Centennial Coal, which fuels some 47% of New South Wales electricity needs, has come out positive this week about thermal coal demand.

It said it believed Xstrata Coal had recently secured a thermal coal deal with Japanese power companies for $US83.50 a tonne.

Xstrata spokesperson James Rickards told ILN the company would not confirm if it had settled.

Centennial took in a bag of reports in its outlook, including other export spot sales around the $83.50/t level and settlements into Korean markets of $US70-75/t made a few weeks ago.

“Since that time, a number of metallurgical coal shippers, including PCI shippers, have reduced coal production, in particular certain Queensland mines,” Centennial said.

“This reduction in coal production, together with continuing strong demand for thermal coal as the northern hemisphere winter develops, has had a positive effect on thermal coal pricing – as evidenced by the reported Xstrata settlement and a firming in South African coal prices to $US85 per tonne in response to European northern winter demand.”

From its own operations, Centennial said it continued to receive enquiries for coal to be shipped via Port Kembla.

“In a number of instances, customers have nominated tentative shipment schedules for up to one year forward reflecting the strong demand for Port Kembla coal and continuing concerns regarding security of supply,” Centennial said.

Major American and Australian coal producer Peabody Energy has slashed its own production in line with other coal and steel producers around the world.

“In response to current economic conditions, global production cuts have been accelerating, with more than 70 million tons of known thermal and metallurgical production reductions around the world,” Peabody Energy said in its latest quarterly report.

“2009 global electricity demand will continue to be driven by China and India. China remains on track to be a limited net coal exporter, releasing just 25 million tonnes of initial coal export quotas for 2009, nearly 20 per cent lower than the initial 2008 period.

“Global coal supplies are expected to be limited due to a combination of growing domestic needs for electricity generation, voluntary production cuts and supply limitations related to production challenges, and limited access to capital.”

Evidence of booming Asian demand has come from the latest key thermal coal index data covering spot sales up to Friday, revealing that Newcastle coal has jumped 11% for the month so far while South Africa’s Richards Bay coal has dived 10%.

Interestingly the ARA index is below the globalCoal RB index, closing over $2 lower at $US70.56/t on January 23.

Paterson Securities coal analyst Andrew Harrington told ILN the ARA is generally considered to be South African spot prices plus freight.

With the ARA suggesting a negative freight, he said the higher Richards Bay price could reflect Asian prices rather than European ones.

On the thermal coal contract prices for the end of the Japanese financial year at the end of March, Harrington stuck to his forecast of $US80/t.

Despite the globalCOAL NEWC index jumping over 8% to $US88.19/t last week, he said the $US80-83/t area seemed more accurate.

“The spot price does have an impact but generally at this time of year, and this year is much more volatile than previous years, you get a little bit of deferral of deliveries and a bit of stockpile games being played to strengthen the hand of one side or the other,” he said.

“Obviously this year, the negotiating power, the bargaining power, is very much on the consumer side [such as] power stations, so I think the spot price will be an indicator but it will come down very much to negotiating positions.”

Meanwhile, Citi Investment Research released a set of dire commodity forecasts on Australia Day.

Analysts have thermal coal priced at $US70/t for both the 2009 and 2010 Japanese financial year and coking coal at $US120/t in the same period.

Citi has forecast semi-soft coal at $US75/t for the same consecutive years and low-vol pulverised coal injection coal at $US82/t for the timeframe.

Last month, the Australian Bureau of Agricultural and Resource Economics indicated that thermal coal could be a saving grace for Australia’s coal sector which has had the very lucrative coking coal market savaged in recent months.

ABARE said Australia’s exports of thermal coal would increase this financial year by 7% over 2007-08 figures as capacity constraints in infrastructure ease over coming weeks.

ABARE analyst Kate Penney said she expected thermal coal prices to be supported by continuing factors of expansions to coal-fired electricity generation capacity, especially in Asia, infrastructure constraints in key exporting regions and the commodity’s relatively low price compared to other energy fuels.