Taipower settles term coal deals below spot rates

Taiwanese state-owned utility Taipower has settled its thermal coal term contracts with Australian producers at $137.44/t fob, below spot market rates, a source close to the matter said.

Taiwanese buyers have traditionally referred to the fixed price in the term contracts between Switzerland-based mining and trading firm Glencore and Japanese utility Tohoku Electric Power for their deals. But prolonged stalling in price negotiations between Glencore and Tohoku has prompted Taipower to settle its contracts without the reference price.

The settlement has not been officially confirmed by Taipower.

Taipower's latest contract deal with its Australian suppliers signals a move away from the long-time practice of using the Glencore-Tohoku price, also known as the Japanese reference price (JRP), as a pricing cue.

The price negotiations between Glencore and Tohoku for term contracts that start in April have historically involved the largest volume of coal supplied from Australia to Japan. The JRP serves as a reference for other Australian coal producers and Japanese utilities. It is also followed by other Asian coal buyers including those in Taiwan, Thailand and the Philippines.

Taipower and its Australian suppliers agreed to the price of $137.44/t fob in July-August this year for GAR 6,322 kcal/kg coal, the source told Argus. The price applies to term contracts that run from January-December this year. Price negotiations for these contracts usually start in April of the same year, after the contracts have started running.

Taipower has a few contracts with Glencore for the supply of Australian coal, but these contracts have not been settled because the two parties have yet to agree on the price, the source said. They expect to conclude price negotiations for these contracts by the end of September.

The source did not disclose the volume involved in any of Taipower's term contracts.

Taipower's settlement price was lower than the spot market rates at the time when the price was agreed upon. The price of high-calorific value (CV) NAR 6,000 kcal/kg coal rose in August to above $140/t fob, according to Argus' assessment. This was because traders anticipated greater demand for thermal coal on concerns about natural gas supply because of the Russia-Ukraine conflict. The price of high-CV coal rose by 7pc from 2 August to 16 August, to $145.41/t fob Newcastle. It has since pulled back and was last recorded at $140.82/t fob on 6 September.

Glencore may have tried to fix the JRP at $145.95/t fob through a smaller deal with a Japanese firm. It had signed a term contract with another Japanese firm that was not Tohoku in March at this price for the supply of high-CV Australian coal, market participants said at the time. Some Japanese utilities, steel mills and industrial users had followed the cue and settled their contracts at the same price.

By Jinhe Tan