Hill and Associates expects global thermal coal demand to grow 2.32% per annum, with Pacific Rim growth to be led by India, China, Malaysia and Korea.

“Seaborne demand for steam coal will grow less rapidly over the next 10 years than in the past, due mainly to slower development of coal-fired power station capacity in traditional East Asian markets and less support from declining domestic production in Europe,” Henderson said.

“Steam coal prices are expected to fall significantly over the next two years, but will remain substantially above the historical average due to supply side constraints, increased production costs in Indonesia and market reliance on high-cost Russian coal.”

When spot steam prices jumped in 2003 there was little supply response from Australia with “sentiment poor due to low Australian prices”, according to Henderson. However, Indonesian producers were able to capitalise on that jump, filling the supply gap.

But now Indonesia’s costs have sharply increased, and are now similar to Australia.

Henderson said the positives for steam coal demand looking ahead was that India would rapidly increase steam coal imports and China, whilst volatile, should also increase strongly.

In Europe coal-fired power plants were expected to operate at high load factors, and there was renewed interest in constructing new, efficient coal-fired capacity in response to high gas prices, dwindling North Sea gas reserves and uncertain Russian gas supply.

Henderson presented his forecasts at a Gunnedah Basin conference last week, and given the predictions he said Gunnedah producers and explorers were in a good position for both steam and metallurgical markets.

“The Gunnedah area stacks up well, both in terms of FOB costs and coal quality, against other potential ‘new’ supply sources for steam coal, such as inland Kalimantan and the Surat Basin,” he said.

On the metallurgical markets, Henderson predicted global metallurgical coal demand to grow 3.3% per annum.

Henderson said in China there was “lots of headroom for growth”, whilst India was “just barely emerging!”

“A comparison of China to Japan, Korea to India suggests another 10 years of rapid growth,” he said.

“Semi-soft coking coal and PCI coal markets are forecast to be very fully supplied over the next 10 years; however, prices for these metallurgical coals are expected to be underpinned by firm steam coal prices,” he said.

Contract prices for hard coking coal for the 2006 financial year have fallen 8-10% from 2005 highs, with semi-hard and semi-soft dipping even further.

Henderson said further market correction was expected in fiscal 2007, with “markets moving back to fundamentals”

Semi-soft prices are expected to fall back to traditional relativity with steam coal.

Forecasts are from Hill and Associates’ recently released International Coal Trade Study.