End of downward spiral for thermal coal Thermal coal, the commodity used to fire power stations, has found a price floor. Coal is often overlooked in the commodities world, but it is critical for the profits of companies from blue-chip miners such as Anglo American to commodities trader Glencore. Its $800bn a year export market is crucial for the energy-security of nations including Japan and China. IN The Commodities note Xstrata on Friday settled a deal with Tohoku Electric, the Japanese utility, to supply thermal coal for the year starting April 1 at $115.20 a tonne for benchmark material, according to a person with knowledge of the negotiations. The deal represents a drop of 11.3 per cent drop from last year's record annual contract price of $129.85 a tonne. The London-listed miner typically sets the benchmark for thermal coal, which the industry then follows. The settlement, in the middle of market expectations, is the third highest in history and suggests that coal prices would rebound towards $115 in the next few months, reversing a downward spiral created by oversupply on the back of cheaper natural gas prices. Asian benchmark thermal coal for delivery in three months last week traded at about $110 a tonne, while prices for delivery in Europe are closer to the key $100 a tonne level. The strong settlement suggests that the supply glut created by US miners, who have been exporting an unusually large proportion of their production as their utilities clients shifted to natural gas, is starting to ease, or at the very least, is not getting any worse. For the last six months, US coal miners have increased their overseas sales, but now they are starting to cut output as they can no longer compete at current prices, traders and industry executives say. According to the US Department of Energy, domestic coal production fell 10 per cent in the first weeks of March compared with the same period of last year. The cutbacks were most pronounced in the Appalachian basin where some mine operators, including Consol Energy, Royal Coal Corporation, and Alpha Natural Resources, have chosen to idle mines in the face of weakened demand, according to the DoE. At current levels, US domestic thermal coal production is running well below the five-year average and there are indications that output could fall further later this year as more US miners are expected to shut down operations to save cash. The cutbacks in US domestic production should benefit miners with operations in other big producing countries, including Australia, Russia, South Africa and Colombia.