“Coking coal is going to be the real wild card,” he said.

“It really is going to depend on China and at this stage the picture as far as Chinese steel production and iron demand etcetera is fairly opaque.”

While the Chinese have been actively buying iron ore, Wendt said whether that was actually going to steel consumption or steel production remained to be seen.

“Are they [Chinese steel mills] just accumulating iron ore or they are actually using it to produce steel?

“That seems to be the point of debate at the present time. They could well be just accumulating iron ore at low prices and stockpiling it for later use.”

Wendt pointed out there were rumours that China might cut back iron ore imports now that sufficient stocks had been accumulated, but “we really don’t know”.

“From that perspective coking coal is very much tied to iron ore,” he said.

Wendt expects thermal coal to have a stronger outlook in the short term over the next 12 months and said it would take a bit longer for coking coal to recover.

He said his view of pulverised coal injection (PCI) coal was somewhere in the middle, as it could be substituted for more expensive coal.

Wendt said he still liked Macarthur and considered the company to be Fat Prophet’s pick out of the coal sector.

Despite the recent collapse in PCI coal demand, Wendt thought Macarthur was in a great position by dominating that market and said being in PCI coal effectively hedges a company’s bets.

Although Wendt has a positive outlook on thermal coal, he also expects to see more volatile pricing.

“I think we are going to see prices up and down. I think the oil price is going to be very volatile and that will have an impact, to a degree, on thermal coal prices.”

The coal sector post Noble bid

While Noble’s $7 per share bid for Gloucester Coal has brought more mainstream media attention to the sector, Wendt does not see any merger or acquisition activity on the horizon.

“We are sort of running out of eligible candidates to a large degree,” he said.

“We’ve seen the number of coal companies in the Aussie listed space diminishing year by year.

“There is an incentive for new companies with advanced resources to make the step up from, I guess advanced explorer status, to production status, and I think that is going to happen over the next couple of years.”

He said this range of up and coming companies should be in a situation where they can launch their mines and production when coal prices start to improve over the next 12-18 months.