Glencore completes key thermal coal contract talks with Tohoku

Glencore, the miner and commodity trader, has finally ended key contract talks with Japanese utility company Tohoku, securing a price of $85 a tonne for the supply of thermal coal, according to people with knowledge of the discussions.

The spring talks between Glencore, the world’s biggest exporter of seaborne thermal coal, and Tohoku are the most important in the coal calendar, effectively setting the price for the commodity in the giant Asian market.

Traders reckon around 75m tonnes of coal are priced off the agreement between Glencore and Tohoku across Asia. This includes utility companies in Taiwan and Malyasia as well as Japan.

While the price achieved by the Glencore is lower than in October – negotiations that cover a much smaller volume of coal than the Spring contract – it is significantly higher than this time a year ago when it was settled at $61.20 a tonne.

The contract is usually settled at a premium of around 10 per cent to the price of benchmark Australian thermal coal with an energy content of 6,000 kcal/kg. On Friday, that material was assessed at $76.48 a tonne by Argus.

Glencore expects to produce around 135m tonnes of coal this year from its operations in Australia, Colombia and South Africa. Traders said a price of $85 a tonne in the latest negotiations was a good price for Glencore, which produces coal for around $44 a tonne according to its latest guidance.

Thermal coal is used to generate electricity in power stations. Last year the price doubled, reaching more than $100 a tonne after China imposed production curbs on its producers in an effort to the profitability of its coal industry and tackle pollution.

In a weak mining sector, shares in Glencore were down 3p at 286p on Monday morning.