The unwillingness of the Japanese to offer a customary $10 premium over prevailing coal prices to ensure supply is believed to have led to the impasse, with dire consequences for the Australian industry if prices settle below $100/t.
The final price of these negotiations usually set the benchmark for the whole of the Asian industry.
Xstrata and the Australian coal producers are believed to be seeking $102/t, while the Japanese utilities are pushing for $94/t.
A plunge below the $100/t would mean almost a quarter of the Australian coal industry would be operating unprofitably, according to some analysts.
The Australian coal industry is under pressure as exports from the US increase in response to the growing use of gas domestically and the Indonesian ramp up of exports from its fast-growing industry.
Added to this is the impact of the high Australian dollar and the growing cost of labour and consumables on the margins of Australian coal miners.
New investments in coal mining projects are now in doubt, with some speculation that Rio Tinto may entirely abandon coal in the NSW Hunter Valley.
Xstrata has not made any decision on the future of its giant Wandoan coal project in Queensland’s Surat Basin as it prepares to merge with Glencore. The Swiss-based trader has publicly stated that it was not in favour of developing greenfields projects in the current adverse environment.
But not all producers have such a dim view, with Yancoal Australia expressing some optimism over the direction of thermal coal prices.
“The thermal coal price may have reached a turning point in the third quarter of 2012 when a significant portion of the export industry around the world was losing cash,” the company said in a recent presentation.
“ A period of restocking in the fourth quarter in the lead up to winter in the northern hemisphere, strikes in Colombia and Australia and rain disruption in Australia in recent weeks have supported the thermal coal price.”
An increase in gas prices in the US led to increased coal burn for power generation therefore restricting exports from the US, it said.
“The outlook is for prices to be gradually increasing as economic growth around the world gathers some momentum.”
