Tohoku to Buy More U.S., Canada Coal to Cut Australia Reliance

Tohoku Electric Power Co. (9506), Japan’s third-biggest user of thermal coal, plans to increase imports from the U.S. and Canada to cut costs and reduce its reliance on Australian supplies.

The Sendai-based utility will nearly double North American coal purchases to 5 percent of its total, according to Takayoshi Enomoto, the group manager of the company’s fuel department. Tohoku Electric is considering shipments from “several promising” projects in the U.S. and Canada, he said in an interview on Dec. 20.

“Even as Australia has established a permanent position as a main supplier, we regret we have been heavily depending on it,” Enomoto said at Tohoku Electric’s Sendai headquarters in northern Japan. Boosting coal imports from North America may improve the utility’s bargaining power and prompt Australian sellers to reduce prices, he said.

Japan’s government is urging power companies to pay less for coal, natural gas and oil amid an industry shift to thermal power generation. The country, which imports almost all of its coal requirements, has more than doubled purchases from the U.S., where a shale boom has encouraging buyers to switch to gas, driving down coal demand.

The U.S. shipped 1.69 million metric tons of thermal coal to Japan in the first 11 months of 2013, up from 634,000 tons a year earlier, according to data from the Finance Ministry. That’s about 1.7 percent of total imports. Canada was the fourth-largest supplier, accounting for 2.3 percent, while Australia shipped 73 percent.

Photographer: Tomohiro Ohsumi/Bloomberg

The Sendai-based utility will nearly double North American coal purchases to 5 percent of its total, according to Takayoshi Enomoto, the group manager of the company’s fuel department. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

The Sendai-based utility will nearly double North American coal purchases to 5 percent of its total, according to Takayoshi Enomoto, the group manager of the company’s fuel department.

Joint Purchases

Tohoku Electric isn’t alone among Japanese power utilities in targeting cheaper coal supplies from North America. Kansai Electric Power Co. and Kyushu Electric Power Co. in November 2012 signed a one-year agreement to jointly import 1 million tons of U.S. thermal coal from Oxbow Carbon LLC in West Palm Beach, Florida.

Tohoku Electric plans to expand the use of tenders and the spot market for buying coal, according to Enomoto.

“We’re also in talks with some companies to jointly purchase coal” to reduce prices and increase flexibility, he said, without providing details.

The company settled a benchmark annual contract with Glencore Xstrata Plc, the world’s biggest exporter of thermal coal, for Australian shipments that started in October, according to a person with knowledge of the negotiations. It will pay $85.80 a ton, 11 percent less than a year earlier. Tokyo Electric Power Co. signed a deal for January to December with the same supplier at $87.40, Platts reported on Dec. 20.

Central Appalachian thermal coal futures, the U.S. benchmark grade, averaged $56.12 a ton in 2013, down from a peak of $143.25 in July 2008.

Japan’s 10 regional power companies burned a record amount of coal and liquefied natural gas in November, according to the Federation of Electric Power Cos. The nation’s 50 nuclear reactors have been shut since September, with no restarts scheduled.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net

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