Japan's Tokyo Electric Power Company, or Tepco, on Friday finalized a January-December 2014 term contract with mining giant Xstrata for the purchase of Australian thermal coal at $87.40/mt FOB, two Japanese sources said.

The latest term price is higher than the October 2013-September 2014 term settlement of $85.80/mt FOB. Japanese buyers sign term contracts on a quarterly basis for every 12 months.

Tepco and Xstrata representatives could not be reached immediately.

Several other Japanese power utilities are now negotiating with Xstrata to settle their term contract price for the January-December 2014 period, one Japanese source said.

The utilities hope to finalize the negotiations before Christmas, sources said. Japanese offices will be closed from December 28 and most employees will return to work on January 6, they added.

He said the Japanese utilities have to negotiate for a combined purchase of 2 million mt of thermal coal under contracts for January-December 2014.

On Thursday, Platts assessed the daily 90-day FOB price for Newcastle coal with a calorific value of 6,300 kcal/ kg GAR at $86.50/mt.

Tepco was also the lead negotiator for the January-December 2013 thermal coal contracts. It had chosen to link the term contract for that period at a premium to the globalCOAL Newcastle index, rejecting a single benchmark price.

A source said the Japanese market generally expected a January-December 2014 settlement to be higher than the October 2013-September 2014 settlement as spot Newcastle coal prices had firmed.

On September 16, when Glencore Xstrata was still negotiating the October 2013-September 2014 contract with Tohoku Electric Power, Platts assessed the daily 90-day Newcastle 6,300 kcal/kg GAR FOB price at $78.50/mt.

Market sources said the Japan-Australia price settlement has no significant impact on spot Newcastle prices because it is generally accepted that Japanese power utilities pay a premium for their steam coal in consideration of quality and supply reliability.

However, the settled price will affect certain north Asian power utilities which take the Japanese benchmark prices into consideration when negotiating their annual prices for their term contracts.

A Japanese market source said the January-December 2014 settlement reflected the pick up in spot Newcastle 6,300 kcal/kg GAR prices which took place despite a supply surplus.

This source said Tepco's acceptance of a higher price is also a result of its additional requirement for Australian material for its new thermal coal-fired power facility.

Tepco has to procure coal for the earthquake-hit 2,000 MW Haramachi coal-fired power plant of Tohoku Electric in northeast Japan which fully re-started in April this year, where it has rights to half of the output in fiscal 2013-2014 (April-March).

Tepco also has new coal-fired power units scheduled for commercial operation this month: the 1,000 MW Hitachinaka no. 2 unit and 600 MW Hirono no. 6 unit.

Source: Platts