Benchmark Australian spot thermal coal traded above $67 a tonne on Monday amid final negotiations between Japanese utilities and Australian producers for 2008 contracts.

Traders said prices were also prodded higher on expectations of a supply squeeze worsening in the fourth quarter following news of Australia’s Newcastle port cutting fourth quartert export allocations by at least 1.7 million tonnes.

Thermal coal, used for power generation, rose 9 cents from a week earlier to $67.04 per tonne, the globalCOAL NEWC index showed on Monday, based on free-on-board (FOB) prices loaded at Newcastle.

“Spot prices are taking cue from negotiations between Japanese utilities and Australian producers, which are now being discussed at between $69-$71 a tonne,” said a source from a major Australian producer.

Other industry sources said market sentiment had changed significantly in the past week, following a bull run in the coal swaps market which saw delivered coal prices into the Amsterdam-Rotterdam-Antwerp (ARA) breaching $100 a tonne on Thursday. [ID:nL20737001]

The move by Korean utilities to already secure 2008 term contracts in anticipation of a worsening supply shortage next year has also boosted spot prices.

Australian producers, including Rio Tinto (ASX: RIO.ax) RIO.L and Peabody BTU.N, this month concluded negotiations with Korean utilities, such as Korea East-West Power Co (Kowepo) and Korea Southern Power Co (Kospo), for 2008 term contracts at about $66 a tonne.

Korea’s Midland Power Co (KOMIPO) on Friday issued a tender to buy 180,000 tonnes of bituminous coal, tender documents on its Web site showed. [nSYD133199]

Vessel queues at Australia’s Newcastle port dropped to a 10-month low of 44 this week, but still above the port’s stated target of 20 ships by November.

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