Chinese coal producers offered supplies to South Korean utilities at 7.5 percent above prices concluded in May with Japanese rivals because shortages of the fuel have worsened, said buyers involved in the talks.
Oct. 3 (Bloomberg) Sellers, including China National Coal Group, sought $73 a metric ton from buyers led by Korea Southern Power Co., said two Korean utility officials, who asked not to be named because of company rules. Korea, which turned down the opportunity in May to buy coal at $67.90, the same price Japan accepted, may have to agree to a 40 percent increase in the annual contract from the $52.10 a ton it paid last year.

China is increasing prices after the benchmark at Australia's Newcastle port reached a record $72.37 in August and Indonesian mines missed contracted shipments. Prices have doubled this year as China became a net importer for the first time in January and Japan increased purchases when an earthquake closed a nuclear plant in July.

``Market fundamentals and sentiment have changed a lot'' in the past few months, said Donovan Huang, a Hong Kong-based analyst at Nomura International Ltd. ``The situation favors the coal producers and I don't think consumers have much bargaining power.''

Talks between China and Korea are deadlocked after both sides met at least three times this year to try to agree on the price for 2008 supplies. Yanzhou Coal Mining Co., a unit of China's fourth-largest coal producer, won't sell the fuel at prices less than $80 a ton, Director Wu Yuxiang said Aug. 20.

Last Year

``The delay is mainly due to the price disagreement,'' said Fang Xiu'an, manager at the international division of China Coal Transport & Distribution Network, an association charged with marketing on behalf of producers. ``The Koreans wouldn't agree on the higher prices that China wants.''

Fang declined to comment on prices, as did Jiang Chun, a spokesman for China National Coal Group, the nation's second- largest coal producer and lead negotiator for China, and Zhou Dongzhou from China Coal Energy Co., the Hong Kong-listed unit of China National Coal.

South Korean utilities bought 6 million tons of coal from China in the year ended June 30. In 2006, South Korea raised imports from all sources by 4 percent to 80 million.

Buyers Japan and South Korea prefer Chinese coal, because shorter distances make it cheaper to ship than exports from Australia or Indonesia. Coal freight rates rose to a record Oct. 1. The utilities are seeking alternative supplies as insufficient port and rail facilities in Australia prevented Rio Tinto Plc, BHP Billiton Ltd. and Xstrata Plc from meeting demand.

Korea Imports

The line of ships waiting to load coal at Newcastle fell to 38 in the week ended Oct. 1, down from 44 a week ago, according to Newcastle Port Corp. Still, vessels waited an average 17.27 days to load compared with under six hours for general cargo.

Spot prices at Newcastle rose to $71.25 a ton today from $70.20 for the week ended Sept. 28, according to globalCOAL NEWC Index.

South Korea increased coal imports 9.1 percent in the first seven months of this year, to 50.7 million tons, according to the Korea International Trade Association.

``Freight cost is going up, and buying from China may still be cheaper as it is nearer,'' said Huang.

Prices at Qinhuangdao, China's biggest coal port, rose to a record of 564.26 yuan ($75) a ton for the week ended Aug. 10, according to McCloskey Group, which organizes coal conferences and published coal data and news.

Australia Contracts

China's coal imports surged 52 percent to 35 million tons in the January-to-August period, according to customs data released in Beijing on Sept 17. In the same period, exports dropped 20 percent to 33.5 million tons, customs said Sept. 11.

In an attempt to lock in supplies, Korea Southern Power signed contracts for about half of its 2008 coal requirements from Australia, agreeing to pay as much as 31 percent more than this year, a company official said Sept. 17.

The utility will pay between $65 and $67 a ton for 2 million tons of coal for delivery in 2008, the official said, asking not to be identified because of company rules. It is paying about $51 a ton for 4 million tons this year.

Japan paid $52.97 a ton for contracted coal shipments this year. Asia's second-biggest energy user agreed in May to a 28 percent increase for supplies next year, according to the Coal World Web Site, which is co-sponsored by the China Council for the Promotion of International Trade and the China Coal Transportation and Distribution Association.