Asian utilities begin negotiations with coal producers this week and may be forced to pay as much as 36% more for their fuel after heavy rain in Australia, Indonesia, South Africa and Colombia disrupted output.

Analysts from Bank of America Merrill Lynch, UOB-Kay Hian Ltd, Citigroup Inc and National Australia Bank Ltd said that prices for the year starting April 1 may increase to between USD 125 and USD 133 a metric tonne. Japanese utilities agreed to pay Xstrata Plc USD 98 a tonne for the 12 months starting April 1st 2010.

Mr Mark Pervan head of commodity research at Australia & New Zealand Banking Group Ltd in Melbourne said that “There are still lingering supply concerns around the place, not just in Australia.” The bank has forecast contract prices may rise to USD 125 a tonne.

According to Citigroup, heavy rain has crimped output in Colombia, Indonesia and Australia, where flooding in December and January shut mines and damaged rail lines in Queensland, the nation’s biggest coal-producing state. Prices more than doubled to a record AUD125 a ton in 2008 after floods disrupted supply from the state. Contract negotiations start this week.

Citigroup analysts said in a Feb. 11 note said that while prices of the fuel for immediate delivery have eased back after increasing to a two year high last month, the focus will be on the longer-term outlook. The bank said that “We still see strong demand growth and expect contract prices to be settled at record highs.”

(Sourced from Bloomberg)