Coal prices forecasted to decline as supply recovers, says Morgan Stanley

Coal prices are forecasted to
decline this half as supply recovers from flooding in Australia, the
biggest exporter, and demand in China and Japan slows, Morgan Stanley
said.

“We've seen a normalization of
supply both in the thermal and coking coal markets out of Australia,” Peter
Richardson, Morgan Stanley's chief metals strategist, said today at a panel discussion
in Brisbane. “Our view is that the two markets will struggle in the first half
of the year.”

Coal prices had hit records last
year after widespread flooding in Queensland and New South Wales crimped output
at mines and disrupted train lines. But prices have dropped since then as
supply returned to normal and demand in Japan was slow to recover following
last year's tsunami and earthquake. Demand growth in China has also slowed
as steelmakers have been unable to pass on increased production costs, he said.

Morgan Stanley forecasts coking
coal, used to make steel, to trade at an average spot price of $210 to $235 a
metric ton during 2012, and thermal coal in a range of $110 to $120 a ton.

Coking coal prices reached a
record $330 a ton last year. Thermal coal prices at the Australian port of
Newcastle slipped 12 percent to $111.35 in 2011, the biggest annual drop since
2005 and the first since 2011, IHS McCloskey data show.

The outlook for the coal market
may have become “slightly pessimistic” in the short term, said Bill Champion, Rio
Tinto Group (RIO)'s managing director for its Australian coal unit.

“In the long-term, the China and
India demand growth story remains intact,” he said.

Source: Bloomberg