TOKYO -- Tohoku Electric Power has negotiated a 17% drop in the price of imported coal this fiscal year, likely setting off a trend that will spread to other utilities and help push down Japanese electricity prices.
The company reached the agreement with Anglo-Australian resource giant Rio Tinto. Australian coal will sell in the upper $67 range per ton -- about half of the $130 peak marked in fiscal 2011 and the lowest in eight years.
Power companies in Japan buy 60-70% of their coal under annual contracts, a majority of which start in April.
Tohoku Electric had negotiated prices with Glencore of Switzerland until last fiscal year, but the two sides could not come to terms this time around. Going forward, Rio Tinto may handle price talks for producers.
The supply-demand balance for coal is loosening. Imports by China, the world's top consumer, were down 50% on the year in the first two months of 2015 on an economic slowdown and tighter environmental regulations. But producers in Australia, Russia and elsewhere are stepping up output amid a tailwind of weak home currencies.
Japanese imports of steam coal jumped 20% over five years to reach more than 108 million tons in 2014. With the nation's nuclear plants slow to restart, coal-fired plants are running at nearly full capacity. The fuel is a cheaper alternative to liquefied natural gas.
Electric utilities, trading houses and gas companies are moving to build more coal-burning plants to secure cheap power as Japan prepares to open up its retail electricity market next year.
Tokyo Electric Power cut household electricity rates this month in light of cheap crude oil. Lower coal costs will likely more than offset the negative impact of the Japanese currency's slide against the dollar, pushing down the utilities' fuel costs further.