Benchmark Australian spot thermal coal prices jumped more than $4 to a two-and-a-half year high by sellers driving up offer prices ahead of negotiations with Japanese buyers for 2007 term contracts.

Thermal coal, used for power generation, rose $4.39 to $56.75 per tonne, the globalCOAL NEWC index showed on Tuesday, based on free-on-board (FOB) prices loaded at Newcastle.

The price was the highest since August 2004, when prices averaged about $58 per tonne.

“Prices were drummed up by the sellers who made these high offer prices but no buyers took the offer. There was no physical trade done on globalCOAL at these prices,” a source said.

GlobalCOAL said the last physical trade was done on Feb. 6, when 24,000 tonnes of Newcastle thermal coal were sold at $52.80 per tonne.

“It’s mostly the Australian producers trying to drive up prices to set the scene as they enter negotiations with the Japanese utilities,” the source said.

Spot prices on globalCOAL at the time of negotiations are often used as benchmarks for contract prices.

Encouraged by rising demand from Asian utilities and supply cuts from China, industry sources said that Australian coal miners, such as Rio Tinto LTD./PLC. and Xstrata , were looking to raise Asian thermal coal contract prices in 2007 to between $54-$55 a tonne, compared with the benchmark export price of $52.50 a tonne last year.

At least two Chinese coal producers have cut thermal coal shipments to South Korean power utilities due to short supply and high domestic prices, sources said on Tuesday. [ID:nSYD46676]

Analysts said the recent cut in Chinese supplies would significantly tighten the coal market in Asia and squeeze Japanese buyers’ bargaining power during negotiation with Australian producers.

Japan, the world’s biggest importer of coal, buys about 60 percent of coal from Australia. The rest are purchased from mainly Indonesia and China, which is the world’s second-largest coal exporter after Australia.

Infrastructure constraints at Australia’s Newcastle Port, which have led to swelling ship backlogs, would also add upward pressure on 2007 contract prices, analysts said.

Coal exports at Newcastle port rose 3 percent, or 46,000 tonnes over the week to 1.7 million tonnes at the week ended Feb. 12, port data showed.

The average waiting time at the port fell by almost a day from last week to 19 days, while vessel numbers lengthened to 61 ships, the longest in more than a year.

Australia is the world’s second-largest exporter of thermal coal after Indonesia, exporting 79.8 million tonnes in 2006, largely from Hunter Valley mines operated by Rio Tinto and Xstrata.

source news : asia.news.yahoo.com