Xstrata Plc has tabled its offer to some Japanese utilities for thermal-coal term contracts starting in October at $175 a tonne, up 40 percent from April, prompting some firms to balk at the hefty increase.

    "They offered (coal) at $175 a tonne during negotiations last week," said a source who is familiar with the Japanese position.

    "I don't think the Japanese utilities would be interested at these price levels but the negotiations are still in their very early stages," said the source, who asked not to be identified because he was not authorised to speak to the media.

    The utilities included Chubu Electric and Tohoku Electric Power Co.

    The $175 offer price by the world's largest thermal coal exporter was a steep increase on the benchmark April settlement of $125 a tonne set this year. It was also $13 higher than the latest pricing on the globalCOAL NEWC index, a benchmark for Asia.

    A second source familiar with the Japanese position said utilities were expected to counter-propose with a headline price of about $160 a tonne, but include various sweeteners such as cancellation of outstanding 2008 tonnage that would bring the real value of the contracts to about $165 a tonne.

    Industry sources said the final price settlement for these October contracts would set the stage for negotiations next year's April-to-March fiscal year contracts.

    A source from Tohoku declined to comment on the prices offered, but said it was still considering whether it needed to buy further supplies as it had already secured most of its requirements earlier this year.

    Asian thermal coal prices have lost about $40 from their July peak of $201 a tonne, but they are still up about 70 percent since the start of the year.

    Suppliers said there was plenty of upside risk to prices with demand expected to strengthen as the northern hemisphere autumn and winter approaches and given signs of unstable supplies from China and Indonesia.