Australia's largest thermal coal exporter Xstrata Plc and Tohoku Electric Power Co have settled the first Japanese annual coal import contract for the year beginning April 1 at $95 per tonne, four industry sources said on Friday, down about $20 from a year earlier.

The price level, which was in line with most analyst expectations, is expected to be followed by other Japanese utilities, and will likely be used as the yearly benchmark for Asia.

Annual talks, which typically finish at the end of March, had been drawn out reflecting wide differences in the initial offer above $100 and a bid below $95, as Xstrata faces sliding coal prices and with Japanese utilities under pressure from Tokyo to cut fuel costs.

Tumbling prices have hit Australian coal producers, prompting layoffs and mine closures across the sector in efforts to cut costs, which industry sources say are as much as $100 per tonne at some mines.

"It's a big compromise (for Xstrata), I think," a Sydney-based market source said. "For suppliers, it's not a good number."

The settlement price represents a premium of $6.10 to the Australian Newcastle coal index price of $88.90 a tonne, partly due to the higher quality of coal demanded by Japanese utilities, but the premium shrank from more than $8 a year ago.

Source: Reuters