Xstrata, which sets prices for Australian thermal coal contracts, is poised to sell the fuel to Japan at the lowest level in three years amid speculation that the nation’s imports will slow while Chinese purchases ease.

Japan’s power producers will pay $98/t for annual supplies starting on April 1, according to the median estimate of seven analysts in a Bloomberg News survey. That would be the first settlement below $100/t since 2010. Utilities paid $115/t in 2012 for a 12-month accord with Xstrata. Spot prices have risen to $94.05/t since falling to $78.05/t in October, the lowest level since 2009, data from IHS McCloskey show.

While threatening to reduce margins for producers including Xstrata and Rio Tinto Group, which has cut workers because of high costs and low prices, a drop in contracts will be a boost for utilities such as Tokyo Electric Power, which have been paying more for lique- fied natural gas after the 2011 earthquake and tsunami shattered nuclear power plants. Japan’s coal import growth is forecast to slow to 2% this year from 5% in 2012, according Australia’s Bureau of Resources and Energy Economics.

“Coal-fired power stations in Japan have been at full capacity and I don’t see any change from that,” says Daniel Morgan, a commodity analyst at UBS, in Sydney, who forecasts contracts may be settled at $105/t.

Japanese utilities agreed to pay a record $129.75/t for annual supplies in 2011 as flooding curbed output in Australia and Indonesia, the world’s biggest exporter, according to Xstrata. Contracts were settled at $98/t in 2010. The forecasts for 2013 ranged from $92/t to $105/t in the Bloomberg survey conducted from January 24 to February 13. The price Japan agrees on is used as a benchmark for contracts around the region.

Coal at the Australian port of Newcastle, the marker grade for Asia, advanced for a second week to $94.05/t in the seven days ended February 8, the highest since May, IHS McCloskey data show. Prices averaged $94.29/t last year after slipping to a three-year low of $78.05/t on October 19, according to IHS.

The election victory by Japan’s Liberal Democrat Party in December has prompted speculation the country’s atomic plants may be restarted. As all but two of 50 reactors remain off line, the Japanese government will await new safety standards for nuclear plants before deciding whether to allow them back, says Shinzo Abe, Japan’s Prime Minister.

“If the reactors come on line, it’ll probably affect gas imports,” Morgan says. “I don’t think it’s going to have a bearing on thermal coal negotiations.”

Japan’s atomic reactors supplied 30% of its electricity before Fukushima, according to data from the country’s trade body for utilities, the Federation of Electric Power Companies of Japan. The country’s new nuclear regulator has said it will announce the rules in July and Abe has indicated some reactors may restart during the next three years if they meet the tougher safety standards.

Thermal coal imports by Japan rose 6.5% year-on-year to 107.7-million tons in 2012, according to preliminary data from the Ministry of Finance. The country bought 101.2-million tons in 2011 and 101.6-million in 2010, customs data show.

“We’re near the tail end of the seasonal strong period, so we would expect a consolida- tion in prices,” says Mark Pervan, head of commodity research at Australia & New Zealand Banking Group, in Melbourne, who predicts contracts may be settled at $98/t.

Japan is the biggest consumer of Australian coal used to produce power and steel, according to the Bureau of Resources and Energy Economics. Newcastle, the world’s largest export harbour for the power station fuel, shipped 121.9-million tons in the 12 months ended June, according to the Newcastle Port’s annual report. About half of exports went to Japan.

While thermal coal is used in electricity generation, the metallurgical or coking variety is needed by steelmakers.

An increase in consumption from the Chinese power sector may still help underpin a “modest” recovery in prices in 2013, Goldman Sachs Group says.

Demand from Chinese utilities has rebounded after a period of underperformance and is projected to continue rising this year, says Christian Lelong, an analyst at Goldman Sachs, in Sydney. Goldman forecasts prices at Newcastle will average $100/t in 2013.

“Global coal markets remained challenged in 2012, with strong increases in seaborne thermal demand but a weak global pricing environment and significant declines in US coal use,” says Gregory H Boyce, chairperson and CEO of Peabody Energy, the largest US producer of the fuel. “Turning to 2013, recent data suggests that China’s economic growth is again accelerating, and we have seen some rebound in global coal prices.”

Storm Impact

China, which buys about 18% of Australia’s thermal coal, may slow seaborne import growth to 5% this year, compared with 13% in 2012, according to the Bureau of Resources and Energy Economics.

“Chinese coal imports are likely to fall in absolute terms in 2013 as lower-priced domestic supply pushes out imports,” says Michael Parker, a senior analyst at Sanford C Bernstein & Co, in Hong Kong. “It will become tougher for the seaborne market to meet the China price.”

Consumers from Japan to South Korea may be spared further cost increases even after flooding from tropical cyclone Oswald swamped rail lines and cut supply from Queensland in Australia, UBS and CIMB Securities Australia said last week. The state is a bigger producer of steelmaking coal than the thermal variety, according to government data.

Workers at Cerrejon, a Colombian coal mine owned by BHP Billiton, Xstrata and Anglo American, went on strike on February 7 after wage talks failed. The industrial action was a day after Colombia, South America’s largest supplier of coal, suspended Drummond Co.’s loading licence following a spill. Cerrejon and Drummond together accounted for 80% of Colombia’s annual coal exports of about 75-million tons in 2011, according to the World Coal Association.

“Inexpensive domestic Chinese coal and Chinese holidays will tend to cap any near-term price movement unless strike action in Colombia is prolonged or weather-related issues intensify in Indonesia and/or Australia,” says Daniel Hynes, the head of commodity strategy at CIMB, in Sydney.