"Higher world prices of crude oil, a substitute fuel for coal in power generation, will also support increased consumption of thermal coal in the power generation sector in 2003," the agency said in its latest quarterly forecast.

After rising strongly in early 2002, thermal coal prices on the spot market fell by about $US4 a metric ton, to around $US22/ton between June and September. Drops in global energy demand lead to increases in coal inventories held by thermal coal users.

"Spot thermal coal prices haven't been this low since early 2000 and are currently below the reference price of US$31.85/ton negotiated in early May with Japan's largest coal using power utility, Chubu Electric Power," ABARE said.

The price is around 7.7% lower than the preceding fiscal year's US$34.50/ton.

Australia, the world's largest thermal coal exporter, has seen its thermal coal stocks at ports rise around 37% over the first half of 2002, peaking in May at 8.6 million tons. That fell to around 7 million tons in July, Abare said.

However, thermal coal prices have started to recover modestly, as Europe and Asia move into the peak winter demand period, said Abare.

China is expected to export 75 million tons in 2002, 5% less than last year.

The closure of many small coal mines in China over 2001 has drastically cut domestic supply, resulting in the need to import coal. ABARE expects coal imports in China to reach around 8 million tons this year, making China the fastest growing market for imported thermal coal in 2002, ABARE said.

Coking coal prices are likely to rise in 2003 due to the limited number of new operations coming on stream. A continued shortage of quality product, drops in exports from Canada and US, together with rising demand, will contribute to higher coking coal prices.

In fiscal 2002-03, Australia is forecast to export 110.9 million tons of metallurgical coal, up on the 105.4 million tons exported in 2001-02.

Australia is expected to export 96.9 million tons of thermal coal in fiscal 2002-03, up on estimates of 92.2 million tons for fiscal 2001-02.

Total export earnings from coal for fiscal 2002-03's are forecast at $13.3 billion, 4.5% higher than the $12.8 billion in the June quarterly forecast.

The impacts of a Japanese government proposal to tax coal imports are yet to come into play and could change the cost competitiveness of coal versus other fossil fuels in power generation.