The research division of the well-known Australian investment bank said the latest data from Port Waratah Coal Services (PWCS) in Newcastle had metallurgical coal shipments at an annualised rate of 13 million tonnes for November, the lowest rate since September 2007.

Macquarie said metallurgical coal shipments had plateaued in the past few months.

“We expect further declines as a reaction to the steel industry implosion we have been documenting,” Macquarie said.

With metallurgical coal accounting for 18.1% of PWCS shipments for the year to date, compared to 12.8% in 2006, Macquarie believes oversupply will impact the thermal coal market.

“This level of switching was already considered in our thermal coal forecasts published in November. However, the demand downside has exceeded our expectations,” Macquarie said.

“In an environment of such weak demand, the oversupply in metallurgical coal emphasises the downside risks to these forecasts.”

US marginal metallurgical coal exports were another factor at play, according to the bank.

“Following international price escalation and supply disruptions in Australia, US exports rose by 7.4 million tonnes (33.6%) through September this year, revisiting export levels not seen since the late 1990s,” Macquarie said.

Although US statistics do not discern the difference between metallurgical coals, Macquarie said estimates went up to 12Mt of marginal metallurgical coal from the nation being switchable between thermal and coking coal markets.

“A further weakness in the trade statistics is time lag. Available only up to September, US export data do not yet reflect the full impact of recent steel industry contraction,” the bank said.

“Nonetheless, reports out of the US suggest that a large volume of coal may be withdrawn from the seaborne market.”

Macquarie had further evidence of American coal demand cuts on top of the news this week that Alpha Natural Resources, which is the largest US exporter, had its current quarter deliveries slump by 500,000 standard tons because of customer deferrals.

“We understand that another major US metallurgical coal exporter has reduced production by 35 per cent, running its mines only four days a week,” the bank said.

Macquarie also observed some of the economic benefits of shifting away from metallurgical coal to thermal coal.

To begin with, American raw coal could yield 90% thermal product compared to 70% metallurgical product.

“Whereas thermal coal may be sold at the mine gate, metallurgical coal is sold free-on-board at the port. The rail rates for port delivery have recently risen to $US35 a tonne,” Macquarie said.

“An example recently given to us was for domestic thermal sales at $US50 a standard ton. The price required to bring this coal to the metallurgical market would be $US123 per metric tonne.”

News of European coal demand has not been good for the global coal sector either.

“We hear that Russian sales of coal into the European high-volume pulverised coal injection market have also collapsed as steelmakers have maximised in-house coke production at the expense of PCI and purchased merchant coke,” Macquarie said.

Taking in all the gloom, Macquarie made a new forecast.

“All these factors may mean that, in 2009, 15-20 million tonnes of supply may be withdrawn from international seaborne metallurgical coal markets, without traditional hard coking supply cuts even being considered,” the bank said.

“Of this, 5-10 million tonnes may be switched into the seaborne thermal market.”