Coal prices have risen to record heights in 2008 due to tightening export supply driven by rising domestic coal demand in countries such as China, Indonesia, Vietnam and South Africa, while ongoing transport infrastructure problems and flooding early in the year in Australia have placed further restrictions on international coal supply.

With prices for premium coking coal now reaching $US305 per tonne, ANZ has increased its forecast for 2009 from $185/t to $220/t, a 19% increase.

Hard coking coal prices have risen to $270/t, and semi-soft coking coal to $220/t in 2008, with these prices expected to fall in 2009 to $195/t and $160/t respectively. This is compared with the original forecast of $160/t for hard and $115/t for semi-soft coking coal.

PCI coal, currently valued at $240/t, is expected to drop in 2009 to $170/t, up 42% on the original forecast price of $120/t.

Meanwhile, ANZ strategists said thermal coal, which is the lowest seller, currently bringing in $125/t, will increase in 2009 to $130/t, 9% higher than the $115/t originally forecast.

ANZ said the forecast increase in thermal coal prices next year is related to an expected tightening in the thermal coal market as the high price of semi-soft coking coal means that heavily washed high calorific value thermal coal could be pulled out of the thermal market and sold on the semi-soft coking coal market.

Although in most cases coal contract prices are set to ease in 2009, ANZ said they would remain high over the next couple of years.

This is partly due to the heavy rain and floods early this year in Queensland's Bowen Basin, which contains around 55% of traded metallurgical coal.

ANZ estimated that the severe weather caused the loss of 15 million tonnes of metallurgical coal, which will not be regained since port and rail facilities normally run at full capacity, and cannot take extra tonnage.

Another key factor behind continuing high prices is the drop in exports from major coal producing countries.

ANZ's analysts predicted that over the three years to 2010 China's coal exports will fall 40% from 32Mt and Vietnam's exports will fall 69% to 10Mt, while Indonesia's coal exports will climb 10% to 200Mt.

Coal transport infrastructure issues in Australia will continue to affect the country's ability to export coal until after 2010, with the third stage (10Mt) expansion of Newcastle's Kooragang port terminal due for completion in late 2009 and commissioning of the new 30Mt Newcastle Infrastructure Group terminal pushed out to the second half of 2010.