In AME's just released 2003 Export Coal Strategic Study, warned that coal prices are forecast to decline with thermal producers most affected by a drop of around 4.5%. Coking coal suppliers fare better with a fall of 2%.

AME believes it unlikely contract prices between Japan and Australia will be finalised by April 1, the start of the Japanese fiscal year. This is as a result of international coal markets undergoing rapid change and being impacted on by a raft of issues expected to delay or complicate price setting this year.

“Weak thermal coal spot prices are not helping coal producers’ bargaining position,” AME said. “Contract prices for thermal coal dropped sharply in 2002. The Japan-Australia reference price fell 17% to around US$28.50 per tonne FOB. Since then, spot prices have sunk well below this level and are now hovering at around US$25/tonne FOB for Australian coal. Buyers are keen to bring contract prices in line with the spot market and to increase the tonnages they purchase by spot and tender methods, taking advantage of this highly competitive supply situation.”

Metallurgical coal producers fared much better, especially those producing premium hard coking coal. AME predicts a strengthening of the market dominance in this sector by the Queensland operations of BHP Billiton Mitsubishi Alliance, Anglo American and MIM. Their market share will reach 56% this year, up from 50% in 2000.

Major changes to the way thermal coal is traded in Asia-Pacific markets are also emerging this year. Asian power utilities are moving to increase coal purchase by spot and tender methods, holding prices down and favouring producers who can supply coal at low landed cost. Increased spot market business has, in turn, encouraged the development of marker indices and prices. This has been actively supported by major Australian thermal coal supplier Coal & Allied through its Newcastle Marker Price Initiative.

AME said changes to coal pricing structures in 2003 will ultimately lead to commoditization of thermal coal in Asia-Pacific markets and create a more unified pricing system that integrates contract and spot prices.

International coal trade is forecast to recover in 2003 with growth of 2.8% after a flat 2002. This is in sharp contrast to large percentage increases in traded coal volumes of 10% in 2000 and 7% in 2001, and heralds a period of lower overall growth in coal trade.

Imports to the Asian region will grow to almost 370Mt, 55% of global trade, driven by growing demand for thermal coal. Thermal coal demand in 2003 is forecast to reach 260Mt, a 5% year-on-year increase.

The “big three” thermal coal importers – Japan, South Korea and Taiwan – will maintain market dominance, accounting for around 75% of trade into the region but strongest growth is coming from India and Malaysia.

Export giant China is also a candidate for increased imports. Coal imports increased fourfold to 10.5Mt in 2002 as domestic supply struggled to keep pace with demand and imported coal remained attractively priced in coastal areas.

Against a background of consolidation of the international coal industry BHP Billiton remains the dominant export coal company with 10% of total market share. With partner Mitsubishi, it exerts overwhelming control over international coking coal trade, supplying 20% of global exports.

The planned integration of the Canadian coking coal assets of Fording, Teck Cominco and Sherritt’s Luscar Energy Partnership announced in early January will produce a single Canadian production and marketing entity with export production of around 22Mt per year. AME downplayed the risk to the market dominance of the BHP Billiton Mitsubishi Alliance (BMA), with the most probable outcome a loss of market share by high-cost US mining operations.

China will continue to exert a major but somewhat unpredictable influence over international coal trade. Exports account for less than 10% of China’s coal production and relatively small fluctuations in domestic demand can have a large effect on the volumes of coal available for export.

AME said the destabilisation of thermal coal markets over the past two years was largely caused by sharply increased supply from China. Its thermal coal exports lifted to 48Mt in 2000 and 79Mt in 2001 and although the tonnage declined slightly last year, its market power has forced other producers to review development plans. China has replaced Indonesia as the world’s second largest supplier of thermal coal after Australia.