During the quarter steam coal imports by the top five increased by 10.3Mt, whereas coking coal imports fell by 1.3Mt.

Market conditions for steaming and coking coal remain, however, quite the opposite of what would be expected from the demand side of the equation. Supply side factors are certainly dictating market conditions. Coking coal markets remain tight, despite falling demand, owing to continued steep falls in US coking coal exports.

On the other hand, steam coal markets are weakening despite top five import growth of 20% in the quarter and 23% in the nine months to September. Chinese coal exports increased by 24.4Mt in the nine months to September, enough in itself to cater for most of the increase in coal imports by the top five of 30.5Mt over the same period.

Steam coal prices were volatile through late November and early December, with some blaming the erratic market on buyers repositioning in light Enron's problems. This may be a factor in explaining the bounce back in South African spot prices to US$29.00/t FOB by mid December, whilst Australian spot prices continued to move down to US$26.80/t FOB.

Australian producers have held back on offering steam coal at low spot prices on transparent markets, such as Global Coal, in advance of annual Japanese price negotiations. But high coal inventories have forced the hands of some, with Newcastle shippers winning the recent Tohoku spot e-tender for 120,000t at a price around US$25.5/t FOB.

Traditional tenders let around the same time by other Japanese utilities have been won at prices of around US$26.5/t. Tohoku's move to remove, for the first time, restrictions on participation by bidders appears to have saved it a dollar per tonne, compared with traditional tenders that are restricted to certain pre-qualified bidders.

The progressive decline in spot steam coal prices since March is yet to show up in average Australian export prices, which were up slightly to US$31.49/t in October. This reflects the increase in prices on term contracts through the middle of the year. It would also seem to confirm our view that low priced options on long-term contracts are not such a significant factor this year.

Average prices must, however, start to reflect the decline in spot prices soon - probably starting with data for November due out soon. Thermal coal negotiations are set to commence in mid-January and it appears that negotiations will follow a similar format to last year, with Chubu and Tohoku negotiating a 'reference price again for JFY 2002.