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These Closed-Door Deals Look Good For Coal

More evidence is emerging that thermal coal prices have bottomed.

Some of the world's largest coal buyers and sellers are coming out of high-profile negotiations this week. Deals aimed at setting benchmark coal prices for the coming year.

And early reports from behind closed doors suggest producers are winning the battle.

Sources in Japan told Platts that Tokyo Electric Power Company (Tepco) is likely to settle on a price of $87.40 per tonne. The deal comes as part of negotiations with major producer Xstrata. For production from the firm's Australian mines.

Such a price would be a solid indicator for the coal market. Coming in above the $85.80 per tonne price that prevailed for Japanese buyers in negotiations last quarter.

It would also represent a premium to the current trading price of Australia's benchmark Newcastle coal.

The deal doesn't cover a large amount of supply. Only pegging about 2 million tonnes--or a few percentage points of overall Japanese imports.

But it is a sign that coal demand is starting to tighten. Suggesting the worst may be behind us for pricing in the Pacific sphere.

Japanese buyers may also be growing more aggressive in the face of new coal-fired capacity coming online in the country. Tepco is expected to start up two new plants this month, with combined capacity of 1,600 MW.

All good news for the coal market. Especially with India's coal imports still running at high levels. And supply from major producer Indonesia being threatened by government restrictions on output.

We'll see if the Japanese deals mark the start of further rises in this market.

Here's to getting a good price,

Dave Forest




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