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

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

Mr Richardson said that coal prices hit records last year after widespread flooding in Queensland and New South Wales crimped output at mines and disrupted train lines. Prices have dropped as supply returned to normal and demand in Japan was slow to recover following last year’s tsunami and earthquake.

He said that demand growth in China has slowed as steelmakers have been unable to pass on increased production costs.

Morgan Stanley forecasts coking coal, used to make steel, to trade at an average spot price of USD 210 to USD 235 a metric tonne during 2012 and thermal coal in a range of USD 110 to USD 120 a tonne. Coking coal prices reached a record USD 330 a tonne last year.

IHS McCloskey data show that thermal coal prices at the Australian port of Newcastle slipped 12% to USD 111.35 in 2011, the biggest annual drop since 2005 and the first since 2011. Mr Bill Champion of Rio Tinto Group’s managing director for its Australian coal unit said that the outlook for the coal market may have become slightly pessimistic in the short term. He added that “In the long term, the China and India demand growth story remains intact.”

(Sourced from Bloomberg)