By Fayen Wong SYDNEY, Nov 1 (Reuters) - Japanese utilities have...

By Fayen Wong

SYDNEY, Nov 1 (Reuters) - Japanese utilities have agreed to a

40 percent increase in the price of Xstrata's Australian

thermal coal over the next year, two sources said on Thursday, in

another sign of consumers bracing for tight supplies next year.

The industry sources said the settlement at $78 a tonne for

contracts running for 12 months from October 2007 set the stage

for negotiations next year on the larger benchmark April-to-March

fiscal year contracts, which were set at $55.65 this year.

"It is not far-fetched to say that annual contract prices

will be at $80-levels next year, especially since negotiations

for term-contracts normally begin in the first quarter," said Paul

Gray, a commodities analyst at Goldman Sachs.

"And I can't think of what could push prices down in 2008."

The contract with Xstrata, the world's largest thermal coal

supplier, is for coal with a calorific value of 6,000 kcal/kg

(net as received basis), a maximum 15 percent moisture and not

more than 14 percent ash.

Japanese utilities have two annual contracts, with most

orders set for the fiscal year from April to March.

Japanese utilities, including Chubu Electric <9502.T> and

Tohoku Electric <9506.T>, had initially balked at the $69-$71

price Xstrata was asking and wanted to wait for spot prices to

fall before resuming negotiations in earnest.

Analysts have also been betting on a more modest rise, with

the average of a Reuters poll in mid-September predicting an

annual contract price of around $64 a tonne. [ID:nSYD251144]

But the recent surge in spot Australian coal prices and

further tightening of supplies prodded them to agree to the deal,

sources said.

"The utilities are short on coal for the fourth quarter and

early next year and they know buying in the spot market will only

drive prices higher, so they decided to secure the deal," said a

source familiar with the negotiations.

Benchmark Australian spot thermal coal prices leapt to a

record $83.38 on Tuesday, as Asian buyers scrambled for prompt

supplies ahead of winter, and forward prices have also rallied.

Australian coal prices for 2008 have risen to more than $80 a

tonne, up about 23 percent from $65 in July. Two Australian

thermal coal shipments for loading in July and August 2008 were

traded on Wednesday at $80.50 a tonne FOB Newcastle, data from

electronic trading platform globalCOAL showed.

Coal producers said prices were set to climb even higher in

coming weeks as Asian utilities scour for more supplies for

winter heating and as the impact of Anglo Coal's force majeure on

supply from its Dawson and Moura mines in Australia sinks in.

"The Indian buyers are also desperately looking for coal,"

said a source from a major Australian producer.

Rising domestic coal prices in China would also prompt

Chinese producers, including Shenhua Energy Ltd

<601088.SS><1088.HK> and China Coal <1898.HK>, to trim exports

and keep more supplies for utilities on the mainland.

Coal with calorific value of 6,000 kcal/kg struck a record of

535 yuan ($71.41) per tonne on Oct. 15 in Qinhuangdao, up 50 yuan

from its trough in May, the Ministry of Commerce said late last

month.

((Reporting by Fayen Wong; editing by James Regan and Tomasz

Janowski; Reuters Messaging: fayen.wong.reuters.net@reuters