prices for a coal-supply deal between Glencore and Japanese utilities that will serve as an industry standard may be set at a six-year low amid competition from other energy sources.
Glencore, the world’s largest exporter of the power-station fuel, will sell annual supplies to Japan starting April 1 at $70 a metric tonne, according to the median of five analyst estimates compiled by Bloomberg News. That would be the lowest since 2009 and down from last year’s settlement of $81.80.
The slump in oil and LNG prices and the prospect of nuclear reactors restarting in Japan is undermining demand for coal.
Glencore said it will trim Australian production and consider shutting South African sites amid a global glut estimated by Credit Suisse Group AG to be 38mn tons this year, or about 4% of global trade.
“With oil and gas prices falling drastically, the competitiveness of coal is being whittled away,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group in Sydney. “That’s certainly going to play a part in discussions this time.” The price Japan’s utilities negotiate with Glencore 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% over the year. Spot prices closed at $60.56 in the week ended March 20 after climbing as high as $73.70 in February, Globalcoal data show.
 Glencore plans to cut its Australian output this year by 15mn tonnes, equivalent to about 22% of its production from the country, after shutting its operations for a three-week period in December, it said on February 27. The Baar, Switzerland-based company’s Optimum Coal Mines unit may close some sites in South Africa, it said in January.
“We don’t want to be the guys creating too much supply in the market, that’s all it is,” Chief Executive Officer Ivan Glasenberg said on a conference call with reporters this month when asked if the Australian cuts were linked to contract talks. “Naturally it will have an effect on the Japanese negotiations.” Japan’s utilities will be more inclined to agree to a higher price and potentially larger volume if they view supply security and quality to be at risk, Macquarie Group Ltd said in a March 17 note. Glencore’s announcement to reduce Australian output has “brought this into focus,” the bank said. It raised its contract estimate by 9.4% to reflect “the successful strategic efforts of producers to play into the insecurities of Japanese buyers through potential for production cuts.”
Contract negotiations have started and the aim is to reach a settlement by the end of March, said Takashi Suzuki, a Sendai- based spokesman at Tohoku Electric Power Co, which is representing Japan’s power producers at the talks. Francis de Rosa, a Glencore spokesman in Sydney, declined to comment on the discussions.
Japan increased buying of fossil fuels after the 2011 Fukushima disaster led to the shutting of the nation’s nuclear plants. Thermal coal imports were at 108.9mn tonnes in 2014, little changed from a year earlier, according to data on the finance ministry website. The nation purchased 101.6mn tonnes in 2010, the figures showed.