Thermal coal at Australia's Newcastle port, the Asian benchmark, averaged $77.06 a metric ton in the third quarter, the lowest since the same period in 2009, according to data from IHS McCloskey. Prices fell as low as $76.10 and rose 3.4 percent to $78.65 since then. Morgan Stanley forecasts a fourth-quarter average of $82 while CIMB Group Holdings Bhd predicts $85.
Mining companies including New Hope Ltd. in Australia, the second-biggest exporter of coal burned in power plants after Indonesia, are seeking to diminish a glut that Morgan Stanley said will reach 14 million tons this year, or 1.6 percent of global seaborne supply. A 25 percent drop in supplies at Chinese power generators signals that demand for imports may increase. Higher prices will erode profit for Japanese utilities that are using record volumes after the nation's nuclear plants shut.
"There's going to be a bit more buying activity from the Chinese," said Mark Pervan, the head of commodity strategy at Australia & New Zealand Banking Group Ltd. in Melbourne. "We're starting to see a decline in Chinese stockpiles at both port and power plants. That's a good sign for demand."
Coal at Newcastle declined 16 percent since reaching this year's high of $94.05 in February, according to IHS McCloskey, a Petersfield, England-based data provider. Prices may average $85.50 next year, according to the median of nine analyst estimates compiled by Bloomberg News.
Supply cuts, stronger demand from China and restocking before the northern hemisphere winter may lead to a "modestly increasing spot price," Peter Richardson and Joel Crane, Melbourne-based analysts at Morgan Stanley, said in an Oct. 7 report. Thermal coal inventories at Chinese utilities are at the lowest level in two years, they said.
Combined stockpiles at 400 power plants in China dropped by about 25 percent from a year earlier to 63.5 million tons at the end of August, according to the latest data from the China Coal Transport and Distribution Association. The plants account for about 60 percent of the nation's power generation.
Supplies at the port of Qinhuangdao, the delivery point for about 40 percent of China's seaborne coal, dropped in six of the past nine weeks and were at 6.1 million tons Oct. 14, according to the association. They averaged 6.7 million tons this year.
Pre-winter stockpiling in China may boost prices less than expected because prices at Qinhuangdao are about $5-a-ton higher than domestic supply, Deutsche Bank AG said in an Oct. 14 report. The bank anticipates a fourth-quarter average of $77 for Newcastle coal.
Price gains also may be tempered by slowing economic growth in China and a slump in India's rupee that made dollar-denominated coal more expensive for the world's second-biggest importer. Indian buyers sought to defer deliveries after the currency fell to a record low against the greenback in August.
China's economic growth will slow to 7.4 percent next year, the weakest since 1990, according to the median of 57 economist estimates compiled by Bloomberg. The country shut about 300 million tons of annual production capacity in 12 months, Ian Roper, a strategist at CLSA Ltd. in Shanghai, said in August. That's equal to about 8 percent of the country's total coal production last year, World Coal Association data show.
Glencore Xstrata Plc, the world's biggest shipper of thermal coal, has shelved development projects and curtailed unprofitable output globally, the Baar, Switzerland-based producer said Sept. 10. The company said in June it would reduce operations at its Ravensworth mine in New South Wales while Queensland's New Hope has cut output at its Jeebropilly mine. Yancoal Australia Ltd., a unit of China's Yanzhou Coal Mining Co., extracted less at its Stratford and Duralie mines last month, ABC News reported Sept. 17.
"Looking at current prices, you have about 30 percent of the world's production that is cash-negative," Tor Peterson, the co-head of Glencore's coal unit, said at an investor day on Sept. 10 when the fuel was at about $77 a ton. "We do have an oversupply in the market."
Shares of Glencore, which makes about 64 percent of its sales from the energy products division that includes coal, fell 0.2 percent to 335.90 pence in London this quarter. They will rebound to 377.47 pence in 12 months, according to the average of 17 analyst estimates compiled by Bloomberg.
Producers in Indonesia are also considering curbing output to boost prices, Bob Kamandanu, the chairman of the Indonesian Coal Mining Association, said in Jakarta on Oct. 8.
Supplies from outside Asia are also declining, giving buyers fewer options in the seaborne coal market. Shipments from the U.S. will slip 20 percent to 37 million tons in 2013, according to Morgan Stanley. Colombia, the fourth-largest supplier, will ship 1.3 percent less, according to the bank.
Japan will enter winter with none of its 50 nuclear reactors operating, pending safety reviews following the March 2011 Fukushima disaster. The biggest buyer of Australian coal has a 40 percent chance of lower-than-normal temperatures from December through February and the same likelihood of average levels, the Japan Meteorological Agency said Sept. 25.
Tokyo Electric Power Co., the biggest power utility by generation capacity, almost quadrupled its coal consumption in September from a year earlier after starting two units that burn the fuel, according to data on its website. Tepco, as the company is known, used 711,000 tons of coal last month, from 184,000 metric tons a year earlier.
Japan's regional utilities consumed a record amount of coal in August while cutting use of higher-priced oil, according to the Federation of Electric Power Cos.
Oil-fired power generation is the most expensive among thermal-power sources, costing 36 yen (37 cents) per kilowatt- hour, according to Japanese government estimates. The cost for nuclear power is at least 8.9 yen, while coal is at 9.5 yen and liquefied natural gas 10.7 yen.
"Toward the very end of each calendar year you typically see a restock in thermal coal markets and that's driven by the northern hemisphere winter," said Daniel Morgan, an analyst at UBS AG in Sydney. "It's possible for a modest rise in the thermal coal price, but I don't think it's going to be a huge price driving event that leads it too much higher."
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