Physical coal prices will strengthen on strong Asian demand and supply bottlenecks that could lead to a much steeper price rise.
Twenty analysts and industry players polled by Reuters in January forecast modest price gains for the three main benchmarks – thermal coal delivered into Europe and free on board South African and Australian ports.
The median forecast for coal delivered Amsterdam-Rotterdam-Antwerp (DES ARA) in 2010 was $90 per tonne. For South Africa's Richards Bay the forecast was $85 per tonne fob while for Australia's Newcastle the median view was $89 per tonne fob. Yesterday the spot price DES ARA was $78 per tonne, Richards Bay coal was at $80-$86 and Newcastle was at $90.
The strength of a 2010 price rise depends almost entirely on China.
"Despite coal being one of worst performing commodities in 2009, prices are set to increase strongly," said Amrita Sen, analyst with Barclays Capital in London.
"China remains the key to our global balances and with the expectation of a slow but steady recovery in Europe, the supply bottlenecks that plagued the coal market in early 2008 could well re-emerge this year," she said.
Prices rose by about 30% between November and late January, largely due to China's huge appetite for coal.
Supply bottlenecks on key railway lines in Russia and South Africa and at ports in Australia will mean more hot spots will develop, particularly in Asia, where strong demand and limited supply due to logistical limits will draw coal from further afield.
Logistical constraints could boost coal prices by 15%-20%, said Ms Sen.
Predicted strong growth in Asia and a slower recovery in Europe and the US look supportive for coal, analyst said.
Global thermal coal seaborne trade is about 640m tonnes a year, split between 400m within the Pacific region and 240m in the Atlantic.
Coal demand in Asia will continue to outstrip slowly shrinking European demand as Southeast Asia and East Asia ramp up coal-fired power generation.
Strong Pacific prices will continue to support European prices to a certain extent.
China became a net importer in 2009 and it is likely to continue to draw coal from the Atlantic basin, analysts said.
The country imported over 50m tonnes of thermal coal in 2009 and this alone prevented a global coal price slump.